Early Settlement Discounts

gracieo

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

Iwls

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