56 questions. Try each one, then open the answer to check yourself and read the explanation.
A document used as a polite way of refusing credit is
Answer: C (proforma invoice.)
A proforma invoice asks for payment before the goods are sent, politely refusing credit.
Carriage forward on an invoice means
Answer: C (carriage will be paid by buyer.)
'Carriage forward' means the buyer pays the cost of transport; 'carriage paid' means the seller does.
Which of the following is not contained in a consignment note?
Answer: D (Cost of goods.)
A consignment note describes the goods and names sender and receiver for the carrier; it does not show their price.
The PW Company Ltd. achieved the following result in 2012: Sales Le 100,000; Profit Le 5,000; Capital employed Le 20,000. The return on capital employed is
Answer: A (25%.)
Return on capital employed = profit ÷ capital employed × 100 = 5,000 ÷ 20,000 × 100 = 25%.
Which of the following will be suitable for hire purchase sale?
Answer: B (Refrigerator.)
Hire purchase suits durable, costly goods such as a refrigerator, which can be repossessed if payments stop.
A person who earns extra commission for guaranteeing debts is a
Answer: D (del-credere agent.)
A del credere agent earns an extra commission for guaranteeing that buyers will pay.
An insurance principle that prevents a person from insuring what he does not stand to lose financially if the insured risk occurs is
Answer: B (insurable interest.)
Insurable interest means you can insure only what you would lose money on.
Voyage policy insurance is associated with
Answer: C (marine.)
A voyage policy covers a ship or cargo for a particular sea voyage, so it is marine insurance.
If a share is quoted ex-div, it means the new buyer would
Answer: B (not get the next dividend.)
Ex-div (without dividend) means the coming dividend stays with the seller.
Which of the following is the function of commerce?
Answer: D (The exchange and distribution of goods and services.)
Commerce deals with the exchange and distribution of goods and services.
The last link in the production process is the
Answer: C (consumer.)
Production is complete only when goods reach the consumer.
The Board of Directors of Public corporation is appointed by the
Answer: A (government.)
Government owns public corporations and appoints their boards.
The object clause of a limited liability company is stated in the
Answer: A (Memorandum of Association.)
The objects clause is part of the memorandum of association.
A market which deals in the purchase and sale of second-hand securities is the
Answer: A (Stock Exchange.)
Existing (second-hand) securities are traded on the stock exchange.
To endorse a cheque means to
Answer: A (write and sign one's name at the back of the cheque.)
Endorsing is signing on the back of a cheque, usually to transfer it.
An insurance policy that covers the body of the ship only is called
Answer: C (Hull insurance.)
Hull insurance covers the ship itself.
Mr. Biu has been paying the premium of a straight Life Assurance policy for several years. The surrender value of the policy is the amount that
Answer: A (would be paid to Mr. Biu if he should discontinue with the policy.)
The surrender value is what the insurer pays if the policy is cashed in before it matures.
The use of current account in business is convenient because
Answer: A (withdrawal can be made at any time.)
Money in a current account can be withdrawn at any time by cheque.
The cost of telephone conversation is determined by the
Answer: C (duration of the conversation.)
Telephone calls are charged by how long they last (and distance).
'Not negotiable' on a cheque means
Answer: C (the holder has no better title than the person who transfers it.)
A 'not negotiable' crossing means the cheque can still be passed on, but the receiver gets no better title than the person who gave it to him.
The type of transport a manufacturer will use will be influenced by
Answer: D (nature of goods.)
Perishable, fragile or bulky goods each need suitable transport.
A contract made between a ship owner and a merchant for the carriage of cargo is
Answer: B (charter party.)
A charter party is the contract for hiring a ship or its space.
Advertising efforts geared towards a particular audience is known as
Answer: B (direct advertising.)
Direct advertising is aimed at a selected group, e.g. by direct mail.
Trade fairs and exhibitions are media of
Answer: A (sales promotion.)
Trade fairs and exhibitions display products to boost sales, so they are sales promotion.
The concept which says that a company's production policy should be centred on the ultimate user of the product is known as
Answer: B (consumer sovereignty.)
Consumer sovereignty means consumers' wishes decide what is produced.
Which of the following is a feature of supermarkets?
Answer: C (Goods are on display with price tags.)
Supermarkets display price-marked goods for self-service.
A personal computer on sale in an office equipment shop is an example of
Answer: A (stock.)
Goods held for resale are stock, a current asset.
The difference between current assets and current liabilities is
Answer: C (working capital.)
Working capital = current assets − current liabilities.
A Ltd. Company has an authorized capital of 2,000,000 shares of D5 each. If the company issued 1,200,000 shares, its issued capital is
Answer: B (D6,000,000.)
Issued capital = 1,200,000 × D5 = D6,000,000.
The money used by Ola Maro and Co. Ltd. in running the day-to-day activities of the business is represented by
Answer: D (working capital.)
Working capital pays for day-to-day running.
Which of the following is an advantage to a sole trader?
Answer: B (Quick decision-making.)
A sole trader decides alone, so decisions are quick.
A country's deliberate decision to reduce the value of her currency is called
Answer: C (devaluation.)
Devaluation is an official reduction of a currency's value.
Which of the following is not a function of warehousing?
Answer: A (Creating scarcity of goods.)
Warehousing reduces scarcity by releasing goods when needed; creating scarcity (hoarding) is not its function.
Ad valorem duties are based on the
Answer: B (value of the goods imported.)
Ad valorem means 'according to value'.
A tariff refers to
Answer: C (taxes imposed on imported goods.)
A tariff is a tax on imports.
The selling of goods in small units is normally performed by
Answer: D (retailers.)
Retailers sell to consumers in small quantities.
Direct sales to consumers by manufacturers is a means of eliminating
Answer: C (middlemen.)
Selling direct cuts out all middlemen (wholesalers and retailers).
A physical restriction placed on the quantity of goods that can be imported is
Answer: B (a quota.)
A quota limits the quantity of a good that can be imported.
A country is said to achieve a trade surplus when total
Answer: A (visible exports exceed total visible imports.)
The balance of trade compares visible exports and imports; a surplus means exports are greater.
The process of winding up a public limited company by a court order is known as
Answer: D (compulsory liquidation.)
Winding up ordered by a court is compulsory liquidation.
A person who undertakes responsibility for forming a new company is
Answer: D (promoter.)
The promoter takes the steps needed to form a new company.
A term which describes the value of business connections made by a company over the years is known as
Answer: C (goodwill.)
Goodwill is the value of a firm's reputation and customer connections.
The ancillary to trade which ensures that people have access to information pertaining to goods is
Answer: B (advertising.)
Advertising gives people information about goods.
The insurance principle of indemnity does not apply to
Answer: B (life assurance.)
Life cannot be valued in money, so life assurance is not a contract of indemnity.
Which of the following price quotations requires the buyer to take delivery at the manufacturer's warehouse?
Answer: A (Ex-works)
An ex-works price covers the goods only at the seller's works; the buyer collects them there.
To take an insurance policy, an applicant must first complete a/an
Answer: A (proposal form.)
The proposal form gives the insurer the facts it needs to accept the risk.
Commerce 2 (essay)
(a) Distinguish between Commerce and Industry.
(b)(i) Explain three activities involved in industry.
(ii) Explain five activities involved in commerce.
(a) Commerce is concerned with the exchange and distribution of goods and services (trade and aids to trade); industry is concerned with the actual production of goods – extracting, manufacturing and constructing.
(b)(i) Extraction – obtaining raw materials from nature, e.g. mining, fishing, farming; manufacturing – changing raw materials into finished goods, e.g. textiles; construction – assembling materials into structures, e.g. building roads, houses.
(ii) Any five, explained: trade (home and foreign buying and selling); banking/finance; insurance; transport; communication; advertising; warehousing; tourism.
Industry makes goods; commerce distributes them.
Commerce 2 (essay)
(a) State five features of a public corporation.
(b) List and explain five sources of capital available to a limited liability company.
(a) Any five: created by an Act/decree; owned and controlled by government; managed by a board appointed by government; provides essential services at moderate prices; not mainly profit-motivated; financed by government grants/subsidies; is a legal entity that can sue and be sued; accountable to a minister/parliament.
(b) Any five, explained: issue of shares (ordinary and preference); debentures (long-term loans at fixed interest); retained/ploughed-back profits; bank loans; bank overdrafts; trade credit; leasing/hire purchase of equipment; debt factoring; government grants/tax holidays; sale of assets.
Explain each source in (b) in a sentence.
Commerce 2 (essay)
(a) What is mail order business?
(b) List and explain six trends in retailing.
(a) Mail order business is retailing in which customers choose goods from catalogues or adverts, order by post, phone or internet, and the goods are sent to them by post or courier.
(b) Any six, explained: self-service; growth of supermarkets and hypermarkets; branding and pre-packaging; online/e-commerce shopping; electronic payment (cards, POS); automatic vending; after-sales services; credit facilities; trading stamps/loyalty schemes; luncheon/gift vouchers; mobile shops; chain stores/franchising; shopping malls.
Trends are modern developments in how retailers sell.
Commerce 2 (essay)
Write explanatory notes on the following Stock Exchange terms:
(a) Bull;
(b) Bear;
(c) Option;
(d) Backwardation;
(e) Contango.
(a) Bull – a speculator who buys shares expecting prices to rise, so he can sell at a profit.
(b) Bear – a speculator who sells shares (often ones he does not have) expecting prices to fall, so he can buy back cheaper.
(c) Option – the right, bought for a fee, to buy (call) or sell (put) shares at a fixed price within a stated period.
(d) Backwardation – the charge a bear pays to postpone delivery of shares he has sold to the next settlement period.
(e) Contango – the charge a bull pays to postpone payment for shares he has bought to the next settlement period.
Bull buys expecting a rise; bear sells expecting a fall.
Commerce 2 (essay)
Explain the following insurance terms:
(a) Proximate cause;
(b) Surrender value;
(c) Contribution;
(d) Utmost good faith;
(e) Premium.
(a) Proximate cause – the insurer pays only if the main (nearest, dominant) cause of the loss is a risk covered by the policy.
(b) Surrender value – the amount the insurer pays if a life policy is cashed in before maturity.
(c) Contribution – where the same property is insured with more than one insurer, they share the loss in proportion and the insured cannot claim more than the loss.
(d) Utmost good faith (uberrimae fidei) – both parties must disclose all material facts honestly; otherwise the contract can be avoided.
(e) Premium – the amount the insured pays regularly to the insurer for cover.
Define each term in one or two sentences.
Commerce 2 (essay)
(a) State five importance of personal selling to a business.
(b) Explain five reasons why communication is important to a business.
(a) Any five: allows demonstration of products; immediate feedback from customers; objections answered on the spot; builds good customer relations; message suited to each buyer; sale can be closed at once; useful for technical/expensive goods; increases sales.
(b) Any five, explained: links the firm with customers and suppliers (orders, enquiries); helps advertising and sales; enables coordination and instructions within the firm; quick decisions save time and money; helps in payments/banking; keeps the firm informed about markets and prices; maintains good public relations.
Each reason in (b) should show a benefit to the business.
Commerce 2 (essay)
State two distinguishing features between each of the following:
(a) Tramp vessels and ocean liners;
(b) A factor and a broker;
(c) A commissioned agent and a del-credere agent;
(d) Consular invoice and proforma invoice;
(e) Insurance and Assurance.
(a) Tramps have no fixed route or timetable and go wherever cargo is available, mostly carrying bulky cargo; liners sail on fixed routes at scheduled times, carrying passengers and general cargo at fixed rates.
(b) A factor holds the goods and may sell in his own name, give credit and fix prices; a broker does not hold the goods and deals in the principal's name, earning brokerage.
(c) A commission agent sells for a commission but does not guarantee buyers' payment; a del credere agent guarantees payment by the buyers he finds and earns an extra (del credere) commission.
(d) A consular invoice is certified by the importing country's consul and is used in foreign trade to confirm value/origin for duty; a proforma invoice is sent before goods are supplied, e.g. to ask for payment in advance or as a quotation.
(e) Insurance covers risks that may or may not happen (fire, theft) and follows indemnity; assurance covers events that will certainly happen (death) and pays an agreed sum, not indemnity.
Give two contrasting points for each pair.
Commerce 2 (essay)
(a) Explain the meaning of market segmentation.
(b) List and explain four factors to be considered in segmenting a market.
(a) Market segmentation is dividing the whole market for a product into smaller groups of buyers who have similar needs or characteristics, so the firm can target each group.
(b) Any four, explained: age; sex/gender; income level; geographical location; occupation/social class; religion/culture; education; lifestyle/tastes; size of family.
Factors in (b) are the characteristics used to group buyers.
Commerce 2 (essay)
(a) Define the following terms:
(i) Nationalization;
(ii) Indigenization;
(iii) Commercialization;
(iv) Privatization.
(b) State four why government should participate in business.
(a)(i) Nationalisation – government takes over ownership and control of privately owned businesses.
(ii) Indigenisation – transferring ownership and control of businesses from foreigners to citizens.
(iii) Commercialisation – reorganising government enterprises to run on commercial (profit) lines while remaining government-owned.
(iv) Privatisation – selling all or part of government-owned enterprises to private individuals or firms.
(b) Any four: to provide essential services at low cost; to control strategic industries; to prevent private monopolies exploiting consumers; projects too large for private investors; to create jobs; to ensure balanced development; to earn revenue.
In (b) the question means 'four reasons why'.
Commerce 2 (essay)
Leonard is a retailer who deals in cement. He started business on 1st January, 2011. The following information was extracted from his books (Le):
Rent – 25,000
Sales – 850,000
Returns outwards – 15,000
Purchases – 400,000
Return inwards – 25,000
Insurance – 45,000
Fixtures and fittings – 15,000
Wages and salaries – 112,000
Transport – 6,000
From the above information calculate the:
(a) Turnover;
(b) Cost of goods sold;
(c) Gross Profit;
(d) Net Profit;
(e) Rate of stockturn.
(a) Turnover (net sales) = sales − returns inwards = 850,000 − 25,000 = Le 825,000.
(b) Cost of goods sold = purchases − returns outwards = 400,000 − 15,000 = Le 385,000 (no opening or closing stock is given, as business started in 2011).
(c) Gross profit = 825,000 − 385,000 = Le 440,000.
(d) Expenses = rent 25,000 + insurance 45,000 + wages and salaries 112,000 + transport 6,000 = 188,000; net profit = 440,000 − 188,000 = Le 252,000. (Fixtures and fittings are a fixed asset, not an expense.)
(e) Rate of stockturn = cost of goods sold ÷ average stock; no opening or closing stock figures are given (average stock is nil), so the rate cannot be worked out from this information.
Leave fixtures and fittings out of expenses; they are an asset.