WAEC SSCE - Commerce - 2017 (Essay)

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(a) Six member countries of ECOWAS

1. Nigeria
2. Ghana
3. Sierra Leone
4. The Gambia
5. Senegal
6. Cote d'Ivoire (Ivory Coast)

(Other members include Liberia, Guinea, Mali, Niger, Togo, Benin, Burkina Faso, Guinea-Bissau and Cape Verde.)

(b) Three factors that hinder the achievement of ECOWAS objectives

1. Language and colonial differences. The mix of English, French and Portuguese speaking states creates communication and policy barriers.
2. Political instability. Coups, wars and unstable governments in member states disrupt cooperation and agreed programmes.
3. Differences in currency and level of development. The lack of a common currency and wide gaps in economic strength make integration and free trade difficult.

(Also acceptable: smuggling and heavy dependence on similar primary exports (competition rather than complementarity), poor transport links, and inadequate funding.)

(c) Four objectives of the Niger Basin Authority (Commission)

1. To promote cooperation among member states in developing the resources of the River Niger basin.
2. To develop and control the use of the water resources of the basin for irrigation, water supply and hydro-electric power.
3. To promote and improve navigation and transport along the river.
4. To coordinate agricultural, fishery, forestry and industrial development in the basin.

(Also acceptable: to control flooding and protect the environment of the basin.)

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(a) Five benefits enjoyed by countries engaging in foreign trade

1. Access to goods not produced at home. Countries can import goods they cannot produce because of climate, resources or technology.
2. Wider market for exports. Producers can sell surplus output abroad, earning more income and encouraging large-scale production.
3. Earning of foreign exchange. Exports bring in foreign currency needed to pay for imports and to finance development.
4. International specialisation. Each country produces what it can make most efficiently (comparative advantage), raising world output and lowering costs.
5. Promotion of international relations. Trade fosters friendship, cooperation and understanding among nations.

(Also acceptable: transfer of technology and skills, and higher standard of living through greater variety of goods.)

(b) Five measures to correct an unfavourable balance of payments

1. Devaluation of the currency. Lowering the value of the local currency makes exports cheaper and imports dearer, improving the balance.
2. Import restrictions. Imposing tariffs, quotas, or outright bans on non-essential imports reduces the value of imports.
3. Export promotion. Encouraging exports through subsidies, incentives and export drives increases foreign earnings.
4. Exchange control. Restricting the amount of foreign currency available for imports and foreign spending curbs the outflow of funds.
5. Deflationary policy. Reducing domestic demand (through higher taxes and reduced government spending) cuts spending on imports.

(Also acceptable: promoting local production/import substitution, and encouraging tourism and foreign investment.)

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(a) Define advertising

Advertising is any paid, non-personal form of communication used by an identified sponsor to inform, persuade and remind the public about goods, services or ideas, through media such as television, radio, newspapers, posters and the internet, in order to promote sales.

(b) Four demerits of advertising

1. It increases the price of goods. The heavy cost of advertising is added to the selling price and passed on to consumers.
2. It can deceive and mislead. Exaggerated or false claims may persuade people to buy inferior or harmful products.
3. It encourages wasteful spending. Persuasive adverts create artificial wants, making people buy things they do not really need.
4. It can promote unhealthy competition. Rival firms may spend excessively on adverts, and some adverts corrupt morals or exploit fear and vanity.

(c) Five ways producers can create awareness for their goods and services

1. Advertising through television, radio, newspapers, magazines, posters and billboards.
2. Personal selling by employing sales representatives to reach customers directly.
3. Sales promotion such as free samples, discounts, coupons, gifts and prize competitions.
4. Publicity and public relations through news coverage, sponsorship of events and community programmes.
5. Exhibitions and trade fairs where products are displayed and demonstrated to the public.

(Also acceptable: use of the internet and social media, and word of mouth.)

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(a) Standing order

A standing order is a written instruction given by a customer to his bank to pay a fixed sum of money to a named person or organisation at regular, stated intervals (for example, monthly rent or subscriptions) until the instruction is cancelled. The amount stays the same until the customer changes it.

(b) Bank draft

A bank draft is a cheque drawn by a bank on itself (or on another bank) at the request of a customer who has paid for it. Because payment is guaranteed by the bank, it is a very safe means of settling large debts, especially where the two parties do not know each other.

(c) Legal tender

Legal tender is money that must, by law, be accepted in settlement of a debt within a country. A creditor cannot refuse it. In practice notes are legal tender up to any amount, while coins are legal tender only up to limited amounts.

(d) Money order

A money order is a document bought from a post office or bank for a specific sum of money, which the sender posts to a named payee who then cashes it at a post office or bank. It is a safe way of sending relatively large amounts of money by post.

(e) I.O.U

I.O.U stands for "I Owe You." It is a simple written and signed acknowledgement by a debtor that he owes a stated sum of money to a named creditor. It is evidence of a debt but is not a legally negotiable instrument and does not itself promise a date of payment.

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An invoice is the source document a seller sends to a buyer for goods sold on credit. It lists the quantity, description and unit price of each item, extends each line to an amount, totals the goods, and then deducts any trade discount. A trade discount is a reduction in the catalogue price that a supplier allows to another trader, calculated as a percentage of the gross value of the goods; it is shown on the invoice and never appears in the ledger accounts, because the buyer records only the net amount actually charged.

To build the invoice, each line amount is the unit price multiplied by the quantity, with the units kept consistent. The boots need one conversion because they are priced per dozen: \( 120 \text{ boots} \div 12 = 10 \text{ dozen} \), so the charge is \( 10 \times D1{,}200 = D12{,}000 \).

INVOICE

Seller: Ndalempan Merchants Ltd
Buyer: Osseh Builders Ltd
Date: January 8, 2014

Line-by-line working

• Buckets: \( 200 \times D100 = D20{,}000 \)
• Cement: \( 350 \times D300 = D105{,}000 \)
• Electrical wire: \( 50 \times D80 = D4{,}000 \)
• Boots: \( \dfrac{120}{12} \times D1{,}200 = 10 \times D1{,}200 = D12{,}000 \)
• Nails: \( 55 \times D500 = D27{,}500 \)

Totals

\[ \text{Gross total} = 20{,}000 + 105{,}000 + 4{,}000 + 12{,}000 + 27{,}500 = D168{,}500 \]

\[ \text{Trade discount} = \frac{10}{100} \times 168{,}500 = D16{,}850 \]

\[ \text{Net amount payable} = 168{,}500 - 16{,}850 = D151{,}650 \]

The buyer, Osseh Builders Ltd, therefore owes D151,650. Remember that the trade discount is worked out on the gross total of the goods, not on any single line, and that only this net figure is entered in the books of both trader. The note E & O.E (errors and omissions excepted) is conventionally added so the seller may correct any arithmetical slip later.

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(a) Two differences between Articles of Association and Memorandum of Association

(A further difference: the memorandum is the supreme/superior document, so where the two conflict the memorandum prevails.)

(b) Four advantages of a public limited company

1. Large capital. It can raise huge amounts of capital by selling shares and debentures to the general public.
2. Limited liability. Members' liability is limited to the amount unpaid on their shares, protecting personal property.
3. Continuity of existence. It has perpetual succession; it continues to exist despite the death, retirement or insolvency of members.
4. Transfer of shares. Shares are freely transferable, so members can sell their shares easily.

(Also acceptable: economies of large-scale operation; employment of skilled specialists.)

Four disadvantages of a public limited company

1. Difficult and costly to form. Its formation involves many legal formalities and expenses.
2. Lack of secrecy. It must publish audited accounts and file returns, so its affairs are open to the public and competitors.
3. Separation of ownership from control. Shareholders (owners) do not manage the company; salaried directors may not always act in the owners' best interest.
4. Slow decision-making. Its large size and formal procedures make decision-making slow and bureaucratic.

(Also acceptable: subject to heavy government regulation and double taxation.)

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(a) Commercial abbreviations in full

• C.O.D = Cash On Delivery (payment is made when the goods are delivered).
• C.I.F = Cost, Insurance and Freight (the price quoted covers the cost of the goods, insurance and freight to the buyer's port).
• E & O.E = Errors and Omissions Excepted (the seller reserves the right to correct any mistakes made on the invoice).

(b) Discount calculations

Cost of goods = Le100,000. Trade discount = 5%, cash discount = 5%.

(i) Trade discount value

Trade discount is calculated on the cost price.

\[ \text{Trade discount} = \frac{5}{100} \times 100{,}000 = Le5{,}000 \]

(ii) Cash discount value

Cash discount is calculated on the amount remaining after deducting trade discount.

\[ \text{Invoice price} = 100{,}000 - 5{,}000 = Le95{,}000 \]

\[ \text{Cash discount} = \frac{5}{100} \times 95{,}000 = Le4{,}750 \]

(iii) Net amount payable by the buyer

\[ \text{Net amount} = 95{,}000 - 4{,}750 = Le90{,}250 \]

The buyer therefore pays Le90,250.

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(a) What is transportation by pipeline?

Transportation by pipeline is the movement of liquids and gases, such as crude oil, refined petroleum products, natural gas and water, through a network of connected pipes from the point of production or supply to where they are needed. It is a continuous, largely automatic means of transport used mainly for fluids over long distances.

(b) Five benefits of transport by air

1. Speed. Air transport is the fastest means of transport, ideal for moving goods and people over long distances quickly.
2. Suitable for perishable and urgent goods. It is best for carrying perishables (flowers, fish, fruits) and urgent items such as medicine and mail.
3. Reaches distant and inaccessible areas. Aircraft can cross oceans, mountains and deserts that are difficult for road or rail.
4. Carries valuable and light goods economically. It is well suited to high-value, low-bulk goods such as jewellery, documents and electronics.
5. Reduced handling and quicker delivery. Fast transit lowers the risk of damage, deterioration and pilferage and speeds up trade.

(Also acceptable: it saves time and reduces the need for large warehouse stocks.)

(c) Four factors in choosing an effective channel of distribution

1. Nature of the product. Perishable, fragile or technical goods need short, direct channels, while durable goods can use longer channels.
2. The market. A widely scattered market needs longer channels with many middlemen, while a concentrated market can use direct selling.
3. Cost of distribution. The producer chooses the channel that delivers goods at the lowest reasonable cost.
4. Nature and size of the firm. A large firm with enough resources may sell directly, while a small firm relies on wholesalers and retailers.

(Also acceptable: degree of control desired, and the volume of goods to be sold.)

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(a) Five merits of co-operative societies

1. Easy formation. A co-operative is simple and cheap to form, needing only a small number of members and little legal formality.
2. Democratic control. It is run on the principle of one-member-one-vote, so every member has an equal say regardless of shareholding.
3. Limited liability. Members' liability is limited to their capital contribution, protecting personal property.
4. Payment of dividend/bonus. Surpluses are shared among members as dividends, usually in proportion to their patronage.
5. Elimination of middlemen. Members buy and sell collectively, cutting out middlemen so goods are cheaper and better prices are obtained.

(Also acceptable: continuity of existence, access to loans/credit, and encouragement of thrift and savings.)

(b) Five steps in forming a Private Limited Company

1. Choose a name and check its availability. The promoters select a suitable company name and apply to the Corporate Affairs Commission (Registrar of Companies) to confirm it is not already in use.
2. Prepare the necessary documents. They draw up the Memorandum of Association, Articles of Association and other required documents.
3. File the documents and pay fees. The documents, together with a statement of share capital, particulars of directors and the registration fees and stamp duty, are filed with the Registrar.
4. Registration and issue of Certificate of Incorporation. The Registrar examines the documents and, if satisfied, registers the company and issues a Certificate of Incorporation.
5. Commencement of business. On receiving the Certificate of Incorporation, a private company may begin business immediately (it need not obtain a certificate of trading).

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(a) Four features of a warehouse

1. It is a building or place used for storing goods safely until they are needed.
2. It has adequate space, shelving and equipment for handling, arranging and moving goods.
3. It provides security against theft, fire, pests and weather, sometimes with cold-storage or special facilities for perishables.
4. It is usually sited in a convenient location with good access to transport for easy receipt and dispatch of goods.

(Also acceptable: it keeps records of goods stored (stock control); it may be owned by a producer, wholesaler or the government/bonded authority.)

(b) Six reasons why warehousing is important to a business

1. Storage of goods. It provides a safe place to keep goods from the time they are produced or bought until they are sold or needed.
2. Creation of time utility. It holds goods until they are demanded, bridging the gap between production and consumption.
3. Ensures steady supply. It makes goods available all year round, including seasonal and out-of-season goods, ensuring regular supply and stable prices.
4. Protection of goods. It protects goods from damage, theft, pests and bad weather, preserving their quality.
5. Enables bulk buying. It allows a business to buy in large quantities and store them, enjoying quantity discounts and economies of scale.
6. Preparation for sale. Goods can be sorted, graded, blended, packed and branded in the warehouse before distribution.

(Also acceptable: it allows goods to be stored under bond until duty is paid; it aids price stabilisation by holding surplus.)

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(a) Four elements of the external environment of business

1. Economic environment (level of income, inflation, interest rates, taxation and general economic conditions).
2. Political and legal environment (government policies, laws, regulations and political stability).
3. Social and cultural environment (people's values, customs, tastes, beliefs and population).
4. Technological environment (state of technology, machinery, tools and methods of production).

(Also acceptable: the natural/physical environment, competitors, suppliers, and international environment.)

(b) Two responsibilities each that a business owes to the following:

Customers

1. To supply good-quality, safe and genuine goods and services at fair prices.
2. To give honest information and after-sales service, and to honour guarantees.

Employees

1. To pay fair and prompt wages and provide good working conditions.
2. To ensure safety at work, job security and opportunities for training and promotion.

Investors

1. To use their capital wisely and pay reasonable returns (dividends/interest).
2. To keep accurate accounts and give truthful, regular information about the business.

Society

1. To avoid pollution and protect the environment.
2. To provide employment and contribute to community welfare, and pay taxes honestly.

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(a) Five services a commercial bank renders to customers

1. Accepting deposits. It keeps customers' money safe in current, savings and fixed deposit accounts.
2. Granting loans and overdrafts. It lends money to customers to meet business and personal needs.
3. Providing means of payment. It offers cheques, standing orders, bank drafts and electronic transfers for settling debts.
4. Safe-keeping of valuables. It provides safe custody for documents, jewellery and other valuables.
5. Foreign exchange and money transfer. It buys and sells foreign currency and transfers money within and outside the country.

(Also acceptable: giving financial advice, acting as a referee, and issuing statements of account.)

(b) Five duties of a customs authority

1. Collection of import and export duties. It assesses and collects duties and taxes on goods entering and leaving the country.
2. Prevention of smuggling. It guards the borders and ports to stop the illegal movement of goods in and out of the country.
3. Inspection and examination of goods. It inspects imported and exported goods and their documents to ensure they comply with the law.
4. Enforcement of import and export prohibitions. It prevents the entry of banned or dangerous goods (such as hard drugs and contraband) and controls restricted exports.
5. Compilation of trade statistics. It keeps records of goods imported and exported, providing data for the country's trade statistics.

(Also acceptable: operating bonded warehouses and collecting excise duties.)

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(a) Define communication

Communication is the process of transmitting or exchanging information, ideas, messages, feelings or instructions from one person (the sender) to another (the receiver) through a channel, in a way that is understood, and obtaining feedback. In business it is the passing of information within the organisation and between the organisation and the outside world.

(b) Six means of communication in business

1. Letters and memoranda (written correspondence).
2. Telephone (including mobile phones).
3. Email and the internet.
4. Fax (facsimile).
5. Telex and telegrams.
6. Face-to-face meetings and notices/circulars.

(Also acceptable: radio, television, courier and dispatch riders.)

(c) Four ways communication is important to business

1. Passing instructions and information. It enables management to pass orders, policies and instructions to staff and to receive reports back.
2. Aids decision-making. Accurate and timely information helps managers make sound decisions.
3. Promotes coordination. It links the various departments and staff so that their activities work together smoothly toward common goals.
4. Facilitates trade and customer relations. It enables the firm to receive orders, quote prices, place and confirm orders, and maintain good relations with customers and suppliers.

(Also acceptable: it improves efficiency, boosts staff morale and helps advertising/promotion.)

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(a) What is E-Commerce?

E-commerce (electronic commerce) is the buying and selling of goods and services, and the transfer of money and data, carried out electronically over the internet and other computer networks. It allows businesses and consumers to trade online through websites, mobile apps and electronic payment systems without meeting physically (for example, online shopping and internet banking).

(b) Four advantages of privatization

1. Improved efficiency. Privately-owned firms are run for profit, so they tend to be managed more efficiently than loss-making government enterprises.
2. Reduced burden on government. Selling off enterprises relieves the government of the cost of financing and subsidising them, freeing funds for other projects.
3. Revenue for government. The sale of public enterprises brings in money that boosts government revenue.
4. Encourages competition and investment. Private ownership promotes competition, wider share ownership and inflow of capital, leading to better goods and services.

Four disadvantages of privatization

1. Higher prices. Private owners seeking profit may raise prices of essential goods and services, hurting the poor.
2. Job losses. New private owners often retrench workers to cut costs, increasing unemployment.
3. Concentration of wealth. Enterprises may be bought by a few wealthy individuals, widening inequality.
4. Neglect of unprofitable but essential services. Private firms may abandon services that are socially useful but not profitable, especially in rural areas.

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(a) Four ways a contract can be terminated

1. By performance. The contract ends when both parties completely carry out (perform) their obligations as agreed.
2. By agreement. The parties may mutually agree to bring the contract to an end before it is fully performed.
3. By breach. When one party fails to perform his part or refuses to honour the terms, the injured party may treat the contract as discharged and sue for damages.
4. By frustration (impossibility of performance). The contract ends where an unforeseen event beyond the parties' control (such as destruction of the subject matter, death, or a change in the law) makes performance impossible or illegal.

(Also acceptable: by lapse of time, and by operation of law such as bankruptcy.)

(b) Six duties of an agent to his principal

1. To carry out the principal's lawful instructions faithfully and with due care and skill.
2. To act in good faith and in the best interest of the principal.
3. To render proper accounts of all money and transactions handled on the principal's behalf.
4. Not to make secret profit or take bribes from the transaction.
5. To avoid conflict of interest and not to disclose confidential information about the principal.
6. To perform the work personally and not delegate it without authority.

(Also acceptable: to hand over to the principal all money and property received on his behalf, and to keep the principal informed.)

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(i) Department store

A department store is a large retail shop, usually in a town centre, divided into several sections or departments, each selling a different class of goods (clothing, furniture, electronics, groceries and so on) under one roof and one overall management. Each department is run almost like a separate shop, and customers can buy a wide variety of goods in one visit.

(ii) Mobile shop

A mobile shop is a moving retail outlet, usually a specially fitted van or vehicle stocked with goods, which travels from place to place taking the goods directly to customers. It is especially useful in rural and scattered areas where fixed shops are few.

(iii) Chain store

A chain store (multiple shop) is one of a group of similar retail shops owned by the same organisation, selling the same range of goods at the same prices, using the same name and layout, and controlled from a central head office. Examples include branches of the same supermarket found in different towns.

(iv) Mail order business

A mail order business sells goods to customers through the post. Customers select goods from a catalogue, price list or advertisement, send their orders and payment by post (or online), and the goods are delivered to them by post or courier without the customer visiting a shop.

(v) Supermarket

A supermarket is a large self-service retail store selling a wide variety of foodstuffs and household goods under one roof. Goods are displayed on open shelves, pre-packed and price-tagged; customers pick what they want and pay at a central checkout. It depends on large turnover and low profit margins.