Cash Discount after Tax & VAT

Question

Hi , Friends,
My client has a scenario where in some purchase orders , he receives the discount after tax.
when I add the discount (absolute) after tax in the m/08 , the net price changes and the tax is calculated on this new net price  which is wrong & not required .
Friends tell me what chnages I need to do so that discount is calculated after Tax & VAt and the ideally what should be the accounting entries in MIGO and MIRO.
if the gross price is Rs 100
tax is Rs 10
and discount is Rs 5.
Thanks in advance

Answer 1

Hi Dgn,
What type of industry sector your client belongs to. But as a standard practise, cash discounts are captured before adopting the Tax or VAT through Invoice.
We will calculate the accounts payable:
Usually below is the scenario for taking the discounts from the vendor in the process of purchaing:
will take your given figures/values:
Eg. (1)
                           Total gross price:      100.00 INR            (as per your client)
                           Discount:                       5.00 INR          (-ve)
                                                                                95.00 INR
then adopt, Tax (10%):                             9.50 INR      (10% on gross ( = 9.50 INR)  :   goes to govt. for tax depart.                                                                               
that means, the total amount:                   85.50 INR      payable to the vendor (A/P)
But, where as in your case /as per client,
(2)
Taking your eg.  Total gross price:      100.00 INR            (as per your client)
                           Tax amount: (10%)     10.00 INR            (10% on gross = 10 INR)    :  goes to govt. for tax depart.
                                                                                110.00 INR
then taking,       Discount:                         5.00 INR      (-ve)
that means, the total amount:                105.00 INR      payable to the vendor (A/P)
(1):  85.5 INR   <  (2) :  105.00 INR
So, in 2nd scenario, your client has to pay more to their vendors & also more tax in the process of purchasing compare to the usually procedure (1). Other wise your client has to pay extra 20.00 INR. Hence option 1 is the rightone.
Pls check with your client again and suggest them further.
Hope you understood.
Regards,
Sapsrin.