a) Explain the following types of discount: Trade discount; Quantity discount; Cash discount; Seasonal discount. b) State five functions of a development ba...

Answer Details

(a) Types of discount

1. Trade discount: This is a reduction in the catalogue or list price granted by a manufacturer or wholesaler to a retailer or another trader who buys goods for resale. It allows the trader to make a profit and covers the cost of distribution. It is deducted on the invoice and does not appear in the ledger accounts.
2. Quantity discount: This is an allowance given to a buyer for purchasing goods in large quantities at a time. It encourages bulk buying and helps the seller to clear stock quickly.
3. Cash discount: This is a reduction granted to a debtor for paying his account promptly or within an agreed period. It encourages prompt payment and reduces the risk of bad debts, for example "5% for payment within 7 days."
4. Seasonal discount: This is a price reduction given to buyers who purchase goods in the off-season or out of season, for example buying umbrellas in the dry season. It encourages sales throughout the year and helps the seller to keep production going.

(b) Five functions of a development bank

1. It provides medium and long-term loans to industry, agriculture and commerce for development purposes.
2. It provides equity (share) capital by taking part-ownership in new and expanding enterprises.
3. It gives technical and managerial advice to businesses to help them operate efficiently.
4. It promotes and finances new industries, especially in priority sectors, thereby encouraging industrialization.
5. It underwrites shares and helps enterprises to raise funds from the capital market and attracts foreign investment.