Early Settlement Discounts

gracieo
Registered Posts: 1
I'm doing level 3 AAT and cannot get my head round this question. I understand part a and b, but its the settlement discounts in part 3 that have confused me.
I have attached the questions with the answers that my teacher has provided.
For example, Lysander Ltd has paid £2345.85 and have taken the 2.5% discount
So the gross amount without the discount is 1.025 x £2345.85 = £2404.50
After Discount
Gross - £2345.85
VAT - £390.97
Net - £1954.88
Before Discount
Gross - £2404.50
VAT - £400.75
Net - £2003.75
I make the figures to be entered into the discounts allowed daybook to be:
Gross - £58.65
VAT - £9.78
Net - £48.87
I must be doing something wrong but I can't see what. Would appreciate it if someone could explain how you get to the correct answers.
Thank you!!
Grace
I have attached the questions with the answers that my teacher has provided.
For example, Lysander Ltd has paid £2345.85 and have taken the 2.5% discount
So the gross amount without the discount is 1.025 x £2345.85 = £2404.50
After Discount
Gross - £2345.85
VAT - £390.97
Net - £1954.88
Before Discount
Gross - £2404.50
VAT - £400.75
Net - £2003.75
I make the figures to be entered into the discounts allowed daybook to be:
Gross - £58.65
VAT - £9.78
Net - £48.87
I must be doing something wrong but I can't see what. Would appreciate it if someone could explain how you get to the correct answers.
Thank you!!
Grace
0
Best Answer
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Hi Grace,
The reason for the different answer is you have multiplied the amount paid by 1.025 instead of dividing it by 0.975.
For example,
Gross x Discounted amount (0.975) = Amount to pay (£2345.85).
Altering equation to find gross pay:
Gross = Amount to pay divided by Discounted amount
Hope this helps
6