Accountancy Mathematics- Trade Discount

August 12th, 2006 Comments off
Share |

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 –Trade discount

or alternatively

Net price(NP) =List price(LP) –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 – 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

 

Comments are closed now.

Financial Accounting

 
 

Advertise Here | Brain Teasers/Puzzles | Greeting Cards | Inspirational Quotes | Jokes/Humor | Useful Links | Motivational Stories | Resource | Shopping | Share/Express Your Views | Testimonials | Universities/Colleges | Words of Wisdom from Religions | FREE POSTING OF ACCOUNTING & FINANCE JOBS VACANCY|