Calculation of Settlement Discount

I would like clarification on the treatment of VAT in respect of settlement discounts.
Has anyone had difficulty in arriving at the correct answer to the following question within the June 2008 Exam Paper, Section 2 - Task 2.19?
Has anyone had difficulty in arriving at the correct answer to the following question within the June 2008 Exam Paper, Section 2 - Task 2.19?
Comments
Whats the question?
If the customer then settles the invoice within the payment terms the discounted settlement amount is applied to the total value of the invoice, however, if the customer decides he does not wish to pay within terms then the answer shows that the customer would pay the total value of the invoice (in which the settlement discount has already been applied).
I'm having difficulty in understanding the mechanics of this as it would appear that the customer is benefiting from the settlement discount by not paying within payment terms. Can anybody help?
Question is :
For the supply of superior white card 1,000.00
Trade discount 20% 200.00
_______
Net amount 800.00
VAT at 17.5% 133.00
_______
Total 933.00
_______
Terms: 5% discount for payment within 10 days
If the customer then settles the invoice within the payment terms the discounted settlement amount is applied to the total value of the invoice,
The settlement discount is applied to the Net total, not the total value of the invoice.
however, if the customer decides he does not wish to pay within terms then the answer shows that the customer would pay the total value of the invoice (in which the settlement discount has already been applied).
If the customer does not settle within the terms then they are not entitled to the discount - the only 'discount' that has been applied is the reduction of the VAT due.
Does this help?
Cheers,
Dave
/Edit
Just to clarify, the settlement discount has not been applied to the net total by the supplier. It's up to the customer to determine the settlement discount and then apply it themselves. The VAT always remains the same