Describe about chain discount, Accounting Basics

Q. Describe about chain discount?

Occasionally the list price of a product is subject to several trade discounts this series of discounts is a chain discount. Chain discounts survive for instance when a wholesaler receives two trade discounts for services performed such as packaging and distributing. When in excess of one discount is given the buyer applies every discount to the declining balance successively. If a product has a list price of USD 100 as well as is subject to trade discounts of 20 per cent and 10 per cent the gross selling price (invoice price) would be USD 100 - 0.2(USD 100) = USD 80; USD 80 - 0.1(USD 80) = USD 72 computed as follows

List price                                       $100

Less20%                                       - 20
                                                     $ 80
Less 10%                                         ¦
Gross selling price (invoice price) $ 72

You could get the same results by multiplying the list price by the complements of the trade discounts allowed. The complement of 20 percent is 80 percent for the reason that 20 percent + 80 percent = 100 percent. The complement of 10 percent is 90 percent for the reason that 10 percent + 90 percent = 100 percent. therefore the gross selling price is USD 100 X 0.8 X 0.9 = USD 72.

Posted Date: 7/5/2013 3:16:13 AM | Location : United States

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