WAEC SSCE - Commerce - 2021 (Essay)

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(a) Meaning of an economic grouping

An economic grouping (or economic community) is an association of two or more independent countries, usually within the same geographical region, that come together to promote closer economic co-operation among their members. Such groupings aim at removing trade barriers, encouraging the free movement of goods, services, capital and persons, and pursuing joint development projects for the mutual economic benefit of the member states. Examples in Africa include ECOWAS, the Lake Chad Basin Commission and the Niger Basin Commission.

(b) Three objectives of each organisation

(I) Lake Chad Basin Commission (LCBC)

• To regulate and control the use of the water and other natural resources of the Lake Chad Basin among member states.
• To prevent disputes and promote co-operation over the shared water resources of the basin.
• To initiate and coordinate joint development projects such as irrigation, fishing and agriculture for the benefit of member countries.

(ii) ECOWAS (Economic Community of West African States)

• To promote economic co-operation and integration among West African states, leading eventually to an economic union.
• To ensure the free movement of goods, services, capital and persons across member states by removing trade and immigration barriers.
• To establish a common external tariff and promote joint development in industry, transport, agriculture and energy.

(iii) Niger Basin Commission (Niger Basin Authority)

• To promote co-operation among member states in the development and use of the water resources of the River Niger basin.
• To coordinate joint projects such as navigation, irrigation, hydroelectric power generation and flood control.
• To harmonise national development policies affecting the basin so as to avoid conflict and ensure sustainable use of shared resources.

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Difference between a merger and an acquisition

A merger is the coming together of two or more separate companies, usually of similar size, to form one entirely new and larger company by mutual agreement. The old companies lose their separate identities and pool their assets under a single new name.

An acquisition (takeover) occurs when one company (usually the larger and stronger) buys a controlling interest in, or the whole of, another company. The acquired company is absorbed into the buyer and the buyer retains its own identity, while the acquired firm may cease to exist independently.

In short, a merger is a fusion of equals into a new firm, while an acquisition is one firm taking over another.

Five ways commerce is important in the life of a nation

1. Distribution of goods and services: Commerce moves goods from producers to consumers, ensuring that people's wants are satisfied.
2. Employment generation: Trading, banking, insurance, transport and advertising provide jobs for many citizens.
3. Source of government revenue: Commercial activities yield taxes, customs and excise duties that finance national development.
4. Raises the standard of living: By making a wide variety of goods available, commerce improves the welfare and comfort of the people.
5. Promotes specialisation and industrial growth: By providing wide markets and aids to trade, commerce encourages large-scale production and the growth of industries.

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(a) Types of capital

(i) Authorized capital: This is the maximum amount of share capital that a company is permitted to raise from the public, as stated in its Memorandum of Association. It is also called nominal or registered capital, and the company cannot issue shares beyond this limit without altering the memorandum.

(ii) Liquid capital: This is the excess of a firm's liquid (quick) assets over its current liabilities. Liquid assets are the current assets that are cash or readily convertible into cash, i.e. current assets less stock (and prepayments). It measures the firm's ability to settle short-term debts immediately.

(b) Bandin and Bachur Partnership as at 31st March, 2020

(i) Fixed assets = 150,000 + 300,000 + 40,000 = N490,000

(ii) Current liabilities = Creditors + Overdraft = 120,000 + 45,000 = N165,000

(iii) Current assets = Cash at bank + Debtors + Closing stock = 25,000 + 150,000 + 25,000 = N200,000

(iv) Working capital = Current assets - Current liabilities = 200,000 - 165,000 = N35,000

(v) Average stock = (Opening stock + Closing stock) / 2 = (30,000 + 25,000) / 2 = N27,500

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(a) What is Entrepot Trade?

Entrepot trade (re-export trade) is the importation of goods from one country for the purpose of re-exporting them to another country, either in their original form or after some processing or repackaging. The goods are not consumed in the importing country; it merely serves as a warehouse or transit point.

(bi) Difference between a Bill of Lading and a Consignment Note

A Bill of Lading is a document used in sea (foreign) transport. It is a receipt for goods shipped, evidence of the contract of carriage, and above all a document of title to the goods, so it can be transferred to give ownership. A Consignment Note is used in inland transport (road or rail). It is a receipt and instruction for the carriage of goods but is not a document of title, so it cannot transfer ownership of the goods.

(bii) Use of Bill of Sight in foreign trade

A bill of sight is used by an importer who does not have full details of goods he is expecting. It allows the goods to be landed and inspected in the presence of a customs officer so that their exact nature and quantity can be established before the correct import duty is assessed and paid.

(c) Five reasons for the criticism against Advertising

1. It increases the cost of goods, since advertising expenses are passed on to consumers.
2. It can be misleading or deceptive, exaggerating the qualities of products.
3. It encourages wasteful and impulse spending on goods people do not really need.
4. Some advertisements are offensive or corrupt morals, especially of the young.
5. It may promote monopoly, as large firms that can afford heavy advertising drive out small competitors.

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Differences between the pairs of terms

(i) Interest and Profit

Interest is the reward or price paid for the use of borrowed capital (loan capital), usually at a fixed rate. Profit is the reward earned by the entrepreneur for bearing risk and organising the other factors of production; it is the surplus of revenue over total cost and is not fixed.

(ii) Share and Debenture

A share is a unit of the ownership capital of a company; a shareholder is a part-owner and receives a variable dividend out of profit. A debenture is a loan to the company; a debenture holder is a creditor, not an owner, and receives a fixed rate of interest whether or not profit is made.

(iii) Ordinary share and Preference share

An ordinary share earns a variable dividend paid only after preference shareholders, carries voting rights and bears the greatest risk. A preference share earns a fixed rate of dividend paid before ordinary shares, usually carries no voting rights and ranks ahead of ordinary shares on repayment.

(iv) Cumulative preference share and Participating preference share

A cumulative preference share is one on which any dividend not paid in a lean year is carried forward and made up in later profitable years. A participating preference share is one that, besides its fixed dividend, is entitled to share in any surplus profit remaining after ordinary shareholders have received a stated dividend.

(v) Cum div and Ex div

Cum div (cum dividend) means the shares are sold together with the right to the dividend already declared, so the buyer receives the coming dividend. Ex div (ex dividend) means the shares are sold without the right to the declared dividend, so the seller keeps that dividend.

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(a) Five means of payment in Home Trade

1. Cash (legal-tender notes and coins)
2. Cheque
3. Bank draft
4. Standing order / direct debit
5. Credit transfer (bank giro) or electronic transfer such as ATM and POS payments

Postal order and money order are also acceptable.

(b) Ways computers could be useful to a motor vehicle seller

1. Stock control: The computer keeps an up-to-date record of the make, model, colour and quantity of vehicles in stock, showing what has been sold and what remains.
2. Record keeping and accounts: It stores customer details, prepares invoices and receipts and keeps the business accounts accurately.
3. Advertising and online sales: The seller can display vehicles on a website or social media, reaching customers far and wide and even selling online.
4. Communication: It sends and receives e-mails and messages to and from customers, suppliers and manufacturers quickly.
5. Price and financing calculations: It quickly computes prices, discounts, hire-purchase and loan repayment schedules for buyers.
6. Storing customer database for after-sales service: It keeps service and warranty records so the seller can remind customers of servicing and follow up sales.

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(i) The organizational principle and its explanation

Madam Fana has based her decision on the principle of Delegation of Authority. Delegation is the process by which a superior entrusts part of her authority and duties to a subordinate to act on her behalf, while the superior still remains ultimately responsible (accountable) for the work. By assigning an assistant to perform her duties during her leave, she is delegating her authority so that the work of the office continues in her absence.

(ii) Four duties of Madam Fana as human resources manager

1. Recruitment and selection of suitable staff for the company.
2. Training and development of employees to improve their skills.
3. Handling staff welfare, discipline, promotion and industrial relations.
4. Keeping personnel records and managing salaries, wages and staff performance.

(iii) Management functions explained

1. Planning: Deciding in advance what is to be done, how, when and by whom; it involves setting objectives and mapping out the course of action to achieve them.
2. Organizing: Arranging and combining human and material resources, grouping activities into duties and assigning them so that objectives can be achieved.
3. Directing: Guiding, leading, motivating and instructing subordinates so that they carry out their assigned tasks willingly and effectively.
4. Controlling: Monitoring and measuring actual performance against the set plans and standards, and taking corrective action where there are deviations.

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(a) Four functions of Money

1. Medium of exchange: money is generally accepted in payment for goods and services, removing the difficulties of barter.
2. Measure of value: it provides a common standard in which the value of all goods and services can be expressed and compared.
3. Unit of account: it serves as the unit in which prices, incomes and accounts are recorded and calculated.
4. Store of value: it can be saved and held to preserve purchasing power for future use.
5. Standard of deferred payment: it allows debts and future payments to be fixed and settled in agreed money terms.

(b) How the operators function on a stock exchange

1. Bull: a speculator who buys securities expecting prices to rise, intending to resell them at a higher price before payment for the securities falls due.
2. Jobber: a member who buys and sells securities in his own name and for his own account, making a profit called the jobber's turn.
3. Broker: an individual or firm who links buyers and sellers of securities with the jobbers and earns a commission known as brokerage.
4. Stag: a speculator who subscribes to new issues of shares in the hope of selling them at a profit once dealing in them begins.