WAEC SSCE - Commerce - 2004 (Essay)

Five problems associated with international trade

1. Differences in currencies: Each country has its own currency, so payment involves converting one currency into another, which creates exchange-rate difficulties.
2. Language barriers: Traders from different countries speak different languages, which makes negotiation, correspondence and understanding of terms difficult.
3. Trade restrictions: Tariffs, quotas, import licences and embargoes imposed by governments hinder the free flow of goods between countries.
4. Long distance and transport risks: Goods travel over long distances, exposing them to delay, damage, loss and high transport and insurance costs.
5. Differences in weights, measures and laws: Countries use different systems of weights and measures and different commercial laws, causing confusion and disputes.
6. Problems of payment and debt recovery: Distance and different legal systems make it difficult to obtain prompt payment and to recover debts from foreign buyers.

(a) Difference between Privatization and Nationalization

Privatization is the transfer of ownership and control of a business or enterprise from the government (public sector) to private individuals or organisations. Nationalization is the opposite: the transfer of ownership and control of a private business or enterprise to the government or state.

In short, privatization moves an enterprise from public to private hands, while nationalization moves it from private to public (government) hands.

(b) Four reasons why a country may privatize state-owned enterprises

1. To improve efficiency: Private ownership introduces the profit motive and better management, which raise productivity and reduce waste.
2. To reduce the financial burden on government: Loss-making public enterprises drain public funds; selling them relieves the government of subsidies.
3. To raise revenue: The government earns money from the sale of the enterprises, which can be used for other projects.
4. To encourage private investment and wider share ownership: Privatization attracts private capital and spreads ownership among many citizens, deepening the capital market.

(a) Authorized Capital vs Called-up Capital

Authorized capital (also called nominal or registered capital) is the maximum amount of share capital that a company is allowed to raise, as stated in its Memorandum of Association. Called-up capital is that part of the issued capital which the company has actually demanded (called up) from shareholders to be paid. Authorized capital sets the legal ceiling, while called-up capital is the amount shareholders are presently required to pay.

(b) Calculations

Cost of purchases:

• Suitcases: 32 × N3,500 = N112,000
• Shirts: 42 × N800 = N33,600
• Total purchases = 112,000 + 33,600 = N145,600

Add carriage inwards (transport to premises) = N2,500

Cost of goods sold = 145,600 + 2,500 = N148,100

(a) Gross profit

Gross profit = Sales - Cost of goods sold = 180,000 - 148,100 = N31,900

(b) Net profit

Wages and salaries = 2 workers × N4,500 = N9,000

Net profit = Gross profit - Expenses = 31,900 - 9,000 = N22,900

(a) Five benefits Adama and Awa are likely to derive from a partnership

1. More capital: Two or more partners can pool larger capital than a sole trader, allowing the business to expand.
2. Sharing of risks and losses: Losses and business risks are borne by the partners jointly, reducing the burden on any one person.
3. Combined skills and ideas: The partners bring different abilities, experience and ideas, leading to better decisions.
4. Division of labour: Duties can be shared according to each partner's ability, improving efficiency.
5. Greater continuity and easier borrowing: The business can continue with the remaining partners, and lenders are more willing to grant credit to a partnership than to a sole trader.

(b) Five provisions in the Partnership Deed

1. The name of the firm and the names of the partners.
2. The amount of capital to be contributed by each partner.
3. The ratio in which profits and losses are to be shared.
4. The rights, duties and powers of each partner.
5. The rules for admitting new partners and for dissolving the partnership, and the treatment of interest on capital and drawings.

(a) Five reasons why consumers need protection

1. Sale of adulterated or substandard goods: Some traders sell fake, expired or poor-quality products harmful to consumers.
2. Ignorance of consumers: Many consumers lack full knowledge of products and prices and can easily be cheated.
3. False or misleading advertising: Exaggerated claims deceive consumers into buying goods that do not perform as promised.
4. Under-measurement and short weight: Some sellers use faulty scales and measures to give less than the correct quantity.
5. Overpricing and exploitation: Traders, especially monopolists, may charge unfairly high prices, taking advantage of consumers.

(b) Five means by which consumers can be protected

1. Government legislation: Laws on weights and measures, food and drugs, and standards protect consumers against malpractice.
2. Standards organisations: Bodies such as a national standards organisation set and enforce quality standards for goods.
3. Consumer protection agencies/councils: Government-established councils receive and settle consumer complaints.
4. Consumer associations: Voluntary bodies educate consumers and press for their rights.
5. Price control: Government fixes maximum prices for essential goods to prevent exploitation.

(a) What is a Capital Market?

A capital market is the market where long-term funds are borrowed and lent, that is, where medium and long-term securities such as shares, stocks, debentures and government bonds are bought and sold. It is made up of institutions like the stock exchange, development banks, insurance companies and issuing houses that channel long-term savings into investment.

(b) Eight reasons why a bank may dishonour a cheque

1. Insufficient funds: The drawer does not have enough money in the account to cover the cheque.
2. Post-dated cheque: The cheque bears a future date and is presented before that date.
3. Stale cheque: The cheque is presented after it has expired (usually more than six months old).
4. Words and figures differ: The amount written in words does not agree with the amount in figures.
5. Irregular or missing signature: The drawer's signature is absent or differs from the specimen held by the bank.
6. Stop payment order: The drawer has instructed the bank not to pay the cheque.
7. Death, insanity or bankruptcy of the drawer: The bank receives notice of the drawer's death, insanity or bankruptcy.
8. Alterations not countersigned: There is an unauthorised alteration on the cheque that the drawer has not countersigned.

Five ways by which the post office aids business

1. Delivery of mail: The post office conveys letters, invoices, orders and documents between businesses and their customers, enabling communication and trade.
2. Parcel post: It delivers goods and parcels to customers, helping traders to distribute their products, especially to distant buyers.
3. Money transfer services: Through postal orders and money orders, the post office enables businesses and customers to send and receive payments safely.
4. Savings and banking facilities: Post office savings banks allow small savers and traders to keep their money safely and earn interest.
5. Registered and insured mail: The post office provides secure carriage of valuable documents and items, with compensation if they are lost, giving businesses confidence.
6. Provision of post office boxes and telecommunication services: P.O. boxes give firms a secure address for mail, while telephone and telegram services aid quick communication.

(a) Five effects of hire purchase on the buyer

1. The buyer takes possession of and uses the goods immediately while paying by instalments.
2. The buyer pays more than the cash price because of the interest added, so the goods cost more in the end.
3. The buyer becomes the legal owner only after paying the last instalment.
4. The buyer may lose the goods and the instalments already paid if he defaults before completing payment.
5. Hire purchase enables the buyer to acquire expensive assets that he could not pay for at once, but it may tempt him to overspend and fall into debt.

(b) Five effects of hire purchase on the seller

1. The seller enjoys higher total returns because interest is charged on the instalments.
2. The seller increases sales volume by attracting buyers who cannot pay cash.
3. The seller remains the legal owner of the goods until the final instalment is paid, giving him security.
4. The seller can repossess the goods if the buyer defaults on payment.
5. The seller has his capital tied up over the payment period and bears the risk of bad debts and the cost of collecting instalments.

Explanation of terms:

1. Prospectus: A formal document or invitation issued by a public company to the general public inviting them to subscribe for (buy) its shares or debentures. It contains details of the company's activities, prospects and terms of the offer.
2. Share certificate: A document issued by a company under its seal as evidence that the named person is the registered owner of the stated number of shares. It shows ownership and the amount paid on the shares.
3. Underwriting of shares: An arrangement whereby an underwriter (usually a bank or issuing house), for a commission, agrees to buy up any shares of a new issue that are not taken up by the public, thereby guaranteeing the company that its shares will be fully subscribed.
4. Ordinary shares: These are the equity shares of a company whose holders are the real owners and risk-bearers. They receive dividends only after preference shareholders have been paid, the rate varying with profit, and they carry voting rights.
5. Dividend warrants: A document, similar to a cheque, sent by a company to a shareholder authorising the shareholder to receive the dividend due on the shares from the company's bank.

Two advantages of each advertising medium:

(a) Newspaper

• It reaches a wide readership quickly and can carry detailed information about the product.
• It is relatively cheap and can be kept and re-read, and adverts can be placed at short notice.

(b) Radio

• It reaches both literate and illiterate people and covers a very wide area, including rural communities.
• Messages can be broadcast in local languages, making them understandable to many.

(c) Television

• It combines sound, motion and pictures, allowing products to be demonstrated attractively.
• It has a strong impact and appeals to a large audience, encouraging quick response.

(d) Posters

• They are cheap and, when placed at busy points, are seen repeatedly by many passers-by.
• Their bold pictures and few words attract attention even from those in a hurry.

(e) Direct mail

• It is selective, reaching the particular customers the advertiser targets.
• It can carry a personal and detailed message, and results can be measured by responses received.