Question

ndaman Sdn Bhd is offered trade credit terms of 3/8 net 30. The firm does not take the discount, and pays after 25 days. What is the approximate annual cost of not taking the discount?

Select one:

a. 65.49%

b. 38.92%

c. 41.24

d. 50.61%

Hidro Ltd is offered trade credit terms of 2/8 net 40. The firm plans to forgo the discount. Determine the approximate annual cost of not taking the discount.

Select one:

a. 28.12%

b. 8%

c. 22.96%

d. 2%

Fibre Optics Sdn Bhd buys on terms 2/15 net 30 and typically pays on the 30th day of the purchase. Net purchases amount to RM720,000. How much discount will the company get if they are able to pay within 15 days discount period?

Select one:

a. RM14,400

b. RM15,300

c. RM12,100

d. RM13,600

Answer 1

Formula for calculating annual cost of not taking trade discount is given as: (Discount%/(100-Discount%))*(360/(Allowed payment days-Discount days))

For Andaman Sdn Bhd:

Annual cost of not taking discount= (3/(100-3))*(360/(30-8))= (3/97)*(360/22)= 50.61% (Option D)

For Hidro Ltd:

Annual cost of not taking discount= (2/(100-2))*(360/(40-8))= (2/98)*(360/32)= 22.96% (Option C)

For Fibre Optics Sbn Bhd:

Given the terms are 2/15 net 30. It means the company will get 2% discount if it pays within 15 days. So, if they pay within the discount period, discount will be 2%*(720000)= 14400.

So, Discount company will get is RM14400 (Option A)