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settlement discount

jeanneldnjeanneldn Just JoinedRegistered Posts: 2
Hi everybody,

My exam is in 5 days and I feel unsure about the settlement discount when customer has paid within the period . EG
INVOICE with 2% settlement discount if paid within 7 days
net: 200
10% trade discount: 20
net 180
Vat 30.87 (180*2%=3.6 180-3.6*%7.5% 176.74*)
Total 210.87

and now I have two versions from two different teachers
if the customer pays within 2 days: 210.87*0.02=206.66
or 176.74+30.87 = 207.27

Please help me

Thank you in advance for your help
.

Comments

  • CullenCullen Experienced Mentor Registered Posts: 592
    I agree with your figures, £210.87.
    Stick with what you are doing it looks good to me.
  • GianniGianni Feels At Home Registered Posts: 99
    Hi

    If I work through:

    Net = £200
    10% Trade Discount = £20
    After Discount Net = £180

    VAT = £30.87

    Calc: (180*0.98) * 0.175

    Total = £210.87

    Your answer is right.
  • LondonMattLondonMatt Experienced Mentor Registered Posts: 1,110
    Surely you have already accounted for the settlement discount when you get £176.4, when you add the VAT 30.87, the total - 207.27- is the dicounted total, so no need to deduct the discount again?

    Your teacher is correct
  • jeanneldnjeanneldn Just Joined Registered Posts: 2
    the problem is
    1st teacher told me the answer was

    210.87*2%=4.22 210.87- 4.22= 206.65 ( she said That was the answer)


    2nd teacher a few days later:
    176.40+30.87= 207.27 ( He said he was right the other teacher was wrong)

    What should I answer to have the point at the aat level 2 exam?

    Thank you for all your help
  • LondonMattLondonMatt Experienced Mentor Registered Posts: 1,110
    Bloody hell, I thought I had this cracked before I read the other replies :(

    Isn't this the answer if the discount IS taken:

    180*0.98 = 176.4
    176.4*0.175 = 30.87

    176.4 + 30.87 = 207.27


    ?????????????????
  • NichNich Feels At Home Registered Posts: 49
    I agree with Matt, i get £207.27

    200*0.10 = 20

    180*0.02 = 3.60

    200-20-3.60=176.40

    176.40+ 30.87= £207.27 ???
  • CullenCullen Experienced Mentor Registered Posts: 592
    I think there may be confusion between what is on the invoice:
    200-20=180
    180 * 2% = 3.6.
    180 -3.6 = 176.40 *17.5% = 30.87
    Invoice total is 180 + 30.87 =210.87

    and what customer actually pays:
    210.87 less discount 3.6 = 207.27 but only if he pays within 7 days.
  • LondonMattLondonMatt Experienced Mentor Registered Posts: 1,110
    jeanneldn wrote: »
    and now I have two versions from two different teachers
    if the customer pays within 2 days: 210.87*0.02=206.66
    or 176.74+30.87 = 207.27
    .

    If you want to know what goes on the bottom of the invoice the answer will be £210.87 - like Cullen said - regardless of when the customer pays and weather or not he gets the settlement discount.

    if he takes the discount, he'll pay only 207.27
  • rjww85rjww85 Settling In Nicely Registered Posts: 20
    Correct all discounts are calculated before VAT is added, So the VAT should only be calculated on the Net price less 10% trade discount; ie £180 then you calculate the 2% early settlement dicount i.e £3.60 VAT is then calculated on the final net figure of £176.40.

    The reason for settlement discounts being calculated before VAT is added is because it is assumed that the customer will always take the settlement discount.
  • JillJill Just Joined Registered Posts: 1
    Settlement Discount

    Hi

    I agree with Matt and Nich - the answer is £207.27

    Vat is always calculated on the discounted amount so you need to take the trade and settlement discounts off before calculating VAT and adding.
  • jeannejeanne Just Joined Registered Posts: 1
    thank you very much everybody I feel more confident now !!!!!!
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