WAEC SSCE - Commerce - 2005 (Essay)

(a) Five characteristics of a limited liability company

1. Separate legal entity: The company is a legal person distinct from its owners; it can sue and be sued in its own name.
2. Limited liability: The liability of members is limited to the amount unpaid on the shares they hold; personal property is not at risk for company debts.
3. Perpetual succession: The company continues to exist despite the death, retirement or bankruptcy of any member.
4. Ownership by shareholders: Its capital is divided into shares owned by members, and ownership can be transferred.
5. Management by a Board of Directors: The company is run by directors elected by the shareholders on their behalf.

(b) Five sources of funds to a public limited company

1. Sale of shares (equity): Raising capital by issuing ordinary and preference shares to the public.
2. Debentures: Borrowing long-term funds from the public by issuing debentures on which fixed interest is paid.
3. Bank loans and overdrafts: Obtaining medium and short-term finance from commercial banks.
4. Retained profits (ploughed-back earnings): Reinvesting part of the company's profits instead of distributing all as dividends.
5. Trade credit: Obtaining goods and materials from suppliers on credit terms.

(a) Distinction between trade and commerce

Trade is the buying and selling of goods and services with the aim of making a profit. It is only one part of commerce and covers the actual exchange between buyer and seller (home trade and foreign trade).

Commerce is wider. It embraces trade together with all the aids to trade (banking, insurance, transport, warehousing, advertising and communication) that make the exchange and distribution of goods possible. In short, trade is a branch of commerce, while commerce is the whole activity of distribution.

(b) Five activities engaged in by people in commercial occupations

1. Trading (buying and selling): Wholesalers and retailers buy goods and sell them to consumers at a profit.
2. Banking: Bankers accept deposits, lend money and provide payment services to traders.
3. Insurance: Insurers cover business risks such as fire, theft and accident in exchange for premiums.
4. Transportation: Carriers move goods and people from producing to consuming areas by road, rail, water and air.
5. Advertising and communication: Advertisers and communicators inform buyers about goods and link businesses with their customers and suppliers.

Documents described with one use of each

(a) Consignment note

A document prepared by the sender and carried with goods sent by a carrier (usually by road or rail), giving details of the goods, the consignor and the consignee.

• Use: It serves as the carrier's receipt and instruction for the delivery of goods to the named consignee.

(b) Bill of sight

A provisional customs document used by an importer who does not have full particulars of imported goods, allowing the goods to be landed and examined before duty is finally assessed.

• Use: It permits the inspection of goods at the port so that correct import duty can be determined.

(c) Catalogue

A booklet or list issued by a seller showing the goods on offer, with their descriptions, prices and reference numbers.

• Use: It enables customers to see, compare and order goods without visiting the seller's premises.

(d) Manifest

A complete list of all the cargo carried on a ship or aircraft, prepared by the master and given to the customs authority.

• Use: It informs customs of the entire cargo on board for inspection and assessment of duty.

(e) Waybill

A document that accompanies goods in transit, showing details of the goods, the route, the sender and the receiver.

• Use: It gives the carrier instructions and evidence of the goods being transported to the consignee.

(a) Four reasons why transport is important to commerce

1. Movement of goods: Transport carries goods from where they are produced to where they are needed, creating place utility.
2. Widens the market: By linking producers with distant consumers, transport enlarges the market for goods.
3. Encourages large-scale production: Ready means of distribution allow firms to produce in bulk for wide markets, lowering unit costs.
4. Movement of people and factors of production: It conveys workers, raw materials and machinery to places of production, aiding industry and trade.

(b) Three advantages of air transport

1. Speed: It is the fastest means of transport, ideal for perishable and urgent goods over long distances.
2. Reaches remote areas: Aircraft can reach places not served by road, rail or water, and cross natural barriers easily.
3. Reduced handling and quicker delivery: Fast transit lowers deterioration, warehousing needs and the risk of damage in transit.

Three disadvantages of air transport

1. Very expensive: Fares and freight charges are the highest of all the modes of transport.
2. Limited carrying capacity: Aircraft cannot carry very heavy or bulky goods economically.
3. Affected by weather and needs airports: Bad weather can ground flights, and services are confined to areas with airports and terminal facilities.

Insurance terms explained

1. Surrender value: This is the amount of money an assured person receives when he decides to discontinue and cash in a life assurance policy before it matures. It is the sum the insurer pays back on the surrender of the policy.
2. Cover note: This is a temporary document issued by the insurer to the assured as evidence that a risk is covered while the full policy document is being prepared. It gives interim protection.
3. Policy: This is the written document that contains the full terms, conditions and details of the contract of insurance between the insurer and the assured. It is the evidence of the contract.
4. Re-insurance: This is the arrangement whereby an insurer, to reduce its own risk, insures part of a large risk it has accepted with another insurance company. It spreads a heavy risk among insurers.
5. Group insurance: This is a single insurance policy that covers a number of persons, usually employees of an organisation, under one master contract, often arranged by the employer.

Five functions of marketing

1. Buying: Marketing involves acquiring the right goods, in the right quantity and quality, needed to satisfy consumers' wants.
2. Selling: It transfers ownership of goods from the seller to the buyer through persuasion, personal selling and promotion, thereby generating income.
3. Transportation: Marketing moves goods from the point of production to the point of consumption, creating place utility.
4. Storage (warehousing): It holds goods safely from the time they are produced until they are demanded, creating time utility and ensuring steady supply.
5. Advertising and promotion: Marketing informs and persuades consumers about the availability and qualities of products so as to stimulate and sustain demand.

Other acceptable functions include grading and standardisation, financing, risk-bearing and market research.

(a) What is Nationalization?

Nationalization is the transfer of ownership and control of a privately owned business or industry to the government or the state. The government takes over the enterprise and runs it as a public corporation in the interest of the whole nation.

(b) Three reasons why government nationalizes some businesses

1. To control essential services: Government takes over vital utilities such as water, electricity and railways to ensure steady and affordable supply to all citizens.
2. To prevent private monopoly and exploitation: Nationalisation stops private firms from charging exploitative prices for essential goods and services.
3. For security and public interest: Strategic industries such as defence and communications are taken over to protect national security and serve the public good rather than private profit.

(c) Four disadvantages of nationalization

1. Inefficiency and waste: Absence of the profit motive and competition often leads to poor management, low productivity and waste of resources.
2. Heavy financial burden: The government may spend huge public funds to buy over and subsidise loss-making enterprises.
3. Bureaucracy and delay: Excessive government control and red tape slow down decision making.
4. Political interference: Appointments and decisions may be influenced by politics rather than sound business judgement, and it can breed corruption.

Five methods used by the Central Bank to control commercial banks

1. Open Market Operations (OMO): The Central Bank buys or sells government securities in the open market. Selling securities mops up cash from the banks and reduces their ability to lend, while buying them increases the banks' cash and lending power.
2. Bank Rate (Discount Rate) policy: This is the rate at which the Central Bank lends to commercial banks. Raising the bank rate makes borrowing costlier and discourages lending; lowering it encourages lending.
3. Cash Reserve Ratio (CRR): The Central Bank fixes the proportion of a bank's total deposits that must be kept with it as reserves. Raising the ratio reduces the funds available for lending, and lowering it increases them.
4. Liquidity Ratio: This prescribes the minimum proportion of a bank's assets that must be held in liquid form. A higher liquidity ratio limits the amount available for credit creation.
5. Special Directives and Moral Suasion: The Central Bank issues instructions and appeals to banks to expand or restrict credit to particular sectors in line with government policy. It may also use selective credit control to steer lending.

Explanation and three benefits of each

(a) Branding

Branding is the use of a distinctive name, symbol or design to identify a product and distinguish it from those of competitors.

• It helps consumers to identify and choose the product easily.
• It assures buyers of a consistent standard of quality.
• It builds customer loyalty and repeat sales for the producer.

(b) After-sales service

This is the service, such as repairs, maintenance, installation and free servicing, given to a customer by a seller after a product has been bought.

• It gives the buyer confidence and satisfaction with the purchase.
• It creates goodwill and encourages repeat patronage.
• It reduces the customer's cost and worry of maintenance.

(c) Self-service

This is a method of retailing in which customers pick the goods they want from open shelves and pay at a checkout point without the help of a shop attendant.

• It saves time and allows quick service to many customers.
• It reduces wage costs, so goods can be sold more cheaply.
• It allows customers freedom to examine and compare goods before buying.

(d) Vending machine

This is an automatic coin or card operated machine that dispenses goods such as drinks, snacks or tickets when payment is inserted.

• It provides service at all hours without an attendant.
• It saves labour cost and offers goods at convenient locations.
• It gives quick, self-service purchase with no queuing.