A company makes a purchase of P 2,000 of inventory, subject to credit terms of 3/10 n/45 and returns P500 of inventory prior to payment. Freight of P400 is on terms FOB Destination Point, Prepaid. Determine the amount of the payment assuming payment is made within the discount period.
Question
A company makes a purchase of P 2,000 of inventory, subject to credit terms of 3/10 n/45 and returns P500 of inventory prior to payment. Freight of P400 is on terms FOB Destination Point, Prepaid. Determine the amount of the payment assuming payment is made within the discount period.
Solution 1
Here's how to calculate the payment:
- Start with the initial purchase amount: P 2,000
- Subtract the returned inventory: P 2,000 - P 500 = P 1,500
- Add the freight cost: P 1,500 + P 400 = P 1,900
- Apply the discount: The credit terms of 3/10 n/45 mean that the company gets a 3% discount if they pay within 10 days. So, calculate 3% of P 1,900: P 1,900 * 0.03 = P 57
- Subtract the discount from the total: P 1,900 - P 57 = P 1,843
So, if the company pays within the discount period, they will pay P 1,843.
Solution 2
Here are the steps to calculate the amount of the payment:
-
Start with the initial purchase amount: P 2,000.
-
Subtract the amount of inventory returned: P 2,000 - P 500 = P 1,500.
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Add the freight cost: P 1,500 + P 400 = P 1,900. The freight cost is added because the terms are FOB Destination Point, Prepaid, which means the buyer is responsible for the freight cost.
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Calculate the discount: 3% of P 1,900 = P 57. The discount is available because payment is made within the discount period (10 days).
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Subtract the discount from the total amount: P 1,900 - P 57 = P 1,843.
So, the amount of the payment, assuming it is made within the discount period, is P 1,843.
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