Business Math 11 – Business Mathematics

Discount:
Trade Discount
Cash Discount
 I. Trade Discounts

• List price or catalog price – the suggested price to

charge the ultimate consumer.

• Trade discounts – the discount given by the seller to

the intermediate or trade buyers (wholesalers/retailers)
usually stated as a percent rate

- not a true discount but is an adjustment of the price

 Formula:
Discount Amount = List Price x Discount Rate

• Net Cost Price = the price that the buyer pays for the
item
Net cost price = List Price – Discount Amount

Types of Discounts:
• Single Discounts – (ex. 10%)
• Chain Discounts – (ex. 10%, 15%, 25%)
Chain Discount
• Chain Discount – Trade discount in series of two
or more successive discounts

- have the advantage of appearing to be greater than

a single discount
- emphasizing to the buyer the fact that he/she
receives more than one discount
 Problem-Solving: Chain Discount
The list price of a mini-component is P15,000. The chain
discount is 20/15/10. Compute the net price.
A. Long Process/Method:
Step 1 Step 2 Step 3 Step 4

15,000 15,000 12,000 10,200

x 20% - 3,000 - 1,800 - 1,020
P3,000 P12,000 P10,200 P 9,180
x 15% x 10%
P 1,800 P 1,020
B. Single equivalent method: multiply the complements of the discount
rates and subtract the result from 100%
Net cost price = list price x complement of each discount

Subtract each chain discount rate from

100% and convert each to a decimal
• 100% - 20% = 80% or 0.8
• 100% - 15% = 85% or 0.85
• 100% - 10% = 90% or 0.9

Multiply the decimals. DO NOT round off

decimals.
• .8 x .85 x .9 = .612

Multiply the list price by the net price

equivalent rate (step 2)
• 15,000 x .612 = P9,180
Problem-Solving: Single Trade Discount
• Compute for the ff.:

• What is the trade discount if a) the list price is PhP80,000

and the discount rate is 20%, b) the list price is PhP100,000
and the discount rate is 15%?

• A refrigerator with a list price of PhP40,000 is offered to

wholesalers at a 25% trade discount. What is the cost to
wholesalers?

• A television lists for PHP25,000 with a trade discount of

12.5%. If the delivery charge is PhP500.00, what is the net
amount of the bill?
Problem Solving: Chain Discount
1. The list price of the office equipment is P20,000. The chain
discount is 25/20/15. Compute the net price using the long
process and the single equivalent method.

2. What is the total trade discount and the net cost price using
the single equivalent method for:

a. a list price of PhP50,000 and discounts of 10%, 5%, and 5%?

b. a list price of PhP30,000 and discounts of 10 ¼%, 5 ½%, and
2%?
c. R. James ordered 4 digital watches which lists at PhP15,000
each, less discounts of 10% and 5%. What is the total cost if a
PhP600 shipping charge was added to the invoice? Use FOB
Shipping Point.
Cash Discount
• Offered to encourage buyers to pay their bills
quickly.

• Applied to bills within a specified period of time.

• Trade discount should be taken before cash

discount.

• The leap year occurs every four years. Last leap year
were 2012.
Cash Discount
Number of Days in a year

Month No. of Days Month No. of Days

January 31 July 31

February 28 August 31

March 31 September 30

April 30 October 31

May 31 November 30

June 30 December 31
Cash Discount
Example
P 4,000 invoice dated July 5: terms 2/10, n/30;

July 5 July 15 August 4

Discount Period CANNOT take the discount End of

Credit
Period

Net price: 4,000 x 0.98 = 3,920 Net price: 4,000

Cash Discount
• Exercise – Complete the following table below:

Date of invoice Terms Last Day on End of Credit

which Discount Period
can be Taken
July 6 2/10, n/30

February 19 1/15, n/45

May 9 2/10, n/60

May 12 5/30, n/90

Cash Discount
• Exercise – Complete the following table below:

Date of invoice Terms Last Day on End of Credit

which Discount Period
can be Taken
July 6 2/10, n/30 July 16 August 5

February 19 1/15, n/45 March 6 April 5

May 9 2/10, n/60 May 19 July 8

May 12 5/30, n/90 Jun 11 August 10

Cash Discount
Common Credit Terms offered by Sellers:

Ordinary Dating • Itinvoice

gives buyer a cash discount period that begins with the
date

Receipt of
Goods • The cash discount period begins when buyer receives
goods.
(ROG)

• The discount period begins after the end of the month of

End of Month the invoice date. Reckoning point, every 25th of the month.
(1-25 = immediately the 1st day of the succeeding month;
(EOM) 26-30/31 = starts on the 1st day of the next month after
the first month)
Cash Discount
Example (Ordinary)
P 20,000 invoice dated July 5: terms 2/10, n/30; paid on
July 11.

July 5 July 15 August 4

Discount Period CANNOT take the discount End of

Credit
Period
Cash Discount
Example (Receipt of Goods)
P 20,000 invoice dated July 5: terms 2/10, n/30 ROG;
the goods were received by buyer on July 10. paid on
July 19.
July 5 July 10 July 20 August 9

End of
Discount Period CANNOT take the discount Credit
Period
Date of Date of
Invoice Receipt
of Goods
Cash Discount
Example (End of the Month, dated 1-25)
P 20,000 invoice dated July 5: terms 2/10, n/30 EOM;
the goods were received by buyer on July 10.

July 5 July 31 August 10 August 30

End of
Discount Period CANNOT take the discount Credit
Period
Date of
Invoice
Cash Discount
Example (End of the Month, dated 26-30/31)
P 20,000 invoice dated July 26: terms 2/10, n/30 EOM;
the goods were received by buyer on July 10.

July 26 July 31 August 31 Sept. 10 Sept. 30

1 month
gap End of
Date of End of Discount CANNOT take the Credit
Invoice Month Period discount Period
Cash Discount
• Exercise – Complete the following table below:
Date of Receipt of Terms Last Day on End of
invoice Goods which Credit
Discount can Period
be Taken
July 20 July 25 2/10, n/30

February 11 Feb 25 1/15, n/45

ROG
May 9 May 9 2/10, n/30
EOM
Sept 26 Sept 30 5/10, n/30
EOM
Cash Discount
• Exercise – Complete the following table below:

Date of Receipt of Terms Last Day of End of

invoice Goods Discount Credit
Period Period
July 20 July 25 2/10, n/30 July 30 August 19

February 11 Feb 25 1/15, n/45 March 12 April 11

ROG
May 9 May 9 2/10, n/30 June 10 June 30
EOM
Sept 26 Sept 30 5/10, n/30 Nov. 10 Nov. 30
EOM
Trade and Cash Discount
• When both trade and cash discounts are offered, the
cash discount is computed after the trade discount
has been taken.
 Exercise: Trade or Cash Discounts,
FOB Shipping Point or Destination

Date Date of Discount Transportation

List Price FOB Discount Payment
of Inv. Payment Term Cost / Paid by
Amount
1. 6/22 7/1 100,000 5/10,n/15 Destination 2000/ Buyer
2. 7/12 7/20 300,000 20% Destination 3000/ Seller
3. 2/18 3/5 200,000 2/10 Destination
2500/ Buyer
EOM
4. 1/19 2/1 250,000 5/15, n/45 Shipping Point 1000 / Seller
5. 9/4 9/10 650,000 6/15, n/30 Shipping Point 8000 / buyer
6. 10/16 10/ 25 50,000 10% Shipping Point 500 / Seller
 Date of
Date List Discount Transportation
Payme FOB Discount Payment
of Inv. Price Term Cost / Paid by
nt Amount
1. 6/22 7/1 100,000 5/10,2/15 Destination 2000/ Buyer 5,000 93,000
2. 7/12 7/20 300,000 20% Destination 3000/ Seller 60,000 240,000
3. 2/18 3/5 200,000 2/10, EOM Destination 2500/ Buyer 4,000 193,500
4. 1/19 2/1 250,000 5/15, n/45 Shipping 12,500 238,500
1000 / Seller
Point
5. 9/4 9/10 650,000 6/15, n/30 Shipping 39,000 611,000
8000 / buyer
Point
6. 10/16 10/ 25 50,000 10% Shipping 5,000 45,500
500 / Seller
Point
Exercise: Trade and Cash Discounts
1. On April 28, Green Co. purchased merchandise listing at PhP200,000, with
trade discounts of 10% and 5% and terms of 3/10, n/30.
i. How much is the total trade discount? ______________
ii. How much is the cash discount? ______________
iii. How much is the total discount? ______________
iv. When is the due date of the cash discount? ______________
v. When is the full account be paid? ______________
vi. What is the net price after the trade and cash discount? __________

2. An invoice of PhP75,000 dated November 25, with a trade discount of

30% and terms of 2/10, n/30 was paid on November 28.

a. how much is the trade discount? __________________

b. how much is the cash discount? __________________
c. what was the amount of the payment? ___________________
 Practice: Complete the following table below:
Invoice Amt. Invoice Goods Terms Due date Amount Due date of Amount Due if
Date Received of the of the invoice if discount is not
discount Discount discount is taken
not taken
1. P50,000 May 26 May 27 3½/10,
n/45
2. P100,000 Dec. 22 Dec. 27 2/15,
e.o.m.
3. P40,000 Feb. 15 Feb. 23 2¼ /10,
n/20 r.o.g.
4. P75,000 Aug. 28 Aug. 31 2/10,
e.o.m.
Exercise: Trade and Cash Discounts
1. On April 28, Green Co. purchased merchandise listing at PhP200,000, with
trade discounts of 10% and 5% and terms of 3/10, n/30.
i. How much is the total trade discount? P29,000
ii. How much is the cash discount? P5,130
iii. How much is the total discount? P34,130
iv. When is the due date of the cash discount? May 8
v. When is the full account be paid? May 28
vi. What is the net price after the trade and cash discount? P165,870

2. An invoice of PhP75,000 dated November 25, with a trade discount of

30% and terms of 2/10, n/30 was paid on November 28.

a. how much is the trade discount? P22,500

b. how much is the cash discount? P1,050
c. what was the amount of the payment? P51,450
 Practice: Complete the following table below:
Invoice Amt. Invoice Goods Terms Due date Amount Due date of Amount Due if
Date Received of the of the invoice if discount is not
discount Discount discount is taken
not taken
1. P50,000 May 26 May 27 3½/10, June 5 P1,750 July 10 P50,000
n/45
2. P100,000 Dec. 22 Dec. 27 2/15, Jan. 15 P2,000 Jan. 31 P100,000
e.o.m.
3. P40,000 Feb. 15 Feb. 23 2¼ /10, Mar. 5 P900 Mar. 15 P40,000
n/20 r.o.g.
4. P75,000 Aug. 28 Aug. 31 2/10, Oct. 10 P1,500 Oct. 31 P75,000
e.o.m.
End