help please!

[harryb]

hey, im revising for the certificate at the moment and come across a question concerning sales invoice, hopefully you can make a specific part of this question clearer to me:

code descrip quantity vat unit price amount excl vat
950bb3 cotsworld panels 3 17.5% 300 900
159so4 insulation bricks 5 17.5% 195.50 977.50
874kl5 red brick roof tiles 1 17.5% 56.65 56.65
1934.15
trade discount 2% 38.68
1895.47
vat at 17.5% 321.75
total amount payable 2217.22
deduct discount of 3% if paid within 14 days

the vat is calculated as 17.5% x (1,895.47 x 0.97)..my question is where does the 0.97 come from??

any help would be appreciated.

:001_smile:

[harryb]

well that didnt come out as planned!! lol... basically the total exc vat is 1934.15, then trade discount is 2% which would be 38.68....leaving 1895.47 once they have been subtracted....then the vat is calculated as 17.5% x (1895.47 x 0.97)...it also states at the bottom of the invoice to deduct discount of 3% if paid within 14 days.. my question is, where does the 0.97 figure come from in the vat calculation?

thanks again

[pratikdparekh]

That 0.97 figure you are referring to means 97% - the total after the 3% trade discount deduction. For example, when you deducted the 2% discount, you multiplied the net by 2% and then subtracted. Alternatively, if you had multiplied directly by 98%, you would have gotten the same result.
You need to deduct the 3% first because VAT is calculated after all discounts, regardless of whether they are taken or not.

I'll give you a small explanation of why multiplying by 98% is the same as finding 2% and then deducting:
Say you have an amount £x and you want to find the price after a discount of 2%.
First you would find 0.02 * x
Whatever that value is, you subtract from the initial price (x)
giving you x - 0.02x
= x (1 - 0.02) (algebraic manipulation, if you don't follow, give x a value)
= x * 0.98
where 0.98 = 98%
Hence after a 2% discount, you are left with 98% of the initial price.

Hope that makes sense!
:001_smile:

[harryb]

pratikdparekh .... u have me in ur debt!! lol thanks very much