Observation

Many candidates attempted this question but the performance was below average. A good number of them were incorrectly writing on the meaning of the items.
Some of the suggested answers were:

(a) A discount is a reduction in the price of goods in order to increase sales, encourage bulk purchase and prompt payment.
OR
A discount is a deduction from the face amount of an invoice made in advance of its payment.
OR
A discount is a reduction in the catalogue price of a commodity granted by a seller to a buyer.

(b) (i) Reasons for granting trade discount are to:

• encourage large quantity purchase;
• provide for buyers’ profit margin;
• avoid obsolescence of goods in stock;
• improve seller’s reputation;
• improve seller’s turnover;
• attract more customers;
• lower operational cost;
• differentiate prices;
• avoid tying down of business capital;
• maintain customer’s loyalty.

(ii) Reasons for granting cash discount are to:

• avoid the risk of bad debt;
• encourage prompt payment;
• avoid tying down of capital;
• increase cash inflow;
• reward prompt payment;
• attract more customers;
• increase seller’s net profit;
• lower operational cost.