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

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