WAEC SSCE - Commerce - 1991 (Essay)

Bayanin Amsa

(a) Five reasons why many small businesses turn into private limited liability companies

1. Limited liability: Once incorporated, the members' liability is limited to the amount unpaid on their shares. Their personal property is protected if the business fails, unlike the unlimited liability of a sole trader or partnership.
2. Easier to raise more capital: A company can raise larger capital by admitting more shareholders (up to fifty) than a sole trader or partnership can, enabling the business to expand.
3. Separate legal entity: The company becomes a legal person distinct from its owners. It can own property, sue and be sued in its own name, which gives the business a firmer legal standing.
4. Continuity of existence (perpetual succession): The company does not come to an end because of the death, insanity or withdrawal of a member, so the business is more stable and lasting.
5. Greater credibility and access to credit: As a registered company keeping proper accounts, it enjoys more confidence from banks and suppliers and can obtain loans and trade credit more easily.

(b) Disadvantages of such a decision

• Formation is costly and involves legal formalities such as preparing the Memorandum and Articles of Association and registration.
• The company must comply with legal requirements such as auditing and filing of annual returns, which increase costs and paperwork.
• Business affairs must be disclosed in accounts and records, so there is loss of secrecy.
• Shares cannot be freely transferred or sold to the public, which limits the raising of capital compared with a public company.
• Decision making may be slower because of the involvement of more members and legal controls.

Bayanin Amsa

We first sort the items into fixed assets, current assets, current liabilities and trading figures.

(a) Fixed assets

Fixed assets are long-lasting assets used in running the business. Here they are Premises, Machinery and Plant.

Premises \(20{,}000\) + Machinery \(20{,}000\) + Plant \(30{,}000\)

\[\text{Fixed assets} = 20{,}000 + 20{,}000 + 30{,}000 = \text{N}70{,}000\]

(b) Working capital

Working capital = Current assets - Current liabilities.

Current assets = Cash \(20{,}000\) + Debtors \(30{,}000\) + Stock \(50{,}000 = 100{,}000\).

Current liabilities = Creditors \(= 20{,}000\).

\[\text{Working capital} = 100{,}000 - 20{,}000 = \text{N}80{,}000\]

(c) Gross profit

Gross profit = Sales - Cost of goods sold.

\[\text{Gross profit} = 200{,}000 - 100{,}000 = \text{N}100{,}000\]

(d) Net profit

Net profit = Gross profit - Expenses. The only expense given is Rent \(= 10{,}000\).

\[\text{Net profit} = 100{,}000 - 10{,}000 = \text{N}90{,}000\]

Summary: Fixed assets = N70,000; Working capital = N80,000; Gross profit = N100,000; Net profit = N90,000.

Bayanin Amsa

(a) What is a business merger?

A business merger is the coming together of two or more separate businesses to form one larger business under a single control and management. The firms combine their resources, ownership and operations and lose their separate identities in the new, combined enterprise.

(b) Reasons why some businesses merge

• To enjoy economies of scale: The larger combined firm can buy, produce and sell in bulk, reducing costs per unit.
• To reduce or eliminate competition: Merging with a rival removes competition and gives the combined firm a stronger hold on the market.
• To increase capital and financial strength: Pooling resources gives the firm more capital to expand, invest and obtain credit.
• To gain a larger market share and control of the market: The bigger firm can dominate the market and even influence prices.
• To pool skills, technology and resources: The firms combine expertise, machinery and other resources to become more efficient and to diversify.

(c) Three disadvantages of business merger

• It may create a monopoly that exploits consumers through high prices.
• It may lead to retrenchment, as duplicated jobs are removed, causing unemployment.
• The larger organisation may become too big to manage, leading to slow decisions and diseconomies of scale, and there may be conflict between the merging managements.

Bayanin Amsa

(a) Why commercial information must be rapid and accurate

• For prompt decision making: Business decisions depend on information. When it reaches managers quickly, they can act on opportunities and problems without delay.
• To avoid costly errors: If information is wrong, wrong orders, wrong prices and wrong quantities may result, leading to losses. Accurate information ensures correct action.
• To take advantage of market opportunities: Prices, demand and supply change quickly. Rapid information helps a firm to buy and sell at the right time before conditions change.
• To meet customers' needs and keep goodwill: Fast and correct handling of orders, enquiries and complaints satisfies customers and builds the firm's reputation.
• To keep ahead of competitors: A firm that receives accurate information quickly can respond to competition faster and plan more effectively than its rivals.

(b) Advantages of courier services over public postal services

• Speed: Courier services deliver much faster, often door to door, than the ordinary public postal service.
• Reliability and security: Items are less likely to be lost or damaged and are handled with greater care.
• Tracking: Couriers keep records that allow the sender to trace and confirm the movement and delivery of the item.
• Door-to-door and prompt delivery: Items are collected from and delivered directly to the addresses given, saving the customer time and effort.
• Proof of delivery: The recipient signs on receipt, giving the sender confirmation that the item was delivered.

Bayanin Amsa

Social responsibility means the duties a business owes to the society in which it operates, beyond merely making profit. A business discharges these responsibilities in the following ways:

1. Provision of quality goods and services at fair prices: The business supplies genuine, safe and standard products at reasonable prices and avoids hoarding, adulteration and cheating of consumers.
2. Creation of employment: By employing members of the community and paying them fair wages, the business raises their standard of living and reduces unemployment in the society.
3. Provision of social amenities: The business helps to provide facilities such as good roads, water, health centres, scholarships and support for schools within its host community.
4. Protection of the environment: The business controls its waste, avoids pollution and keeps its surroundings clean and safe, so that the health of the community is not endangered.
5. Payment of taxes and obeying the law: By paying its taxes promptly and honestly and operating within the law, the business provides revenue that the government uses to develop the society and sets a good example as a responsible citizen.

Bayanin Amsa

(a) What is marketing?

Marketing is the whole range of business activities involved in identifying the needs and wants of consumers and in getting the right goods and services to them at the right place, right time and right price. It covers everything from finding out what customers want, through producing and pricing, to distributing and promoting the product until it reaches and satisfies the consumer.

(b) Distinction between marketing and selling

(c) Five functions of marketing

• Buying: obtaining the right goods and raw materials needed for resale or production.
• Selling: finding customers and persuading them to buy the goods, thereby creating demand.
• Transportation: moving goods from the point of production to the point of sale and to consumers.
• Storage (warehousing): keeping goods safely until they are needed, so as to ensure steady supply.
• Market research and grading/standardisation: finding out consumers' needs and sorting goods into uniform qualities and sizes to make buying and selling easier. (Financing and risk-bearing are also recognised marketing functions.)

Bayanin Amsa

(a) Five measures a government may take to restrict imports

• Imposition of high import duties (tariffs): Heavy customs duties raise the prices of imported goods, making them dearer and less attractive so that fewer are bought.
• Import quotas: The government fixes a maximum quantity or value of certain goods that may be imported within a period, thereby limiting the volume of imports.
• Import licence and prohibition: The government requires importers to obtain a licence before importing certain goods, or bans (prohibits) the importation of some goods altogether.
• Foreign exchange control: By restricting the amount of foreign currency made available to importers, the government limits their ability to pay for imports.
• Devaluation of the currency: Reducing the value of the local currency makes imports more expensive in local money terms, thereby discouraging them.

(b) Five measures a government may take to promote exports

• Payment of export subsidies: The government gives financial assistance to exporters so that they can sell their goods abroad at competitive prices.
• Grant of tax reliefs and incentives: Reducing or removing taxes and duties on export goods lowers the exporters' costs and encourages them to export more.
• Provision of export credit and finance: The government, through banks and export institutions, provides loans and credit guarantees to help exporters finance their trade.
• Devaluation of the currency: A lower value of the local currency makes the country's goods cheaper and more competitive in foreign markets, boosting exports.
• Provision of information and trade promotion: The government organises trade fairs and exhibitions and provides information on foreign markets to help exporters find buyers abroad.

Bayanin Amsa

(a) What is a contract?

A contract is a legally binding agreement between two or more persons which creates rights and obligations that the law will enforce. It is an agreement which, once validly made, the parties can be compelled by a court of law to honour.

(b) Essential elements of a valid contract

• Offer
• Acceptance
• Consideration
• Intention to create legal relations
• Capacity of the parties
• Genuine consent (free consent)
• Legality of purpose (lawful object)

Brief discussion of three of them

• Offer and acceptance: There must be a definite proposal (offer) made by one party and an unqualified agreement to that proposal (acceptance) by the other. The acceptance must exactly match the terms of the offer for an agreement to exist.
• Consideration: Each party must give something of value in exchange for what he receives. Consideration may be money, goods, services or a promise. Without consideration on both sides (except in a contract under seal), the agreement is not enforceable.
• Capacity of the parties: The parties must be legally competent to contract. Persons such as infants (minors), lunatics and drunken persons have limited capacity, so contracts made with them may not be fully binding.

Bayanin Amsa

(a) Ways in which transport aids trade

• It creates place utility: Transport moves goods from where they are produced to where they are needed, making them available to consumers in different places.
• It widens the market: By carrying goods over long distances, transport enables producers to sell to distant and even foreign markets, increasing sales.
• It links producers, wholesalers, retailers and consumers, ensuring a steady flow of goods along the chain of distribution.
• It encourages large-scale production and specialisation: Because goods can be moved to wide markets, producers can safely produce in large quantities and specialise in what they do best.
• It ensures the movement of raw materials, labour and finished goods, and helps to make goods available in the right place and at the right time, preventing scarcity.

(b) Terms in water transport

• (i) Freight: This is the charge or money paid to a shipping company for carrying goods (cargo) by sea from one port to another. The term is also sometimes used to describe the goods (cargo) being carried.
• (ii) Charter party: This is a written agreement (contract) by which the owner of a ship hires out the whole ship, or a large part of it, to a merchant for the carriage of goods for an agreed period or voyage, at an agreed sum. The person who hires the ship is called the charterer.

Bayanin Amsa

The Central Bank of Nigeria (CBN) is the apex bank of the country. Five of its functions and how they facilitate commercial activities are:

1. Issuing of currency: The CBN is the sole authority that prints and issues the nation's notes and coins. By providing an adequate and reliable supply of currency, it gives traders a trusted medium of exchange, which makes buying and selling easier.
2. Banker to the government: The CBN keeps government accounts, receives government revenue and makes payments on its behalf. This ensures smooth handling of public funds and finances projects that support business.
3. Banker to commercial banks and lender of last resort: The CBN holds the reserves of commercial banks, settles balances between them and lends to them when they are in difficulty. This keeps the banking system stable, so that businesses can bank and obtain credit with confidence.
4. Control of credit and the money supply: Through tools such as the bank rate, open market operations and reserve requirements, the CBN regulates how much money and credit is available. This controls inflation and interest rates and creates a stable environment for trade and investment.
5. Management of foreign exchange and external reserves: The CBN keeps the country's foreign reserves and controls the buying and selling of foreign currency. This enables importers and exporters to obtain the foreign exchange they need and helps to maintain a stable exchange rate for international trade.