ACCA Financial Management (F9) Certification Practice Exam

What is the formula for rejecting early discounts?

1. Discount Lost / Amount Paid if Discount is taken

2. Amount Saved / Total Spending

3. Annual Cost / Total Savings

4. Total Discount / Net Payment

The correct answer is: Discount Lost / Amount Paid if Discount is taken

The formula for rejecting early discounts focuses on the cost of not taking that discount, which is effectively represented as the "Discount Lost" divided by the "Amount Paid if Discount is taken." This calculation helps to determine the opportunity cost of not utilizing the discount, allowing businesses to understand the financial implications of their payment terms. When a company decides not to take advantage of an early payment discount, it incurs an opportunity cost, and this formula helps to quantify that cost. By calculating the discount lost and referring to the amount that would have been paid if the discount had been taken, businesses can assess whether it makes financial sense to ignore the early payment discount in favor of retaining cash longer. The other formulas presented do not directly provide insight into the implications of rejecting early discounts. They either calculate savings in a different context or do not focus specifically on the cost associated with not taking the early payment discount, which is the central concern here.