Overview of Commission, Brokerage and Discount

A person who buys/sells goods on behalf of another person is called an agent.

Principal refers to an individual party or parties participating in a transaction.

or

The person who appoints the agent.

The charges paid to an agent for doing the work on behalf of the principal are called commission.

A broker is an agent who brings together the buyer and the seller for the purpose of purchase or sale. This commission is called brokerage and is charged to both parties.

 An auctioneer is an agent who sells goods by auction. He sells goods to the highest bidder.

Many a time name of the principal is not disclosed in the transaction.

A del credere agent gives a guarantee to his principal that the party to whom he/she sells the goods will pay the sale price of the goods. 

\[\textbf{Commission}=\frac{\mathrm{Rate}}{100}\times\mathrm{Sales}\]

Seller’s Amount = Sales − Commission

Total Commission = Ordinary Commission + Del Credere Commission

Trade discount is allowed by one trader to another. It is given on the catalogue price, list price or market price of the goods.

Cash discount is a reduction in the invoice price allowed by the seller to the buyer for making immediate or prompt payment. It is calculated on the amount remaining after deducting the trade discount from the list (catalogue) price.

Invoice price = List price (Catalogue price) – Trade discount.

Selling Price / Net Selling Price = Invoice price – Cash discount

Profit = Net selling price – Cost price

Loss = Cost price – Net selling price

Present Worth is the amount payable today, which is equivalent to a larger amount due in the future at a given rate of interest.

Sum Due is the total amount payable at a future date. It includes the present worth plus the interest for the given period.

True Discount is the interest on the present worth at a given rate of interest for a given period.

Present Worth + True Discount = Sum Due

i.e.,

P.W. + T.D. = S.D.

\[\mathbf{T.D.}=\frac{P.W.\times n\times r}{100}\]

A person who draws the bill is called the Drawer. A person on whom the bill is drawn is called the Drawee.

The date on which the bill is drawn is called the Date of Bill.

Nominal Due Date:

The date on which the period of the bill expires is called the Nominal Due Date.

Legal Due Date:

The date obtained after adding 3 days of grace to the nominal due date is called the Legal Due Date.

When the drawer wants money before the legal due date, the bank deducts some amount from the face value and pays the remaining amount to the drawer. This process is called Discounting of a Bill.

The amount deducted by the bank from the face value of the bill at a given rate of interest for the period from the date of discounting to the legal due date is called Banker’s Discount.

The amount paid to the holder of the bill after deducting banker’s discount is called the Cash Value of the bill.

The difference between the banker’s discount and the true discount is called Banker’s Gain. It is equal to the interest on the true discount.

\[\mathbf{B.D.}=\frac{S.D.\times n\times r}{100}\]

B.G.= B.D.− T.D.

OR

\[\mathbf{B.G.}=\frac{T.D.\times n\times r}{100}\]

C.V. = S.D.− B.D.