Lesson 3: Trade Discounts

Trade discount
- A discount on the retail price of something
allowed or agreed between traders or to a
retailer by a wholesaler.

- Reduction from the list price

 Trade discount

Trade Discount
- A discount on the retail price of something
allowed or agreed between traders or to a
retailer by a wholesaler.
 Trade discount
Trade Discount can be:

1. Single Trade Discount- is a type of discount given to

purchases on a one-off basis.

Example: A seller of automotive parts might offer an

automotive parts retailer a 20 percent discount.

Formula: P= BR
 Trade discount
Trade Discount can be:

2. Series of Discounts or Discount Series or Chain Discount

- type of discount in which several discounts are given to a
purchaser at different times and dependent on the occurrence of
different conditions.

Example:
a 10/6/4 discount series means that the item is offered for sale
first at a 10 percent discount, then 6 percent, and then 4 percent.
Vendors offer such multiple discounts in an effort to increase sales.
Sample problems for Single Trade Discounts

1. Compute the discount for an item with a list

price of PhP1,250.00 subject to a 15% discount.
What is its net invoice price?
Given: List Price= PhP1,250.00
Discount Rate= 15%
Find: a. Discount b. Net Invoice Price
Solution:
a. P= BR
Solution:
a. P= BR
Discount = PhP1,250.00 x 15%
= PhP187.50
b. Net Invoice Price = List Price- Discount
= PhP1,250.00 – PhP187.50
= PhP1,062.50
 Finding the Net Invoice Price Rate

Net Invoice Price (NIP) Rate = 100% - Discount Rate

= 100% - 15%
= 85%
 Another way of computing for the net invoice
price and discount:

Net Invoice Price= List Price x NIP rate

= PhP1,250.00 x 85%
= PhP1,062.50

Discount = List Price – Net Invoice Price

= PhP1,250.00 – PhP1,062.50
= PhP187.50
Sample problems for Series of Discounts

Compute for the discount and the net invoice

price if an item listed at PhP1,250.00 is given a
10% and 5% discount.
Given: List Price = PhP1,250.00
Discount Rates = 10% and 5%
Find : a. Discount
b. Net invoice price
 Method 1
Steps:
1. Multiply the list price by the first discount
rate.
2. To get the second discount, multiply the
difference between the list price and the first
discount and the second rate.
3. Deduct the second discount from the said
difference to get the net invoice price
 Method 1
Solution:

List Price………………………………………..P1,250.00
Less 10% (PhP 1,250.00 x 10%......... 125.00
Difference……………………………………P 1,125.00
Less 5% (P 1, 125 x 5%)……………………. 56.25
Net Invoice Price…………………………….P1,068.75
To get the discount:

Total Discount = PhP125.00 + PhP56.25

PhP181.25
 Method 2
Steps:
1. Deduct the first discount rate from 100% and
multiply the list price by the rate obtained.
Multiply the list price by the first balance rate
obtained in step (1).
2. Deduct the second discount rate from 100%
and multiply the first balance obtained in (1)
by the second balance rate obtained.
Solution:
Method 2
(1)100%- 10% = 90%

List Price………………….PhP1,250.00
X 90%
First Balance……….......PhP1,125.00

(2) 100%- 5% = 95%

First Balance………………….PhP1,125.00
Second Balance rate……. X 95%
Ne Invoice Price……………PhP1,068.75
 Method 2
To get the discount:

Discount= List Price – Net Invoice Price

= P1,250.00 – P1,068.75
= P181.25
 Method 3
Steps:
1. Deduct the series of discounts individually from 100%
2. Multiply the resulting products by themselves to give
us the net invoice price rate.
3. Deduct this NIP rate from 100% to get the single
equivalent discount rate.
 Method 3
Solution:
(1) a. 100%- 10% = 90%
b. 100%- 5% = 95%

(2) a x b = 90% x 95% = 85.5% (NIP Rate)

(3) 100% -85.5% =14.5% (Single Equivalent Rate)

 Method 3
To get the discount:

Discount= List Price x Single equivalent discount rate

= PhP1,250.00 X 14.5%
= PhP181.25

To get the net invoice price:

Net invoice price= List price – Discount

= PhP1,250.00 – PhP181.25
= PhP1,068.75