Theory question 108
Purchase and Sale of GoodsCommerce 2 (theory)
(a) Write the following commercial abbreviations in full:
(i) C.O.D.;
(ii) C.I.F.;
(iii) F.O.B.;
(iv) E & O.E
(b) The sale of a good costing Le100,000 attracts a trade discount of 5% and a cash discount of 5%. You are required to calculate the:
(i) trade discount value;
(ii) cash discount value;
(iii) net amount payable by the buyer.
Show the model answer
Model answer
(a)(i) C.O.D. – Cash on Delivery.
(ii) C.I.F. – Cost, Insurance and Freight.
(iii) F.O.B. – Free on Board.
(iv) E & O.E – Errors and Omissions Excepted.
(b)(i) Trade discount = 5% × 100,000 = Le 5,000.
(ii) Price after trade discount = 95,000; cash discount = 5% × 95,000 = Le 4,750.
(iii) Net amount payable = 95,000 − 4,750 = Le 90,250.
Explanation
Cash discount is worked out on the amount left after trade discount.