3.1 TRADE DISCOUNT AND CASH DISCOUNT
TRADE DISCOUNT





List Price
 The price that offered before trade discount.
Net Price
 The price that the retailers pay after reduction in prices.
Trade Discount
 The difference between the list price and the net price.
 It must be calculated on the list price.
 It must be based on the cost of goods, excluding any other costs.
Trade Discount Rate
 A manufacturer normally quotes a discount rate in percentage to the retailer.
Formula:
Amount of Trade Discount  List Pr ice  Trade Discount Rate
TD 
LP  d
Trade Discount  List Pr ice  Net Pr ice

TD
LP

NP
 List Pr ice-Trade Discount
Net Pr ice
NP

NP

LP
-
LP 1-d 
LPd
LP - List Price (in RM)
NP - Net Price (in RM)
d - Trade Discount Rate (in %)
Example 1:
Exercise 1:
The list price of a digital camera is RM1,200. A
trade discount of 20% is offered. What is the net
price of the camera?
Nadia want to buy a pair of shoe listed at RM215.
The shop offers a discount of 25% on the shoes it
sells. What is the net price of the shoe she wants to
buy?
TD  LPxd
NP  LP  TD
 1,200 x 0.2
 1,200  240
 RM 240
 RM 960
or
NP  LP (1  d )
 1,200 (1  0.2)
 RM 960
1
Example 2:
Exercise 2:
The list price of a watch is RM100. A trader bought
10 of these watches with trade discount of X%. If
the trade discount obtained was RM296, find the
value of X.
Izzat Electrics sold a refrigerator at RM3000 list
price and offered discount of X%. Find X if the
trade discount obtained was RM900.
TD  LPxd
296  100 x10 xd
d  0.296 x100 %
 29 .6%  X
Example 3:
Exercise 3:
Atlas Sdn. Bhd. received an invoice of RM20,000
including the transportation charge of RM250 for
purchase of 20 units of computer. If the trade
discount offered was 15%, find the net price for
each computer.
A bill of RM1,500 including a prepaid handling
charge of RM 20, is offered a trade discount of
12%. What is the net price?
NP  LP (1  d )  OC
 2,000  50(1  0.15)  50
 RM 1,707.50
CHAIN DISCOUNT


Multiple discounts are offered to the retailers on the same goods by the manufactures or wholesalers.
Each discount rate is calculated on the successive net amount.

two discount rates d1 % and d 2 %


NP  LP1  d1 1  d 2 

the net price for a chain discount (for an item listed at L ringgit less

d1 % and d 2 % )
three discount rates d1 % , d 2 % and d 3 % 
NP  LP 1  d1 1  d 2 1  d 3 

the net price for a chain discount (for an item listed at L ringgit less
and d 3 % )
2
d1 % , d 2 %
Example 1:
Exercise 1:
Find the net price and the total discount of an item
after trade discount of 12% and 8.5% if the list
price is RM25,860.58.
Find the net price and the total discount for a
motorcycle that listed at RM5000 less 15% and
25%.
NP  LP (1  d 1 )(1  d 2 )
 25,860 .58(1  0.12 )1  0.085 
 RM 20,822 .94
TD  LP  NP
 25,860 .58  20,822 .94
 RM 5,037 .64
Example 2:
Exercise 2:
The list price of a computer is RM1,000. A trader
bought 10 unit of computer with trade discount of
20% and X%. If the trade discount obtained was
RM2,960, find the value of X.
Izzat Electrics sold a refrigerator at RM8,000 list
price and offered chain discount of 20% and X%. If
the trade discount offered was RM3,392, find the
value of X.
NP  LP  TD
 10,000  2,960
 RM 7,040
NP  LP (1  d 1 )(1  d 2 )
7,040  10,000 (1  0.20 )1  X 
X  0.12 x100 %
 12 %
SINGLE DISCOUNT EQUIVALENT TO CHAIN DISCOUNT
d1 % and d 2 % in the chain discount
d  1  1  d 1 1  d 2 

two discount rates

three discount rates d1 % , d 2 % and d 3 %  in the chain discount
d  1  1  d 1 1  d 2 1  d 3 
3
Example 1:
Exercise 1:
A machine is advertised at RM10,599 less 15%
and 8.25%. Find the,
A vehicle is advertised at RM150,699 less 12%,
10% and 7%. Find the,
i) single discount equivalent
i) single discount equivalent
d  1  (1  d 1 )(1  d 2 )
 1  (1  0.15 )(1  0.0825 )
 0.2201 x100 %
 22 .01 %
ii) net price
ii) net price
NP  LP (1  d )
 10,599 (1  0.2201)
 RM 8,266 .16
CASH DISCOUNT





Wholesalers, manufactures and even retailers offer reductions on the amount due to the customers
who pay their bills within a specified time period.
To encourage prompt payment of bills.
The credit terms which comprise the cash discount rate and the cash discount term (or credit term)
are usually shown in the invoice.
If the bill is settled within the specified period, the buyer needs only to pay the net amount after
deducting the cash discount from the amount in the invoice.
Example: Cash Discount term / Ordinary Dating
(i) net 30 or n/30
 no cash discount offered and payment must be made within 30 days of the invoice
date.
(ii) 3/10, net 20
 supplier offer 3% discount if the invoice is paid within 10 days or the full amount
must be paid in 20 days.
(iii) 2/10, 1/30, n/60
 supplier offer 2% discount if the invoice is paid within 10 days of the date of
invoice, 1% discount offered or deducted if the invoice is paid within 11th to 30th day
or full amount must be paid in 60 days. After 60th day, the bill is overdue.
4
FORMULA

Trade Discount and Cash Discount offered
Trade Discount  List Pr ice  Trade Discount Rate
 LP  d t
Net Pr ice
 List Pr ice-Trade Discount
 LP-LPd t
NP
 LP 1-d t 
NP
Cash Discount  Net Pr ice  Cash Discount Rate
 NP  d c
Net Payment
 List Pr ice  Trade Discount  Cash Discount
 LP  TD  CD
@
Net Paymen t  List Pr ice-Trade Discount-C ash Discou nt
 Net Pr ice-Cash D iscount
 NP - NPd c
 NP 1-d c 
 LP(1 - d t )( 1-d c 

If no Trade Discount offered (just Cash Discount offered)

If no Cash Discount offered (just Trade Discount offered)
NP  LP
Net Paymen t  NP

If involve other cost (e.g.: transportation cost, insurance)
Payment  Net Payment  Other Cost
 LP  TD  CD  OC
 LP (1  d t )(1  d c )  OC
LPnew  LP  Other Cost
5
Example 1:
Exercise 1:
Explain the following cash discount terms:
Explain the following cash discount terms:
i) 3/10, 1/30, n/60
i) 2/10, 1/20, n/60
This term means 3% of the net price may be
deducted if the invoice is paid within 10 days of
the date of the invoice, 1% may be deducted if
the invoice is paid between 11th to 30th day, and
the full amount must be paid by the 60th day.
After the 60th day, the bill is overdue.
ii) net 20
ii) net 30
Net 20 means payment is due within 20 days of
the invoice date
Example 2:
Exercise 2:
A
retailer
received
an
invoice
of
RM3,600(including transportation cost of
RM100), dated 3rd January 2016 with cash
discount terms of 8/6, 5/15, n/30. If the invoice
is paid on 10th January 2016, find the,
CD  NPxd c
Sally and her friends would like to setup a new
business. They bought 100 pair of ladies shoes
from a manufacturer and received an invoice dated
15 February 2010 for RM6,000 (including
transportation cost of RM500 and insurance policy
of RM150). The cash discount terms were 6/10,
2/15, n/25. If the invoice was paid on 2 March 2010,
find the,
 (LP (1  d t )) x 005
i) cash discount
i) cash discount
 ((3,600  1,000 )(1  0)) x 0.05
 3,500 x 0.05
 RM175
ii) payment
ii)
Payment  LP (1  d t )(1  d c )  OC
 3,500 (1  0)(1  0.05 )  100
 RM 3,425
6
Example 3:
Exercise 3:
A RM 25000 invoice (including transportation
cost of RM1000) dated 15th January 2003 had
trade discount of 20%, 15%, 10% and cash
discount terms of 4/10, 2/20, n/30. If the
payment was settled two weeks from the date of
invoice, find:
On 12 July 2014, an electrical company bought 10
units of air conditioners at the listed price of
RM1,500 per unit. The transportation and insurance
charges were RM250. The company was given
series of trade discounts of 15% and 10% and was
offered cash discount terms 4/15, 2/30, n/45. If
payment is made on 15 July 2014.
i) The single discount equivalent to the above
trade discount
d  1  (1  d 1 )(1  d 2 )(1  d 3 )
i) The single discount equivalent to the above trade
discount
 1  (1  0.2)(1  0.15 )(1  0.1)
 0.388 x100 %
 38 .8%
ii) The amount of trade discount
ii) The amount of trade discount
TD  LPxd t
 (25,000  1,000 )x 0.388
 RM 9,312
ii) The amount of cash discount
NP  LP  TD
iii) The amount of cash discount
CD  NPxd c
 24,000  9,312
 14,688 x 0.02
 RM14,688
 RM 2,93 .76
iii) The amount of net payment
NetPayment  LP  TD  CD
iii) The amount of net payment
 24,000  9,312  2,93.76
 RM 14,394.24
Or
Or
NetPayment  LP (1  d t )(1  d c )
 24,000(1  0.388)(1  0.02)
 RM 14,394.24
iii) The amount of payment
iii) The amount of payment
Payment  NetPayment  OC
 14,394 .24  1,000
 RM15,394 .24
7
Example 3:
Exercise 3:
Atlas Sdn. Bhd. received an invoice including
the transportation charge dated 25 June 2016
for purchase of a machine. The transportation
cost was RM500 and the net price after trade
discount of 10% and 8% was RM30,500. The
cash discount terms were 5/10, 2/20, n/30.
Calculate the:
On 18 February 2018, Zamri received an invoice for
the purchase of a laptop. The net price after trade
discount of 15% and 8.25% was RM4,500. The
transportation charge was RM50. The cash
discount terms were 5.5/10, 3/15, n/30 . Calculate
the:
i) list price
i) list price
NP  LP (1  d 1 )(1  d 2 )
30,500  LP (1  0.1)(1  0.08 )
LP  36,835 .75
ii) trade discount
ii) trade discount
TD  LP  NP
 36,835 .75  30,500
 RM 6,335 .75
iii) payment if the invoice is paid on 4th July
2016
iii) payment if the invoice is paid on 4th March 2018.
Payment  LP (1  d 1 )(1  d 2 )(1  d c )  OC
 36,835 .75(1  0.1)(1  0.08 )(1  0.05 )  500
 RM 29,475
8