trade discounts and batch discounts and reduced discounts.

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:24AM in AAT student discussion
can anyone help me by telling me what all the different types of discounts are. it came up in the june 2004 or june 2005 in section 2 of the exam.i was a bit stuck. could anyone help me out?

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:trade discounts and batch discounts and reduced discounts.

    Here are my notes:

    Covering Settlement Discount (also called Cash Discount)

    To encourage early payment
    1. debtors (for Sales)
    2. and for You! (as the Creditor's debtor) (for Purchases).

    Has a deadline eg Net 30 days.

    Basics
    http://forums.aat.org.uk/forums/posts/list/13695.page
    Discussion
    http://forums.aat.org.uk/forums/posts/list/13490.page
    http://forums.aat.org.uk/forums/posts/list/13663.page#68964

    Discount Allowed for Sales
    Discount Received for Purchases

    Trade Discounts

    Between companies (usually same 'trade', hence name) - one business buying from another.

    To encourage further trade.

    Calculate discount as % of goods total.
    This becomes your 'Net'
    Then, calculate Vat on Net
    Add, giving the Gross value.

    Customer Discount

    Usually Retail type business...

    To encourage further trade for retail customers.

    Calculated in same way as Trade Discount.

    Bulk Discounts

    Discount for either:
    1. buying more than a certain number of items
    or
    2. the total for goods is greater than a certain £value.

    Move surplus stock... (might not be selling very well...)

    Calculated as for Trade Discount.

    NB

    Only the Settlement Discount shows up in your accounts. The others only show up on your invoice to produce your 'Net' value.

    Three of them could be used for same invoice. - Would not expect to have both Trade and Customer, at same time.

    They have a cumulative effect, ie you could have 10% discount for each, but because you are treating the value produced from previous calculation, the actual value of each discount (in £) decreases.

    Settlement Discount is then calculated last, if exists on invoice.
    Then work out your Vat.

    eg 100 items sold at £10 each (Sales)

    Total = £1000

    Trade Discount 10% (or Customer Discount)
    Bulk Discount 10%
    Settlement Discount 10% (Discount Allowed in this case...)

    1000 * 0.9 = £900 (ie -100)
    900 * 0.9 = £810 (ie -90)
    810 * 0.9 = £729 (ie -81)
    (Discount Allowed = 810 - 729 = £81)

    Vat on £729 = £127.57

    Gross = £810 + £127.57 = £937.57
    Discount Allowed = £81

    Post to accounts.

    Gross £937.57
    Net £810
    Vat £127.57
    ('Hidden' value £729!)

    Payment £856.57
    Discount Allowed £81

    and so on.

    This is theoretical. In reality, you may have different % values!!!

    Any further questions, ask and someone will respond.


    There is a Revision Summary for Double-Entry at
    http://forums.aat.org.uk/forums/posts/list/13648.page

    General Document Listing
    http://forums.aat.org.uk/forums/posts/list/15/5678.page#67424

    Foundation-level notes on Discounts are also available here
    http://www.cjcnet.net/wiki/tiki-index.php?page_ref_id=4

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