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Confusion over vat/settlement discount test question -

So I've got a level 3 indirect tax exam tomorrow and thought I'd google for some practice papers (seeing as the MyAAT website doesn't work for me and I get logged out every time I try to access any study resources.) and I've stumbled across a set of questions that I'm pretty sure the people who made the practice exam got the answers wrong to.

Shouldn't the answer to "A" be £531.90 and the answer to "B" be £1999.20?
Isn't the method in this instance:
£500 x 10% = £50
£500 - £50 = £450
£450 x 1.5% = £6.75
£450 - £6.75 = £443.25
£443.25 x 1.2 = £531.90 for your gross amount with VAT

They've done:
£500 x 10% = £50
£500 - £50 = £450
£450 x 1.2 = £540 (so £90 of that is VAT)
£90 x 1.5% = £1.35
£540 - £1.35 = 538.65

I don't understand why they're applying the settlement discount only to the original VAT amount when I'm pretty sure its meant to be applied to the original net amount after you trader discounted it.

Am I right or are they right?
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