settlement discount

jeanneldn

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
.

Cullen

I agree with your figures, £210.87.
Stick with what you are doing it looks good to me.

Gianni

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.

LondonMatt

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

jeanneldn

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

LondonMatt

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


?????????????????

Nich

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 ???

Cullen

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.

LondonMatt

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

rjww85

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.

Jill

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.

jeanne

thank you very much everybody I feel more confident now !!!!!!