LESSON THREE: TRADE DISCOUNTS

To entire buyers to buy, sellers actually offer trade discount. It could be a single trade discount of, say,
20% or a series of discounts like 10%, 5% and 5%. It is generally wholesalers who offer trade discounts, but there
are also some retailers who offer them.

A single trade discount is easy to calculate because we simply multiply the list price with the given trade
discount. For a series of discounts , the base decreases as we apply the series of discounts given. If the list price is
P 1 000.00 and the series of trade discounts given is 10%, 5% and 5%, we first multiply the P 1 000.00 X 10% to
get the P 100.00 first discount.Therefore, our base of P 1 000.00 is reducedby P 100.00 discount. For the second
discount in the series, the base is now P 900.00 ( P 1 000.00 - P 100.00 ) which we multiply by the second discount
in the series, which is 5% giving us P 45.00. Next, we deduct the P 45.00 from P 900.00 to get P 855.00, which
we now multiply to the last discount in the series, which is 5% giving us P 42.75. If we deduct the P 42.75 from
the P 855.00, the net invoice price would be P 812.25.

In accounting, trade discounts are not recorded because accounting records reflect only the net invoice
prices, that is, sales and / or purchases are the recorded net of trade discounts. For example, if the merchandise
listed at P 1 000.00 is sold subject to a 10% discount, the seller records the sale as a sale of P 900.00 only, the net
invoice price. Similarly, the buyer will record the same as a purchase of P 900.00.

Lesson Objectives

At the end of this lesson, the students should be able to:

1. compute for the net invoice price (NIP) using as single trade discount;

2. compute for the NIP using a discount series;

3. compute for a single equivalent discount rate for a discount series; and

4. compute for the NIP rate obtain the NIP using the said rate.

Lesson Pre-assessment

1. A refrigerator was marked to sell at P 6750.00 less 5%.

a. discount
b. net invoice price
c. net invoice price using the NIP rate

2. A television set was bought for P 3 825.00 net of discount. The selling price was listed at P 4 500.00.
Compute for:

a. NIP rate
b. discount
c. discount rate
d. net invoice price

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Let’s Start

A trade discount is a reduction from list price granted to buyers. It could take the form of volume
discounts for large purchases, dealer’s or distributor’s discounts, or special discounts granted at the discretion of
the seller. Trade discounts couth either be singlediscount or a series of discount.

Single Discount

Computing for discounts makes use of our basic percentage formula P=BR where the base is the list
price, the rate is the discount rate, and the percentage is the discount. As such,

P=BR
Discount= List Price x Discount Rate

Example: Compute the discount for an item with a list price of P 1 250.00 subject to a 15% discount.
What is its net invoice price?

Given:
List Price= P 1 250.00
Discount Rate = 15%
Find:
a. Discount
b. Net Invoice Price
Solution:

a. Discount = List Price x Discount Rate

= ( P 1, 250)(15%)
= P 187.50

b. Net Invoice Price = List Price − Discount

= P 1250.00 − P 187.50
= P 1062.50

Another way of computing for the net invoice price is to multiply the list price by the net invoice price
rate. The net invoice price rate is equal to 100% less the discount rate. Thus,

Net Invoice Price Rate = 100% − Discount Rate

NIP Rate = 100% − 15%
NIP Rate = 85%

Net Invoice Price = List Price x NIP Rate

= P 1, 250.00 x 85%
= P 1062.50

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To get the discount, we deduct the net invoice price from the list price:
Discount = List Price − Net Invoice Price
= P 1, 250.00 − P 1, 062.5
= P 187.50
This checks the result we got when we multiplied the list price by the discount rate to get the discount.

Series of Discounts

In certain instances, seller grants additional discounts other than the discount ordinarily given by him/her.
For Instance, aside from the regular 10% discount, a seller may grant a special additional discount of 5%. The
series of discount is, therefore, 10% and 5%. this is not, however, equivalent to 15% as we shall see later.

Example: Compute for the discount and the net invoice price if an item listed at P 1 250 is given a 10%
and a 5% discount.

Given:
List Price= P 1 250.00
Discount Rates = 10% and 5%
Find:
a. Discount
b. Net Invoice Price
Solution:

Method 1

We first multiply the list price by the first discount rate. To get the second discount, multiply the
difference between the list price and the first discount, and the second discount rate. We then deduct the second
discount from the said difference to get the net invoice price.

List Price....................................... P 1250.00

Less 10%( P 1 250 x 10%).............. 125.00
Difference....................................... P 1, 125.00
Less 5%( P 1 125 x 5%).................. 56.25
Net Invoice Price............................ P 1, 068.75
Our total discount is equal to the first discount plus the second discount:

Total Discount = P 125.00 + P 56.25

= P 181.25

Method 2

(1) Deduct the first discount rate from 100% and multiply the list price by the rate obtained.
100% − 10% = 90%
Multiply the list price by the first balance rate obtained in in step (1).
List Price....................................... P 1250.00
x 90%
First Balance.................................. P 1, 125.00

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(2) Deduct the second discount rate from 100% and multiply the first balance obtained in (1) by the second
balance rate obtained. 100% − 5% = 95%

First Balance....................................... P 1, 125.00

Second Balance Rate x 95%
Net Invoice Price................................. P 1, 068.75

This method involves a process similar to the use of the net invoice price rate (NIP Rate) applied to the list price
to get the net invoice price.
Discount = List Price − Net Invoice Price
= P 1, 250.00 − P 1, 068.75
= P 181.25
We obtained the same result as we got in Method 1.

Method 3
Using this method, we will convert the series of discounts to a single equivalent rate.

Step 1 : Deduct the series of discounts individually from 100%

(a) 100% − 10% = 90%
(b) 100% − 55% = 95%

Step 2 : Multiply the resulting products by themselves to give us the net invoice price rate.
(a) x (b)= 90% x 95% = 85.5%(NIP Rate)
Step 3 : Deduct this NIP rate from 100% to get the single equivalent discount rate.
100% − 85.5% = 14.5%(Single equivalent rate)

Take note that if we add the NIP rate and the single equivalent discount rate, we will get 100%.
To get the discount, we multiply the single equivalent discount rate by the list price.

Discount = List Price x Single equivalent Discount Rate

= P 1, 250.00 x 14.5%
= P 181.25
To get the net invoice price, we multiply the list price by the net invoice price rate(NIP Rate) obtained in step
(3) above.

Net Invoice Price = List Price xNIP Rate

= P 1, 250.00 x 85.5%
= P 1, 068.75

Compare the results we obtained under this method with the results we got under Method 1 and Method 2.

Let’s Share Ideas

1. A living room set worth P 5,300.00 was granted a discount of P 636.00. Find:

a. discount rate

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 b. net invoice price
c. net invoice price rate

2. A camera is listed at P 1,315.00 less 15% and 3%. Find (a) net invoice price and (b) discount using methods
1-3.

Practice your skills:

1. Avesco Marketing sells a lighting fixture for P 8,185.00 less 15% and 5%. Home Appliances sells the same
lighting fixture for P 7,895.00 less 15%.Which has the better offer? Why?

2. Pleasant Care Corporation sells hospital equipment. A particular equipment listed at P 5,150.00 is given a
15%, 8% and 3% series discount. Compute:

a. nnet invoice price

b. single equivalent discount rate
c. NIP Rate

Lesson Summary

• A trade discount is a reduction from list price granted to buyers. Trade discounts could either be a single
discount or a series f discount.

• Computing for discounts makes use of our basic percentage formula P=BR, where the base is the list price,
the rate is the discount rate and the percentage is the discount. Therefore, discount = list price x discount
rate.

• For a series of discount,thereare three methods that wecan use:

a. Method 1. Multiply the list price by the first discount rate. The next discount rate is then applied on
the difference between the list price and the first discount to get the second discount. We then deduct
the second discount from the said difference. We continue with the same process depending on the
number of discounts in the series.
b. Method 2.(1) Deduct the first discount rate from 100% and multiply the list price by therate obtained.
(2) Deduct the second discount rate from 100% and multiply the first balance obtained in (1) second
balance rate obtained.
c. Method 3. Convert the series of discounts to a single equivalent rate. To do so, we first deduct the series
of discounts individually from 100% and then multiply the resulting products by themselves to give us
the NIP rate. If we multiply the NIP Rate by the list price, we get the net invoice price. Deducting the
net invoice price from the list price will give us the single quivalent discount. Alternatively, we deduct
from 100% to get the single equivalent discount rate. This single equivalent is then multiplied with the
list price to get the discount.When we deduct the discount from the list price, we get the net invoice
price.

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Classroom Exercise 3

1. The net voice price of a wall clock is P 287.00. If the discount granted was 18%,
find:

a. net invoice price

b. list price

c. discount

2. The net invoice price of a dining table is P 6,187.50, representing 75% of the list price,
find:

a. list price

b. discount

c. discount rate

3. A washing machine listed at P 20,040.00 is granted 20%, 10% and 5% discounts. Find (a) net invoice price
and (b) discount using Methods 1-3.

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4. Complete the following table.

List Price Discount Rate Discount Net Invoice Price NIP Rate
a. P 158.75 5% P P %
b. P 865.00 12 12 %
c. P 1, 300.00 P 104.00
d. P 3, 650.00 P 803.00
e. P 725.00 P 522.00
f. P 630.00 P 582.75
g. 3% P 945.75
h. 8% P 1, 104.00
i. P 612.50 P 5, 512.50
j. P 9441.50 P 430.09

5. Complete the following table.

List Price Discount Rate NIP Rate Net Invoice Price Discount
a. P 3, 200.00 10 12 % % P P
b. P 6, 450.00 18%
c. P 740.00 70%
d. P 820.00 82 12 %
e. P 980.00 8% and 3%
f. P 285.00 5% and 2%
g. P 575.00 19%, 5% and 2%
h. P 1, 125.00 20%, 10% and 5%
i. 23% P 2, 656.50

6. Complete the following table.

Discount Single Net

List Price Series NIP Rate Equivalent Invoice Discount
Rate Price
a. P 1, 500 5% and 3% % % P P
b. P 2, 000 8% and 2%
c. P 3, 400 10%, 5% and 2%
d. P 5, 000 15%, 10% and 3%
e. P 8, 200 20%, 12% and 8%

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Assignment 3B

For the following exercises, Place supporting computations on a separate sheet.

1. Complete the following table.

List Price Discount Rate Discount Net Invoice Price NIP Rate
a. P 563.50 15% P P %
b. P 105.00 22 21 %
c. P 428.00 P 53.50
d. P 75.00 P 13.00
e. P 229.95 P 194.61
f. P 870.00 P 778.65
g. 7% P 46.50
h. 10 12 % P 1, 790.00
i. P 138.75 P 416.25
j. P 111.50 P 999.00

2. Complete the following table.

List Price Discount Rate NIP Rate Net Invoice Price Discount
a. P 785 5% % P P
b. P 50 12 14 %
c. P 8, 150 94.5%
d. P 6, 500 78%
e. 30% P 3, 010
f. 65% P 3, 250
g. P 450 9% and 4%
h. P 7, 160 12% and 3%
i. P 65 20%, 30% and 10%
j. P 110 25%, 15% and 5%

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3. Complete the following table.

Discount Single Net

List Price Series NIP Rate Equivalent Invoice Discount
Rate Price
a. P 2, 145 10% and 2% % % P P
b. P 6, 789 15% and 15%
c. P 3, 015 18%, 8% and 2%
d. P 4, 650 20%, 10% and 10%
e. P 9, 810 10%, 5% and 2%

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Assignment 3C

1. Choose which of the following stores offer a better price for a car of the same brand and model listed at
P 385,000.00.

a. Store A with discount at 35%

b. Store B with discount at 30% and 8 %
c. Store C with discount at 30%, 5% and 2%

Answer: Why?

2. Choose which of the following stores offer a better price for a sewing machine of thesame brand and model:

a. Store A: LP= P 5,380.00 ; Discount=25%

b. Store B: LP= P 5,250.00 ; Discount=20% and 5%

Answer: Why?

3. An item listed at P 6,245.00 was sold for P 5,495.60. Find:

a. Discount

b. Discount Rate

c. NIP Rate

4. An article was given an 18% discount amounting to P 756.00. Find:

a. List Price

b. NIP Rate

c. Net Invoice

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5. An electric mixer was granted a series of discounts of 15%, 10% and 5%, resulting in a net invoice price of
P 2,180.25. Compute For:
a. NIP Rate

b. Single equivalent discount rate

c. List Price

d. Discount

6. A food processor was sold for a net price of P 5,625.00 at the Western Marketing. If the discount granted
was 15%, how much is the list price?

7. From Ever Trading, the same kind of food processor in (6) is listed at P 6,800 subject to less 10% and 5%.
From which store will you buy the food processor? How much saving will you get following your choice?

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