WAEC Commerce 2001 past questions and answers

Commerce covers buying and selling (trade) and all the activities that distribute goods to consumers.

Extractive occupations (farming, fishing, mining) take resources directly from nature.

Primary production is extraction from nature, such as mining; cloth and shoe making are manufacturing.

Mark-up is the amount added to cost price to get selling price, i.e. gross profit expressed on cost.

Rate of turnover (stock turn) = cost of goods sold ÷ average stock: the number of times stock is sold.

Brand name, packaging and design belong to the product element of the marketing mix.

A pro-forma invoice is sent so the buyer can pay before the goods are sent.

In a limited partnership at least one general partner must have unlimited liability.

A sole trader relies on his own savings and small loans, so his capital is limited.

The prospectus advertises the company's plans and invites the public to buy its shares.

Only a public limited company needs a certificate of trading (commencement) before it can start business.

A holding company owns more than half of the shares of other companies (subsidiaries) and so controls them.

Itinerant traders move about; mobile shops travel to customers.

ECOWAS aims to expand trade, allow free movement and improve infrastructure; promoting a common language is not one of its aims.

An actuary uses statistics of past losses to work out premiums.

Indemnity means putting the insured back in the same financial position as before the loss.

Ordinary cheques in local currency are not used to pay foreign suppliers; telegraphic transfers, letters of credit and bills of exchange are.

Warehousing stores goods safely until they are needed.

The entrepreneur organises land, labour and capital and bears the risk.

A standing order instructs the bank to make fixed regular payments for the customer.

Fully paid shares can be grouped together into stock.

They serve one sector (agriculture) only, so they are specialised banks.

Bank notes are legal tender, so a creditor must accept them.

Labour is all human effort, mental or physical, used in production.

E & OE means 'errors and omissions excepted': the seller may correct mistakes later.

A debit note increases the amount the buyer owes, correcting an undercharge.

A franco price includes every cost up to delivery at the buyer's premises.

A factor holds the principal's goods and sells them in his own name.

Quality control is done by the manufacturer himself; the wholesaler stores goods, finances the maker by buying in bulk and pays promptly.

A del credere agent earns extra (del credere) commission for guaranteeing that buyers will pay.

An adverse balance means imports are too high, so increasing imports would make it worse.

Discounting a bill means cashing it before maturity for less than its face value.

Import and export duties are collected by the customs, not the ports authority.

Issued capital is the part of authorised capital offered to the public.

Average stock = (2,000 + 4,000) ÷ 2 = N3,000.

Cost of goods sold = opening stock 2,000 + purchases 6,000 − closing stock 4,000 = N4,000.

Rate of turnover = cost of goods sold ÷ average stock = 4,000 ÷ 3,000 ≈ 1.3 times.

Tankers (ships or vehicles) are built to carry oil and other liquids in bulk.

Advertising, packaging and transporting goods to buyers are marketing functions; insurance is a separate aid to trade.

A department store sells many lines of goods in separate departments under one roof.

By storing goods when supply is high and releasing them when it is low, warehousing keeps prices steady.

2½% off if paid within 30 days is a cash discount for prompt payment.

More advertising raises demand, so goods are sold faster and turnover rises.

A chamber of commerce brings together all kinds of businessmen in an area.

Product, price, place (distribution) and promotion are the four Ps of the marketing mix.

Air transport is the fastest means of transport.

Counter trade is international barter: goods paid for with goods.

A bear sells because he expects prices to fall.

The Sale of Goods Act governs contracts transferring ownership of goods for a money price.

The post office can send money abroad quickly by telegraphic (international) money order.

(a) Diagram: Commerce divides into Trade and Aids to trade. Trade → Home trade (wholesale, retail) and Foreign trade (import, export, entrepôt). Aids to trade → transport, communication, banking, insurance, warehousing, advertising (tourism may be added).
(b) Any four aids to trade, explained: transport (moves goods from producers to consumers – removes the barrier of distance); communication (passes information between buyers and sellers); banking (provides finance and means of payment); insurance (covers risks of loss); warehousing (stores goods until needed – bridges time); advertising (informs and persuades buyers).

The diagram must show trade and aids to trade with their branches.

(a) Hire purchase: ownership passes to the buyer only after the last instalment; seller can repossess goods if buyer defaults; usually for durable goods; a deposit is paid. Credit sale: ownership passes at once (on the first payment/at the sale); seller cannot repossess, only sue for the debt; often cheaper goods.
(b)(i) Seller (any four): increased sales/turnover; sells expensive durable goods more easily; earns interest (higher price than cash price); can repossess goods if the buyer defaults; keeps ownership until fully paid; attracts more customers.
(ii) Buyer (any four): uses goods before paying fully; can acquire expensive goods without large cash; pays from income in small instalments; improves standard of living; can return goods before completing payment; obtains credit not available from banks.

The key difference in (a) is when ownership passes.

(a) Persuasive advertising – tries to convince people to buy a product, appealing to emotions (status, beauty), and encourages impulse buying.
(b) Informative advertising – gives facts about a (usually new) product: its uses, price and where to buy it.
(c) Competitive advertising – claims that a product is better than rival brands, to win market share from close substitutes.
(d) Mass (collective/generic) advertising – joint advertising by producers of the same kind of product to increase demand for the product generally, sharing the cost (e.g. 'drink more milk').
(e) Direct advertising – messages sent straight to selected likely buyers (letters, catalogues, leaflets, e-mail) or placed in media read by the target market.

Two or three sentences per type is enough.

(a) Any six: goods are advertised by catalogues, newspapers or magazines; orders are sent by post (or phone/internet); goods are delivered by post or courier; no shop or personal contact with customers; payment usually in advance or cash on delivery; usually sells standardised branded goods; reaches customers over a wide area; low overhead costs (no expensive shop); goods may be returned if unsatisfactory.
(b) Any four: customers cannot see or examine goods before buying; delay in delivery; payment in advance with risk of fraud; goods may be damaged or lost in transit; no credit or after-sales personal service; high advertising and postage costs; unsuitable for perishable or bulky goods; depends on efficient postal services and literate customers.

Mail order means buying and selling by post.

(a) Any six, explained: to provide essential services (water, electricity) that private firms may not provide; to prevent private monopoly and exploitation; large capital needed beyond private investors; for national security/strategic industries; to provide employment; to generate revenue for government; to ensure even development across regions; to control the economy and prices; to protect consumers' welfare.
(b) Any four: inefficiency and poor management; political interference; corruption and embezzlement; losses and burden on public funds/subsidies; bureaucracy and delay; lack of profit motive/poor service; overstaffing.

Each reason should say why private firms alone are not enough.

(a) A bill of lading is a document issued by a shipping company (or its master) to the shipper acknowledging receipt of goods on board; it is the contract of carriage and a document of title to the goods.
(b) Any six: names of shipper (consignor) and consignee; name of the ship; ports of loading and discharge; description, marks and numbers of packages; quantity/weight of the goods; freight charges and whether paid; date and place of issue; signature of the master or agent; condition of the goods.
(c) A clean bill of lading states that the goods were received in good order and condition; a foul (dirty/claused) bill of lading has a note that the goods or packing were damaged or short when received.

Remember: a bill of lading is a document of title.

(a) Any four: right of lien (to keep the goods until paid); right of stoppage in transit (if the buyer becomes insolvent); right of resale; right to sue for the price; right to sue for damages for non-acceptance; right to withhold delivery.
(b) Any six: obey the principal's lawful instructions; act personally (not delegate without permission); exercise skill and care; act in good faith and avoid conflict of interest; not make secret profits or take bribes; keep proper accounts and render them; hand over money received; keep the principal's information confidential.

An unpaid seller's rights are against the goods and against the buyer.

(a)(i) Current assets = stocks 38,000 + debtors 25,000 + cash in hand 10,000 = N73,000.
(ii) Current liabilities = creditors 30,000 + bank overdraft 5,000 = N35,000.
(iii) Working capital = 73,000 − 35,000 = N38,000.
(b) A current asset is an asset held for a short time (usually under a year) that changes from day to day in the course of trade, e.g. stock, debtors, cash.
(c) Any one: shows whether the business can pay its short-term debts (liquidity); shows the funds available for day-to-day running; helps owners and creditors judge the firm's financial health.

Vehicles and furniture are fixed assets; leave them out of (a).

(a) Uninsurable risks are risks whose probability cannot be calculated from past experience, so no premium can be fixed for them, and they are not accepted by insurers. Examples (any two): loss from changes in fashion or taste; loss from bad management; competition; changes in government policy; gambling/speculation losses; trade depression.
(b)(i) Hull insurance – marine insurance covering the ship itself and its machinery against perils of the sea.
(ii) Fidelity guarantee – insures an employer against loss from fraud or dishonesty of employees handling money.
(iii) Underwriter – the person or insurer who accepts the risk (signs under the policy) in return for a premium.
(iv) Premium – the amount paid by the insured to the insurer for cover, based on the degree of risk.

Uninsurable risks cannot be calculated statistically.

(a) Any four: cost of transport; nature of goods (perishable, fragile, bulky); urgency/speed required; distance; safety and security; availability of the means; value of goods; reliability.
(b) Any four: door-to-door service; more flexible (routes and times can be changed); cheaper and faster over short distances; less handling so less damage; reaches places without rail lines (rural areas); easier to arrange for small loads; vehicles can be owned by the trader.

For (b), compare directly with rail.