O Level Accounting (7707)•7707/12/M/J/21
Explanation
Credit Note for Returned Goods After Trade Discount
Steps:
- Calculate list price for 12 radios: 12 × 120.
- Apply 20% trade discount: 24; net amount = 24 = $96.
- Value of 2 returned radios (proportion): (2/12) × 16.
- Credit note issued for returned goods at net trade price: $16.
Why the correct option is correct:
- Credit notes for returns are issued at the selling price after trade discount but before cash discount, as cash discount applies to the final net payment.
Why the others are wrong:
- A. $15.36 applies both discounts (trade and cash) to returns, but cash discount is not deducted on credit notes.
- C. $19.20 incorrectly applies only cash discount to list price, ignoring trade discount.
- D. $20.00 uses full list price, omitting trade discount.
Final answer: B
Topic: Other payables and other receivables
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