Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Early payment discount or Bulk discount
- This topic has 1 reply, 2 voices, and was last updated 6 years ago by P2-D2.
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- July 27, 2018 at 8:08 am #464855
Dear sir,
I have a question about discount of this case: Clients can pays in advance for 6 or 12 months of services (such as fitness, cleaning, internet services…). If they do so, they are entitled to 5% or 8% discount on the price. Should this 5% discount be treated as early payment discount (recognized in P/L as financial expenses) or bulk discount (recognized as reduced revenue)?
I think it is early payment discount because the client pay in advance (quite clear). On the other hand, we might say that instead of buying 1 month, the client now buys 6 months (bigger quantity) so it could be bulk discount too!. Effect of both treatments to the income of course is the same but may affect the calculation of some financial ratios.Thank you sir!
July 28, 2018 at 12:29 pm #465031Hi,
It is treated more like a bulk discount, so we record the transaction net of any discount given. As the payment is in advance then the cash received is recognised as deferred income before then being released to profit or loss on the sale of the goods.
Thanks
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