WAEC Commerce 2003 past questions and answers

Commerce is made up of trade and the aids to trade.

Turning cassava into garri changes a raw material into a finished product: manufacturing.

Fishing takes resources from nature, so it is an extractive (industrial) occupation.

Production means creating utility; industry adds utility by changing the form of goods.

Incorporation makes the company a separate legal person whose assets are separate from its members'; a public company still needs a certificate of trading to start business.

A holding company owns enough shares in other companies to control them.

Thrift (savings) societies that join and register form a credit union.

The entrepreneur bears the risk of the business and takes the profit or loss.

A general partner has unlimited liability for the firm's debts.

Without a deed the Partnership Act applies, and profits and losses are shared equally.

Paid-up capital is the part of issued capital actually paid by shareholders.

Gross profit = 16,000 − 12,000 = 4,000; on sales: 4,000 ÷ 16,000 × 100 = 25%.

In a company each share carries a vote; in a co-operative it is one member, one vote.

Issued capital = 36,000 × N1.50 = N54,000.

Rate of turnover = turnover ÷ average stock, so turnover = 4 × 12,400 = N49,600.

Costly technical goods made to order, like aircraft, are sold direct from producer to buyer.

Large stores let customers buy many things in one place; the other options are disadvantages.

Buying in bulk from manufacturers and warehousing are functions of the wholesaler.

Customs drawback refunds import duty on goods that are re-exported.

Cheap everyday convenience goods are bought often in small amounts all over the country, so they go through wholesalers and retailers.

Entrepôt trade is importing goods in order to re-export them.

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

The invoice lists goods sold, prices, discounts and the amount due.

A bill of sight lets the importer land and examine goods when the bill of lading has not arrived.

Total assets less current liabilities gives the (net) capital employed.

As a separate legal person a company can make contracts, sue and be sued in its own name.

Excise duties are taxes on goods made within the country.

A catalogue describes all the goods a firm has for sale, often with pictures and prices.

An advice note tells the buyer that the goods have been sent.

A quantity discount rewards buying in larger quantities.

Cheques paid in are sent through the clearing house to collect the money from the drawer's bank.

A rights issue offers new shares to existing shareholders, usually below market price.

Employer's liability insurance covers claims by workers injured at work.

Under subrogation the insurer takes over the insured's rights after paying the claim.

A bear sells because he expects prices to fall.

Recorded delivery gives a receipt for posting and the addressee signs on delivery.

A common carrier must carry any lawful goods offered, on payment, along his route.

Trains run only on fixed lines and timetables, so rail transport is inflexible.

Posters, window displays and free samples are ways of promoting sales; hoarding goods is keeping them off the market.

An extra item given free with a purchase is a premium (bonus) offer.

Joint advertising of a product by all firms in an industry is mass (collective) advertising.

Consumer sovereignty means the consumer's wishes decide what is produced.

Samples, premiums and contests are sales-promotion methods.

Skimming sets a high price at launch: it is a pricing policy.

A void contract has no legal effect from the start.

GATT deals with international trade rules, not protecting consumers.

Consideration is the price paid (something of value) for the other party's promise.

Nationalisation is government taking over private businesses.

ECOWAS aims at free movement of persons, goods and services among member states.

(a) An ordinary invoice is a bill sent with or after the goods in a credit sale, showing what the buyer owes; it is evidence of the sale and a demand for payment. A proforma invoice is sent before the goods, as a quotation or to ask for payment in advance (cash with order) or with goods on consignment; it is not a demand for payment.
(b)(i) 5% trade discount – 5% is deducted from the list (catalogue) price for a trader, usually for buying in bulk, to allow him a profit margin.
(ii) Net 3 months – the full invoice amount (no discount) must be paid within three months.
(iii) E & O.E – errors and omissions excepted: the seller may correct any mistake found later on the invoice.
(iv) Carriage forward – the buyer pays the cost of transporting the goods.
(v) 2½% cash discount – the buyer may deduct 2½% if he pays within the stated period.

In (a) focus on when each invoice is sent and its purpose.

(a) For (any four): informs consumers about products and prices; increases sales, leading to mass production and lower costs; introduces new products; creates employment (agencies, media); supports newspapers, radio and TV; encourages competition and better quality; raises standard of living.
Against (any three): raises the cost and price of goods; can be misleading or exaggerated; encourages impulse buying and wasteful spending; may promote harmful goods (alcohol, tobacco); can help big firms create monopolies; some adverts are immoral or a public nuisance.
(b) Any six: newspapers; magazines; radio; television; cinema; posters/billboards; handbills/leaflets; neon signs; window displays; vehicle stickers; loudspeaker vans; internet.

Four points for and three against in (a).

(a) Any four, in order: go to the bank and collect/complete the account opening form; provide references (two referees who hold current accounts) and documents (business registration, passport photographs, identification); give specimen signatures on a specimen signature card; pay in the initial (minimum) deposit; after references are checked, collect the cheque book and paying-in book.
(b) Any six: accepting deposits (current, savings, fixed); granting loans and overdrafts; making payments by cheque, standing order and credit transfer; safe keeping of valuables; issuing bank drafts; foreign exchange and letters of credit; discounting bills of exchange; financial advice; acting as executors/trustees; ATM/electronic banking.

The steps in (a) should follow a logical order.

(a) Third party policy covers only the insured's liability for damage or injury to other people (third parties); it is the legal minimum and cheaper. Comprehensive policy covers third parties and also damage to the insured's own vehicle and property; wider cover, dearer.
(b) Whole life – premiums are paid until death and the sum assured is paid to dependants only on death. Endowment – premiums are paid for a fixed period and the sum is paid at the end of the period or on earlier death, so the insured may benefit in his lifetime.
(c) Insurance covers risks that may or may not happen (fire, theft, accident); assurance covers an event that is certain to happen (death), only the time is uncertain.
(d) Premium is the amount the insured pays to the insurer for cover, paid before any loss; compensation is the amount the insurer pays the insured after a loss.

Give at least one clear difference for each pair.

(i) Small stores – unit retail shops, usually owned by sole traders, near homes; small capital; sell small quantities of convenience goods; personal service and sometimes credit.
(ii) Mobile shops – vans or vehicles fitted as shops that move from place to place selling to customers in their areas; limited range of goods.
(iii) Tied shops – shops that sell only the products of one manufacturer, which often helps with finance and equipment (e.g. petrol stations).
(iv) Supermarkets – large self-service shops selling mainly food and household goods; price-marked goods on shelves; trolleys and baskets; check-out points; cash sales.
(v) Peddling – a form of itinerant trade in which the trader carries goods from house to house or place to place; small capital; few kinds of goods; affected by weather.

Two or three features of each is enough.

(a) Any five, explained: moves raw materials to factories; distributes finished goods to markets (bridges distance); widens the market, allowing large-scale production; helps stabilise prices by moving goods from surplus to shortage areas; moves workers and businessmen; aids specialisation; helps foreign trade; perishable goods reach consumers quickly.
(b) Tramp vessels (any three): no fixed routes or timetables; carry bulky cargo (coal, ore, timber, grain); hired on charter (time or voyage); freight rates fixed by supply and demand; go to any port where cargo is available.
Ocean liners (any two): sail on fixed routes at fixed times; fixed published freight rates; carry passengers and/or general cargo; owned by large shipping lines (often in conferences); fast and regular.

Contrast tramps (irregular) with liners (regular).

(a)(i) Total assets = fixed assets 278,000 + current assets 50,000 = N328,000; total liabilities = accrued expenses 12,000 + bank overdraft 3,500 + creditors 5,000 = N20,500; capital owned = 328,000 − 20,500 = N307,500.
(ii) Fixed assets = premises 75,000 + motor vehicle 60,000 + fixtures and fittings 60,000 + machinery 65,000 + warehouse 18,000 = N278,000.
(iii) Current assets = stock 20,000 + prepayment 10,000 + cash in hand 8,000 + cash at bank 6,000 + debtors 6,000 = N50,000; current liabilities = N20,500; working capital = 50,000 − 20,500 = N29,500.
(b) Any five: issue of ordinary shares; preference shares; debentures; bank loans and overdrafts; retained profits (ploughed-back); trade credit; hire purchase/leasing; government grants; loans from finance houses.

Capital owned = total assets − total liabilities.

(a) Any five: to identify and distinguish his product from rivals'; to make advertising easier; to build customer loyalty and repeat buying; to protect against imitation; to allow a higher price for a known quality; to make introducing new products easier; to control quality and image.
(b) Any five: protects goods from damage, dirt and spoilage; makes goods attractive (advertises them); makes handling, storage and carriage easier; carries information (contents, weight, instructions, expiry date); allows self service; prevents adulteration/short weight; preserves goods longer; containers may be reused.

Branding gives a product an identity; packaging protects and presents it.

(a) A market is any arrangement by which buyers and sellers of a commodity come into contact to exchange it at a price; it need not be a particular place.
(b) Any four, explained: links production with consumption so goods reach consumers; creates employment (sales, advertising, transport); encourages mass production and economic growth; raises standards of living by making goods available; finds out consumers' needs (market research), so resources are not wasted; earns revenue/foreign exchange; encourages competition and quality.
(c) Any five: buying; selling; transportation; storage/warehousing; standardisation and grading; financing; risk bearing; market research/information; advertising and promotion; packaging.

A market is defined by contact between buyers and sellers, not a place.

(a) Indigenisation is a government policy of transferring ownership and control of businesses from foreigners to citizens of the country (e.g. Nigeria's Enterprises Promotion Decrees of 1972 and 1977).
(b) Advantages (any four): gives citizens control of the economy; profits stay in the country instead of being sent abroad; develops local entrepreneurs and managers; creates jobs for citizens; reduces foreign domination and exploitation; encourages local savings and investment.
Disadvantages (any four): discourages foreign investment; shortage of local capital and managerial skill, leading to inefficiency; transfer of technology may slow down; shares concentrated in the hands of a few rich citizens (fronting); fall in production and quality; loss of foreign exchange inflow.

Four points on each side in (b).