WAEC SSCE - Commerce - 2007 (Essay)

Answer Details

(a) Five objectives of the International Monetary Fund (IMF)

1. To promote international monetary cooperation among member countries through a permanent institution for consultation on monetary matters.
2. To promote exchange-rate stability and orderly exchange arrangements, and to avoid competitive devaluation of currencies.
3. To assist in establishing a multilateral system of payments and to remove foreign-exchange restrictions that hamper world trade.
4. To provide short-term financial assistance (loans) to member countries facing temporary balance-of-payments difficulties, so as to correct the imbalance without harmful measures.
5. To promote the balanced growth of international trade, and thereby high levels of employment, income and development in member states.

(b) Five objectives of the European Economic Community (EEC)

1. To create a common market (customs union) with free movement of goods, services, capital and labour among member states.
2. To abolish tariffs and trade restrictions among members while operating a common external tariff against non-members.
3. To promote balanced economic growth and a higher standard of living among the peoples of member countries.
4. To harmonise economic, agricultural, transport and monetary policies of member states (e.g. the Common Agricultural Policy).
5. To foster closer economic and political unity and cooperation among the member nations of Europe.

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(a) Four elements of a valid contract

1. Offer and acceptance (agreement): There must be a definite offer by one party and an unqualified acceptance of that offer by the other party on the same terms.
2. Consideration: Something of value (money, goods, services or a promise) must pass between the parties; each party must give and receive something. A promise without consideration is generally not enforceable.
3. Capacity to contract: The parties must be legally competent, that is, of the age of majority, of sound mind, and not disqualified by law (infants, lunatics and drunken persons generally lack full capacity).
4. Intention to create legal relations: The parties must intend the agreement to be legally binding, so that either can enforce it in a court of law. (Social and domestic arrangements usually lack this intention.)

(Other valid elements: free/genuine consent, free from mistake, misrepresentation, fraud, duress or undue influence; legality of object, the purpose must be lawful.)

(b) Four duties of an agent to the principal

1. Duty to obey instructions: The agent must carry out the lawful instructions of the principal and act strictly within the authority given.
2. Duty of care and skill: The agent must perform his work with reasonable care, diligence and the skill expected in that line of business.
3. Duty to render account: The agent must keep proper records and give the principal a true account of all money and property received and spent on the principal's behalf.
4. Duty of good faith / not to make secret profit: The agent must act honestly, avoid conflict of interest, and must not take bribes or make secret profits; any such profit belongs to the principal.

(Other points: duty not to delegate his authority; duty to disclose all relevant information to the principal.)

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(a) Six functions of wholesalers to manufacturers

1. Bulk buying: The wholesaler buys goods in large quantities from the manufacturer, thereby providing a ready and steady market that keeps the factory in continuous production.
2. Storage / warehousing: The wholesaler holds stock in his warehouse, relieving the manufacturer of the cost and space needed to store finished goods and freeing factory space for production.
3. Finance: By paying promptly (often in cash or on short credit) for large consignments, the wholesaler provides the manufacturer with working capital to buy raw materials and pay for labour.
4. Risk bearing: Once the wholesaler takes delivery, he bears risks such as fall in price, deterioration, theft, fire and changes in demand, relieving the manufacturer of these losses.
5. Distribution / breaking bulk indirectly: The wholesaler spreads the manufacturer's goods over a wide area by supplying many scattered retailers, so the manufacturer deals with a few wholesalers instead of thousands of retailers.
6. Market information and advice: The wholesaler, being close to retailers and consumers, feeds back information on consumer tastes, price levels and rival products, guiding the manufacturer on what and how much to produce.

(Other acceptable points: advertising and sales promotion on behalf of the manufacturer; saving the manufacturer selling and administrative costs.)

(b) Four problems a cooperative society may likely face

1. Shortage of capital: Members are usually people of modest means, so the society finds it hard to raise enough funds for large-scale operations or expansion.
2. Poor / inefficient management: Officers are often elected members who may lack business and managerial expertise, leading to weak administration.
3. Dishonesty and mismanagement of funds: Elected officials may embezzle or misuse the society's money, and weak record keeping makes fraud difficult to detect.
4. Apathy and lack of member cooperation: Many members show little interest, fail to attend meetings or default in paying subscriptions, weakening the society.

(Other acceptable points: political interference; keen competition from large private firms; slow decision making because of democratic voting.)

Answer Details

(a) Amatco Ltd

Authorized capital: 6,000,000 ordinary shares of D5.00 each (nominal value D5.00). Issued: 3,000,000 shares. Amount called and paid: D2.00 per share, except 1,000 shares taken by Mr. Jones who has not paid.

(i) Authorized capital = Number of authorized shares x nominal value

= 6,000,000 x D5.00 = D30,000,000

(ii) Issued capital = Shares issued x nominal value

= 3,000,000 x D5.00 = D15,000,000

(iii) Called-up capital = Issued shares x amount called per share

= 3,000,000 x D2.00 = D6,000,000

(iv) Paid-up capital = Called-up capital - Calls in arrears

Calls in arrears (Mr. Jones) = 1,000 x D2.00 = D2,000

= 6,000,000 - 2,000 = D5,998,000

(b) Morgan's Ltd - assets and liabilities

No specific requirement was stated for this part, so the items are classified below and the derivable figures shown. Sales (50,000), sales returns (12,000) and net profit (20,000) are trading/profit items rather than balance-sheet assets or liabilities.

Fixed assets = 81,000 + 20,000 = N101,000

Current assets = 18,000 + 8,000 = N26,000

Current liabilities = 6,500 + 11,000 = N17,500

Working capital = 26,000 - 17,500 = N8,500

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(a) Five functions of advertising

1. Information: It informs the public about the existence, features, prices and uses of goods and services, and where they can be obtained.
2. Persuasion: It persuades and induces consumers to buy a particular product in preference to those of competitors, thereby creating and increasing demand.
3. Creating and maintaining a market: It opens up new markets for new products and helps to retain existing customers and market share.
4. Reminding / building goodwill: It keeps the product constantly before the public, reminds consumers to buy again and builds a favourable image and goodwill for the firm and its brands.
5. Educating consumers: It teaches consumers about new products and new uses of existing products and guides them on how to use goods properly.

(Other points: it supports salesmen by pre-selling goods; it can raise revenue for the advertising media.)

(b) Three merits and two demerits of newspaper advertising

Merits

1. Wide coverage: Newspapers reach a large and varied readership over a wide area at relatively low cost per reader.
2. Permanence / reference: The printed message can be kept, re-read and referred to later, unlike radio or television which is momentary.
3. Detailed message: Enough space is available to give full details, prices and illustrations, and the advert can be targeted by choosing a paper read by the desired audience.

Demerits

1. Short life-span: A newspaper is usually read once and discarded the same day, so the advert has a very short effective life.
2. Limited to the literate: It appeals only to people who can read, so it fails to reach illiterate consumers; also its still black-and-white print lacks the sound and motion of radio and television.

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(a) Six facilities a good seaport should have

1. Deep water / good harbour: Deep and sheltered water and a natural or artificial harbour to allow large ocean-going vessels to berth safely.
2. Quays, berths and jetties: Adequate berthing space where ships can dock to load and discharge cargo.
3. Cargo-handling equipment: Cranes, forklifts, derricks and conveyor belts for the quick loading and unloading of goods.
4. Warehouses and storage sheds: Covered and open storage, including bonded warehouses and cold storage, for goods awaiting clearance or shipment.
5. Good inland transport links: Efficient road and rail connections linking the port to the interior for onward movement of goods.
6. Customs and other administrative offices: Facilities for customs, immigration, health and port authority to inspect, clear and document cargo and passengers.

(Other points: dry docks and repair yards; tug boats and pilotage; banking, security and fuel/bunkering services.)

(b) Four ways transport is important to commerce

1. Movement of goods: It carries raw materials to factories and finished goods from producers to wholesalers, retailers and consumers, linking production with consumption.
2. Creates place utility / widens the market: By moving goods from where they are produced to where they are needed, it extends markets beyond the local area, even internationally.
3. Movement of people: It conveys traders, workers and businessmen to their places of work and to markets and business meetings.
4. Encourages large-scale production and specialisation: Reliable transport allows firms to produce in bulk for wide markets and enables regions to specialise in what they produce best.

(Other points: makes storage and prompt distribution of perishables possible; aids trade by delivering documents and mail.)

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Differences between the paired terms

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(a) Five advantages of large scale retailing

1. Economies of scale / bulk buying: Large retailers buy in huge quantities directly from manufacturers, earning trade discounts and lower unit costs which can be passed on as lower prices.
2. Wide variety of goods: They stock a very large range of products under one roof, giving customers wide choice and the convenience of one-stop shopping.
3. Better facilities and services: They can afford facilities such as air-conditioning, car parks, escalators, delivery services and credit facilities that attract customers.
4. Specialisation and division of labour: With many employees, staff can specialise in buying, selling, accounting and display, raising efficiency.
5. Large-scale advertising and promotion: Their size allows heavy advertising and sales-promotion campaigns whose cost is spread over a large turnover.

(Other points: ability to employ experts; ready access to bank finance; ability to withstand periods of low sales.)

(b) Five characteristics each

(i) Department Stores

1. A very large single store divided into separate departments, each selling a particular class of goods.
2. Each department is managed almost like a separate unit under a departmental head, but all are under one overall management and ownership.
3. They provide many customer services such as restaurants, restrooms, delivery and after-sales service.
4. They stock a wide range of goods, mainly shopping and speciality goods, under one roof.
5. They are usually sited in city centres and require large capital and floor space; goods are often sold at fixed prices.

(ii) Supermarkets

1. They operate on a self-service basis; customers pick goods from open shelves using baskets or trolleys.
2. They deal mainly in fast-moving, everyday household goods such as foodstuffs, provisions and toiletries.
3. Goods are pre-packed, clearly priced and displayed on open shelves for easy selection.
4. Payment is made once at centralised checkout / cash points near the exit.
5. They rely on low prices, quick turnover and minimal sales staff to keep costs down.

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(a) The three parties to the cheque

• Drawer: Mr. Cham, the person who writes (draws) and signs the cheque and whose account is to be debited.
• Payee: M. Sumarch, the person to whom the money (D500) is to be paid.
• Drawee: Standard Chartered Bank, Bakau, the bank on which the cheque is drawn and which is ordered to pay.

(b) Four effects of the crossing "Account Payee Only" and "Not Negotiable"

1. The cheque cannot be cashed over the counter; it must be paid into a bank account, making it safer than an open cheque.
2. "Account Payee only" directs that the money be paid into the account of the named payee (M. Sumarch) alone, so it cannot properly be diverted to another person's account.
3. "Not Negotiable" means the cheque can still be transferred, but the transferee gets no better title than the person who transferred it; if the transferor's title is defective, the receiver also has a defective title.
4. It protects against theft and fraud, because a thief or finder cannot obtain valid ownership or safely pay it into his own account, and any loss can be traced.

(c) Three advantages of payment by cheque

1. Safety: It is safer than carrying large sums of cash, and a crossed cheque reduces the risk of loss or theft.
2. Convenience: Large amounts can be paid easily by writing a single cheque, without counting cash.
3. Proof of payment: The paid cheque (and counterfoil / bank statement) serves as documentary evidence that payment was made.

(Other points: it can be sent safely by post when crossed; payment can be stopped if necessary.)

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(a) What is balance of payments?

The balance of payments (BOP) is a systematic record of all economic and financial transactions between the residents of a country and the rest of the world over a given period, usually one year. It records receipts (inflows from exports and other credits) against payments (outflows for imports and other debits). It has three main parts: the current account (visible and invisible trade), the capital account and the official financing / monetary movements. A country has an adverse (unfavourable) balance of payments when its total payments to other countries exceed its total receipts.

(b) Six methods used in correcting an adverse balance of payments

1. Devaluation of the currency: Lowering the external value of the currency makes exports cheaper and imports dearer, so exports rise and imports fall, improving the balance.
2. Import restriction / quotas and tariffs: Placing quotas on, or raising import duties on, non-essential goods reduces the volume and value of imports.
3. Export promotion: Government encourages exports through subsidies, export incentives, and improved quality so as to earn more foreign exchange.
4. Exchange control: The government rations the foreign currency available for imports and other payments, thereby limiting outflows.
5. Deflationary (monetary and fiscal) policy: Raising interest rates and taxes and cutting government spending reduces domestic incomes and demand for imports, and attracts foreign capital.
6. Borrowing from abroad / drawing on reserves: The country may borrow from international bodies such as the IMF or use its external reserves to bridge the deficit temporarily.

(Other acceptable points: encouraging import substitution / local production; encouraging inflow of foreign investment and tourism.)