Question

Perfect ltd makes annual sales of R950 000 and is considering discontinuing the discount offered to debtors as there is only a 2% utilization of the discount. The terms are 3/5 net 35. Assuming that this change will have a nil effect on sales volume, bad debts, and debtors collection periods, what is the proposed discount discontinuation on net profit?

Answer 1

The terms are 3/5 net 35 means, discount 3% on payment made within 5 days.

Annual Sales	950,000
Debtor amount who takes discount	2% of sale
Debtor discount amount (2% of sales)	19,000
Discount of above debtors	3%
Discount amount	570

So proposed discount discontinuation will increase net profit by 570.

Increase Net Profit = 570