When purchasing goods, a trade discount and a cash discount may be applied. A trade discount is a reduction in the list price of the goods offered by the seller to the buyer. It is usually provided to encourage bulk purchases or to establish a long-term business relationship. On the other hand, a cash discount is a reduction in the invoice price offered to the buyer if payment is made within a specified period of time.



In this scenario, goods worth ₹5000 are purchased for cash. The trade discount offered is 20%, and a cash discount of 5% is also applicable. Let's calculate the final amount to be paid after applying the trade discount and cash discount.



Step 1: Calculate the trade discount:
Trade Discount = List Price × Trade Discount Rate
= ₹5000 × 20% (or 0.2)
= ₹1000

Step 2: Calculate the invoice price after trade discount:
Invoice Price = List Price - Trade Discount
= ₹5000 - ₹1000
= ₹4000

Step 3: Calculate the cash discount:
Cash Discount = Invoice Price × Cash Discount Rate
= ₹4000 × 5% (or 0.05)
= ₹200

Step 4: Calculate the final amount to be paid:
Final Amount = Invoice Price - Cash Discount
= ₹4000 - ₹200
= ₹3800



After applying a trade discount of 20% and a cash discount of 5%, the final amount to be paid for the goods worth ₹5000 is ₹3800. It is important to note that the trade discount is applied first to calculate the invoice price, and then the cash discount is deducted from the invoice price to determine the final amount to be paid.