WAEC SSCE - Commerce - 2003 (Essay)

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(a) Difference between an ordinary invoice and a proforma invoice

An ordinary invoice is a document sent by the seller to the buyer after goods have been sold on credit. It is a demand for payment, showing the goods supplied, quantities, prices and the total amount the buyer owes. A proforma invoice is not a demand for payment; it is a document sent to a prospective buyer to show what the goods would cost if an order were placed. It is used to quote prices, to accompany goods sent on approval or on consignment, or to request advance payment before goods are supplied.

(b) Terms used in connection with an invoice

1. 5% trade discount: This is a reduction of 5% off the catalogue (list) price allowed by a manufacturer or wholesaler to a trader who buys for resale. It is deducted before the net amount is calculated.
2. Net 3 months: This means the buyer is expected to pay the full (net) amount of the invoice within three months, and no cash discount will be allowed for payment within that period.
3. E. & O.E.: This stands for Errors and Omissions Excepted. It means the seller reserves the right to correct any mistake or figure wrongly stated or left out on the invoice.
4. Carriage forward: This means the cost of transporting the goods to the buyer is to be paid by the buyer (the receiver), not by the seller.
5. 2½% cash discount: This is a reduction of 2½% allowed to the buyer as an inducement to pay the invoice promptly, that is, within the stated period of credit.

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(a) What is a market?

A market is any arrangement, place or medium through which buyers and sellers are brought into contact to exchange goods and services at an agreed price. It need not be a physical location; it exists wherever communication between buyers and sellers allows a transaction to take place (for example, telephone or internet markets).

(b) Four ways marketing is important to the economy

1. Bridges the gap between producers and consumers. Marketing ensures that goods produced reach the final consumers who need them, creating place and time utility.
2. Creates employment. Marketing activities such as selling, advertising, transport, warehousing and packaging provide jobs for many people.
3. Stimulates production. By selling output and studying consumer wants, marketing encourages producers to make more and better goods, raising national output.
4. Raises the standard of living. Marketing makes a wide variety of goods and services available to consumers at convenient places and times, improving welfare.

(Also acceptable: it generates income and government revenue; it promotes trade and economic growth.)

(c) Five functions of marketing

1. Buying (assembling goods for resale).
2. Selling (finding buyers and transferring ownership).
3. Transportation (moving goods to where they are needed).
4. Warehousing/storage (holding goods until they are demanded).
5. Financing and risk-bearing (providing funds and carrying the risk of loss).

(Also acceptable: grading and standardisation, advertising and market research.)

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(a) Five roles of transport to businessmen

1. Movement of goods. Transport carries raw materials to factories and finished goods from producers to wholesalers, retailers and final consumers.
2. Creation of place utility. It moves goods from where they are of little value to where they are needed and more valuable, bridging the gap between producer and consumer.
3. Widening of the market. Efficient transport enables businessmen to reach distant markets, both local and international, thereby increasing sales.
4. Encourages large-scale production. By making it possible to distribute goods widely, transport supports mass production and the resulting economies of scale.
5. Movement of people and labour. Transport conveys businessmen, employees and customers to places of work and trade, and helps distribute labour to where it is needed.

(Also acceptable: makes goods available in and out of season through storage in transit; helps prevent price differences between regions.)

(b) Three characteristics of tramp vessels

1. They have no fixed routes and sail to any port where cargo is available.
2. They keep no fixed timetable, sailing only when fully loaded.
3. They usually carry bulky, homogeneous cargo (such as grain, timber or ore) and charge freight by bargaining/charter.

Two characteristics of ocean liners

1. They follow fixed, regular routes and operate to a published timetable, sailing whether full or not.
2. They carry general cargo and passengers, and charge fixed, published freight rates.

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(a) Third party policy vs Comprehensive policy

A third party policy covers only the loss, injury or damage suffered by another person (the third party) caused by the insured, not the insured's own vehicle or injuries. A comprehensive policy covers a wider range of risks, including damage to the insured's own vehicle, injury to the insured, and loss or damage to the third party.

(b) Whole life policy vs Endowment policy

Under a whole life policy, premiums are paid throughout the insured's lifetime and the sum assured is paid only on the death of the insured, to his beneficiaries. Under an endowment policy, premiums are paid for a fixed period, and the sum assured is paid at the end of that period if the insured is still alive, or earlier to beneficiaries if he dies before it matures.

(c) Insurance vs Assurance

Insurance covers risks that may or may not happen, such as fire, theft or accident, and the insured is only compensated if the event occurs (principle of indemnity). Assurance covers an event that is certain to happen but whose timing is uncertain, such as death, so payment is bound to be made sooner or later (life assurance).

(d) Premium vs Compensation

A premium is the periodic sum of money paid by the insured to the insurer to keep the policy in force. Compensation (indemnity) is the money paid by the insurer to the insured to make good the loss when the insured risk actually occurs.

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Odika Enterprises - year ended 31st December 2000

Fixed assets = 75,000 + 65,000 + 60,000 + 60,000 + 18,000 = N278,000

Current assets = 20,000 + 10,000 + 8,000 + 6,000 + 6,000 = N50,000

Current liabilities = 12,000 + 5,000 + 3,500 = N20,500

(a)(i) Capital owned = Total assets - External liabilities

= (278,000 + 50,000) - 20,500 = 328,000 - 20,500 = N307,500

(a)(ii) Fixed assets = N278,000

(a)(iii) Working capital = Current assets - Current liabilities

= 50,000 - 20,500 = N29,500

(b) Five sources of capital available to a public limited company

1. Issue of ordinary (equity) shares
2. Issue of preference shares
3. Issue of debentures
4. Long-term loans from banks and financial institutions
5. Ploughed-back (retained) profits and reserves

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(a) Five reasons why a manufacturer may brand his products

1. Identification. A brand name or mark distinguishes the manufacturer's goods from those of competitors so buyers can easily recognise them.
2. To build customer loyalty. A trusted brand encourages repeat purchases, as satisfied customers keep asking for the same brand.
3. To ease advertising and promotion. A brand name gives the product an identity that can be advertised and remembered, aiding sales promotion.
4. To protect against imitation. A registered brand or trademark gives legal protection against copying by other producers.
5. To command a higher price. A well-known, reputable brand can be sold at a premium price because customers associate it with quality.

(Also acceptable: it helps maintain and control quality; it makes it easy to introduce new products under the same trusted name.)

(b) Five advantages of packaging

1. Protection. Packaging protects goods from damage, dirt, moisture, breakage and contamination during handling, transport and storage.
2. Preservation. Good packaging keeps perishable goods fresh and extends their shelf life.
3. Easy identification and advertising. Attractive, labelled packages carry the brand and information, promoting the product on the shelf.
4. Convenience in handling. Packaging makes goods easier to carry, store, stack and measure into convenient quantities.
5. Facilitates sales and self-service. Neatly packed and priced goods can be sold quickly in supermarkets without an attendant.

(Also acceptable: it enables branding and gives information such as expiry date, weight and directions for use.)

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(a) Four steps in opening a current account with a commercial bank

1. Obtain and complete an account-opening form. The retailer collects the application form from the bank and fills in personal and business details such as name, address, occupation and nature of business.
2. Provide references and required documents. He supplies two respectable referees who already hold accounts, plus means of identification, passport photographs, and (for a business) evidence of registration.
3. Make the minimum opening deposit. He pays in the amount required by the bank to open and activate the account.
4. Supply specimen signatures and receive a cheque book. He signs a specimen signature card so the bank can verify his signature, and on approval he is issued a cheque book and paying-in book.

(b) Six services provided by a commercial bank

1. Accepting deposits (current, savings and fixed deposit accounts).
2. Lending money through loans and overdrafts.
3. Providing means of payment such as cheques, standing orders and drafts.
4. Safe-keeping of valuables and documents (safe custody).
5. Foreign exchange services and transfer of money.
6. Acting as a referee and giving financial advice to customers.

(Also acceptable: issuing bank statements, night safe facilities, executor and trustee services.)

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(i) Small stores

These are small single-shop retail outlets, usually owned and run by one person or a family, keeping a limited range of goods and serving a small neighbourhood. They require little capital, offer personal service and often sell on credit to regular customers.

(ii) Mobile shops

A mobile shop is a retail outlet that moves from place to place, usually a van or vehicle stocked with goods, taking the goods directly to customers in different locations. It is useful in rural and scattered areas where fixed shops are few.

(iii) Tied shops

A tied shop is a retail outlet that is bound by agreement to sell only the products of one particular manufacturer or supplier. The manufacturer often finances or owns the shop, so the retailer cannot stock competitors' goods (for example, a filling station tied to one oil company).

(iv) Supermarkets

A supermarket is a large self-service retail store selling a wide variety of goods, especially foodstuffs and household items, under one roof. Customers pick goods from open shelves and pay at a central checkout point. Goods are pre-packed and price-tagged, and it relies on large turnover at low profit margins.

(v) Peddling

Peddling is a form of itinerant (mobile) retailing in which a trader called a peddler or hawker carries goods about on foot, on the head, or on a bicycle, moving from house to house or street to street to sell to customers. It needs very little capital and reaches customers at their doorstep.

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(a) Four arguments FOR advertising

1. It informs consumers. Advertising creates awareness of new products, prices, uses and where goods can be bought, so buyers can make informed choices.
2. It increases sales and expands markets. By persuading more people to buy, advertising raises turnover, allowing firms to produce on a large scale and enjoy economies of scale.
3. It lowers unit costs. Large-scale production stimulated by advertising spreads fixed costs over more units, which can reduce prices to the consumer.
4. It creates employment. The advertising industry employs copywriters, artists, models and media staff, and higher sales create jobs in production and distribution.

(Other acceptable points: it improves product quality through competition; it educates the public on health and safety; it finances newspapers, radio and television.)

Three arguments AGAINST advertising

1. It increases the price of goods. The heavy cost of advertising is added to the selling price and ultimately borne by the consumer.
2. It can mislead and deceive. Exaggerated or false claims persuade people to buy inferior or harmful goods they do not really need.
3. It encourages wasteful spending. Persuasive advertising creates artificial wants, leading consumers to spend on non-essential items.

(a) (b) Six advertising media used in West Africa

1. Television
2. Radio
3. Newspapers and magazines
4. Posters, billboards and hoardings
5. Handbills, leaflets and catalogues
6. The internet and social media

(Also acceptable: cinema, town criers, mobile vans with loudspeakers.)

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(a) What is indigenization?

Indigenization is a government policy that transfers the ownership and control of certain businesses and enterprises from foreigners to the citizens (indigenes) of a country. It reserves some businesses wholly for nationals and requires that citizens hold a stated share of the ownership in others, so that the economy is controlled mainly by the country's own people.

(b) Four advantages of indigenization

1. Local control of the economy. It places ownership of key businesses in the hands of citizens, reducing foreign domination of the economy.
2. Retention of profits at home. Profits are enjoyed by nationals and reinvested locally instead of being repatriated abroad.
3. Employment and managerial experience for citizens. Nationals gain ownership, top management posts and business skills previously held by foreigners.
4. Encourages local investment and entrepreneurship. It stimulates indigenous people to invest and develop entrepreneurial ability.

Four disadvantages of indigenization

1. Shortage of local capital. Citizens may lack enough funds to buy over and run the large businesses effectively.
2. Loss of foreign investment and expertise. It may discourage foreign investors and lead to loss of technical and managerial know-how.
3. Concentration of ownership in few rich hands. Only wealthy citizens can afford the shares, widening income inequality.
4. Fall in efficiency and productivity. Inexperienced indigenous owners and managers may run the businesses poorly, reducing output and quality.

(Also acceptable: capital flight and reduced access to foreign technology.)