WAEC SSCE - Commerce - 1999 (Essay)

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Classes of shares a public limited company can issue

A share is a unit of the capital of a company. A public limited company can raise its capital by issuing different classes of shares, each carrying different rights as to dividend, voting and repayment of capital.

1. Ordinary shares (equity shares): These are the main risk-bearing shares of the company. Their holders receive dividend only after all other classes have been paid, and the rate of dividend varies with the level of profit. They carry voting rights and control the company, but rank last for repayment of capital if the company is wound up.
2. Preference shares: These carry a fixed rate of dividend that must be paid before any dividend is paid to ordinary shareholders. Their holders also rank ahead of ordinary shareholders for the return of capital on winding up, but they usually do not carry voting rights.
3. Cumulative preference shares: These are preference shares whose unpaid dividends in a year of low or no profit are carried forward (accumulated) and must be paid in later profitable years before ordinary shareholders receive anything.
4. Non-cumulative preference shares: These are preference shares whose dividend, if not paid in any year because of insufficient profit, is lost permanently and cannot be carried forward to future years.
5. Participating preference shares: After receiving their fixed dividend, holders of these shares are also entitled to share in any surplus profit together with ordinary shareholders, thus earning an extra dividend in very profitable years.
6. Redeemable preference shares: These are preference shares that the company can buy back (redeem) from the holders at a fixed future date or after a stated period, thereby returning their capital to them.
7. Deferred (founders') shares: These are shares usually held by the promoters or founders of the company whose dividend is paid only after all other classes have been paid, but they may then take a large share of the remaining profit.

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(a) Five reasons why consumers need protection

1. Sale of adulterated or unsafe goods: Some traders sell impure, contaminated or expired products that endanger the health and lives of consumers.
2. Ignorance of consumers: Many consumers lack the technical knowledge to judge the quality, weight or content of goods and can easily be cheated.
3. Short weights and measures: Dishonest sellers use faulty scales and measures to give consumers less than they pay for.
4. Misleading advertising and labelling: False claims about the qualities of a product mislead consumers into buying goods that do not perform as promised.
5. Exploitation through high prices: Monopolists and hoarders create artificial scarcity and charge exorbitant prices, exploiting helpless consumers.

(b) Five government legislation aimed at consumer protection

1. Sale of Goods Act: Requires that goods sold must be of merchantable quality and fit for their intended purpose.
2. Weights and Measures Act: Ensures the use of accurate and standard weighing and measuring instruments.
3. Food and Drugs Act: Prohibits the sale of adulterated, contaminated or harmful food and drugs.
4. Standards Organisation of Nigeria (SON) Act: Sets and enforces quality standards for manufactured goods.
5. NAFDAC Act: Establishes the agency that regulates and controls food, drugs, cosmetics and bottled water to protect public health.

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(a) What is a contract?

A contract is a legally binding agreement between two or more competent parties which creates rights and obligations enforceable by law. It arises where there is an offer by one party and an unqualified acceptance by the other, supported by consideration and the intention to create legal relations.

(b) Six reasons for which a contract can be terminated (discharged)

1. Performance: When both parties completely carry out their obligations as agreed, the contract comes to an end.
2. Agreement: The parties may mutually agree to bring the contract to an end before it is performed.
3. Breach: Where one party fails to perform his part or does so defectively, the injured party may treat the contract as terminated.
4. Frustration (impossibility of performance): An unforeseen event beyond the control of the parties, such as destruction of the subject matter or a change in the law, makes performance impossible and ends the contract.
5. Lapse of time: A contract may be terminated when the period fixed for its performance expires.
6. Death or incapacity: The death, insanity or bankruptcy of a party may bring a contract of a personal nature to an end.

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(a) Five reasons why a manufacturer may engage in personal selling

1. To explain and demonstrate complex products: Technical goods such as machinery need face-to-face demonstration that only a salesperson can give.
2. To provide immediate feedback: Direct contact allows the salesperson to answer questions, overcome objections and gather customers' reactions on the spot.
3. To persuade and close sales: Personal contact enables the seller to persuade the buyer directly and secure an actual order.
4. To build customer relationships: Regular personal contact creates goodwill and lasting relationships that encourage repeat purchases.
5. To reach industrial and bulk buyers: Where customers are few but place large orders, personal selling is more effective and economical than mass advertising.

(b) Five characteristics of Sole Proprietorship

1. Single ownership: The business is owned and controlled by one person who provides the capital.
2. Unlimited liability: The owner is personally liable for all the debts of the business, extending to his private property.
3. No separate legal entity: The business and the owner are regarded in law as one and the same.
4. Sole enjoyment of profit and risk: The owner takes all the profits and also bears all the losses alone.
5. Easy to form and dissolve: It requires little capital and few legal formalities to start or wind up.

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(a) Steps in opening a current account

1. Obtain and complete an application form: Kola should collect an account opening form from the bank and fill in his personal details correctly.
2. Provide references and specimen signature: He must supply one or two referees who already operate accounts with the bank, and give specimen signatures on a signature card for verification of future cheques.
3. Submit supporting documents: He should attach passport photographs and a means of identification such as a national ID card, driver's licence or international passport, together with proof of address (utility bill).
4. Make the initial deposit: He pays in the minimum opening balance required by the bank using a paying-in slip.
5. Collect cheque book and receive account number: After the bank verifies his details and references, an account number is opened for him and he is issued a cheque book to operate the account.

(b) Four functions of the Central Bank

1. Issue of currency: It is the sole authority that prints and issues legal-tender notes and coins.
2. Banker to the government: It keeps government accounts, receives revenue and makes payments on the government's behalf.
3. Banker to commercial banks and lender of last resort: It holds the reserves of commercial banks and lends to them when they are short of funds.
4. Control of the money supply: It regulates the volume of credit and money in circulation through monetary policy tools.

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(a) Branches of trade and types of retail outlets

Trade is divided into two main branches: Home Trade and Foreign Trade. These further break into the six branches shown below.

Six types of retail outlets:

1. Hawkers and pedlars
2. Market stalls and kiosks
3. Small unit (single-shop) retailers
4. Supermarkets
5. Departmental stores
6. Multiple shops (chain stores)

A tree diagram is required: Trade branches into Home Trade (Wholesale, Retail) and Foreign Trade (Import, Export, Entrepot), supported by Aids to Trade; the Retail node then branches into the six retail outlets listed above.

(b) Eight features of hawking

1. The seller moves from place to place with his goods in search of customers.
2. It requires very little capital to start.
3. Goods sold are usually few, light and easy to carry.
4. Products are mainly convenience goods (perishables, snacks, small household items).
5. Prices are not fixed; bargaining is common.
6. The hawker deals directly with final consumers.
7. It requires no permanent shop or fixed business premises.
8. Sales are usually on a cash basis with little or no record keeping.

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(a) Five reasons why communication is important in commerce

1. Placing and receiving orders: Buyers and sellers use communication to place orders, confirm supplies and arrange deliveries.
2. Advertising and promotion: Communication carries information about goods and services to prospective customers, creating demand.
3. Facilitates decision making: Prompt exchange of information on prices, market conditions and stock levels enables managers to take sound decisions.
4. Maintains business relationships: It links a firm with its customers, suppliers, bankers and agents, promoting goodwill and cooperation.
5. Coordination of activities: It links the various departments and branches of a business so that their activities work smoothly together.

(b) Five functions of Advertising

1. To inform: Advertising tells consumers about the existence, features, price and availability of goods and services.
2. To persuade: It influences consumers to buy a particular product in preference to competing brands.
3. To create and increase demand: By stimulating interest, it expands the market and boosts sales.
4. To remind: It keeps existing products in the memory of consumers to sustain patronage.
5. To introduce new products: It launches new goods and educates the public on how to use them.

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WAZOBIA Enterprise as at 31st December, 1996

First classify each item:

Fixed assets = 1,000 + 4,500 + 2,500 = N8,000

Current assets = 8,000 + 5,000 + 7,000 = N20,000

Total assets = 8,000 + 20,000 = N28,000

(The N8,000 listed as "capital" is a book figure; capital owned is recalculated below from the assets and liabilities.)

(a) Capital owned = Total assets - Total external liabilities

= 28,000 - (3,000 + 1,200) = 28,000 - 4,200 = N23,800

(b) Working capital = Current assets - Current liabilities

= 20,000 - 4,200 = N15,800

(c) Current liabilities = Creditors + Bank overdraft = 3,000 + 1,200 = N4,200

(d) Fixed capital = value of fixed assets = N8,000

(e) Capital employed = Fixed assets + Working capital = 8,000 + 15,800 = N23,800

(Check: Total assets - Current liabilities = 28,000 - 4,200 = N23,800.)

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(a) Branding and examples

Branding is the practice of giving a product a distinctive name, symbol, mark, sign or design that identifies it and distinguishes it from similar products of competitors. The brand enables consumers to recognise the product and associate it with a particular quality and manufacturer.

Two suitable examples: Peak (milk) and Omo (detergent). Other acceptable examples include Coca-Cola, Indomie, Dettol and Bournvita.

(b) Five ways branding affects the consumer

1. Easy identification: Branding helps the consumer to identify and locate a preferred product quickly among many others.
2. Assurance of consistent quality: A well-known brand guarantees a uniform standard, so the consumer knows what to expect on each purchase.
3. Builds loyalty and confidence: Satisfaction with a brand builds trust, making the consumer a repeat buyer.
4. Higher prices: Advertising and packaging costs of popular brands are passed on to the consumer, so branded goods often cost more than unbranded ones.
5. Guides choice and reduces risk: Branding simplifies decision-making and protects the consumer against imitations and inferior substitutes.

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Two functions of each body

(a) Trade Association

1. It regulates the conduct of its members and fixes common standards, prices and trading practices within the trade.
2. It represents and protects the collective interests of members, negotiating with government and other bodies on their behalf.

(b) Consumer Association

1. It protects the interests of consumers against exploitation, poor quality goods and unfair prices.
2. It educates consumers on their rights and advises them on wise buying and value for money.

(c) Customs Authority

1. It assesses and collects import and export duties on goods crossing the frontier.
2. It prevents smuggling and controls prohibited and restricted goods.

(d) Manufacturer's Association

1. It promotes and protects the common interests of manufacturers and lobbies government on their behalf.
2. It shares technical information and sets quality standards for members' products.

(e) Chamber of Commerce

1. It promotes, protects and represents the general interests of the business community, advising government on trade and industrial policy.
2. It provides trade information, organises trade fairs and helps settle disputes among members.