# Accountancy Mathematics- Trade Discount

August 12th, 2006 Comments off

In my earlier accounting article, I have mentioned about trade discount, cash discount, mark-up and down.

This article discussed the accountancy mathematic applied for trade discount:

 Basics: (a) Trade Discount = List Price less Net Price (b) Amount of trade discount = List price x trade discount rate ILLUSTRATION 1 The list price of a pen is \$200. A trade discount of 40% is offered. What is the net price of the belt? Solution: List price =\$200 Trade discount = 40% x\$200 = \$80 Net price= List price less Trade discount = \$200-\$80 = \$120 How to find Net Price? ILLUSTRATION 2 All shirts is given a 30% discount. What is the net price of a shirt that is listed at \$400? Solution: Trade discount=List price-Net price Net price= List price â€“Trade discount or alternatively Net price(NP) =List price(LP) â€“Trade discount( r ) NP= LP-LPr = LP(1-r) List price=\$400 Trade discount =30% x \$400 = \$120 Net price =List price-Trade discount = \$400 -\$120 =\$280 ILLUSTRATION 3 The net price of a camera with a 30% trade discount is \$500. What is the list price? Solution: Trade discount = List price â€“ Net price Let the list price \$X. Hence Trade discount = 0.3X \$500 = X-0.3X \$500 = 0.7X X=\$500/0.7 =\$714.29 More Complex Illustration: Shop A sells an item for \$100 less 20% which Shop B sells the same item for \$130 less 50%. (a) Find the net prices of the items for the two shops? (b) What further discount % must be offered by the shop that sells at a higher net price in order to meet the competitor’s price? Solution: [ Net price(NP) =List price(LP) less Trade discount( r ) NP = LP-LPr = LP(1-r) ] (a) Net price: Shop A=Net price =\$100 (1-20%) =\$80 Shop B=Net price =\$130 (1-50%) =\$65 (b) Shop A sells at a higher net price. Let the additional discount % be r% 65 = 80(1-r) R= 35% Therefore, Shop B should offer an additional 15% to meet Shop A’s price

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