WAEC SSCE - Commerce - 2001 (Essay)

Maelezo ya Majibu

(a) Persuasive advertising

This is advertising designed to convince and induce consumers to buy a particular product by appealing to their emotions and desires. It stresses the benefits and superiority of the product and urges people to prefer and purchase it, for example advertisements that make a brand appear more attractive than others.

(b) Informative advertising

This is advertising that simply gives facts and information about a product or service, such as its features, price, uses and where it can be obtained. Its main aim is to educate and create awareness among consumers rather than to appeal to emotions. Public notices about a new product or a change of address are examples.

(c) Competitive advertising

This is advertising by which a firm promotes its own brand in direct rivalry with the products of other firms, in order to win a larger share of the market. It emphasises the qualities of the advertiser's brand over those of competing brands and is common where several firms sell similar goods.

(d) Mass advertising

This is advertising aimed at reaching a very large number of people at the same time through mass media such as television, radio, newspapers and magazines. It is used for goods of wide, general demand so as to reach as many consumers as possible over a wide area.

(e) Direct advertising

This is advertising aimed at a particular, selected group of customers, in which the message is sent straight to named individuals, for example through letters, e-mails, catalogues, handbills and price lists posted or delivered to specific persons. It is also called direct-mail advertising.

Maelezo ya Majibu

A mail order business is a form of retail trade in which goods are sold and delivered to customers through the post office or courier services, based on orders placed by mail, catalogue, telephone or the internet, without the buyer and seller meeting face to face.

(a) Six distinguishing features of a mail order business

1. No physical shop or showroom: Trading is conducted from a warehouse or office; the trader does not maintain expensive retail premises in the town centre.
2. Use of catalogues and advertisements: The business relies on illustrated catalogues, price lists, newspaper and magazine advertisements to display goods to distant customers.
3. Reliance on the postal and courier system: Orders are received and goods are dispatched mainly through the post office or courier companies, so no direct contact between buyer and seller is needed.
4. Wide geographical coverage: Customers spread over towns, villages and even other countries can be served from a single central location.
5. Cash with order or on delivery: Payment is usually made in advance with the order, on cash on delivery (C.O.D.) terms, or through money orders and bank transfers.
6. Goods are inspected only after delivery: The buyer selects from pictures and descriptions and can inspect the actual goods only when they arrive, often with a right to return unsatisfactory items.

(b) Four disadvantages of a mail order business

1. No prior inspection of goods: The customer buys on the strength of pictures and descriptions and may receive goods that differ from expectations.
2. Delay in delivery: Reliance on the postal or courier system can cause long waiting periods, and goods may be lost or damaged in transit.
3. High cost of advertising and postage: Printing catalogues, advertising and paying postage add heavily to costs, which raise the final price.
4. Unsuitable for perishables and illiterate customers: Perishable goods spoil in transit, and customers who cannot read catalogues or fill order forms are excluded; risk of fraud and bad debts is also high.

Maelezo ya Majibu

(a) Calculations

(i) Current assets are the short-lived assets: Stocks, Debtors and Cash in hand.

\[ \text{Current assets} = 38{,}000 + 25{,}000 + 10{,}000 = 73{,}000 \]

(ii) Current liabilities are the short-term debts: Creditors and Bank overdraft.

\[ \text{Current liabilities} = 30{,}000 + 5{,}000 = 35{,}000 \]

(iii) Working capital

\[ \text{Working capital} = \text{Current assets} - \text{Current liabilities} = 73{,}000 - 35{,}000 = 38{,}000 \]

(b) What is a current asset?

A current asset is an asset that is held for a short period (usually less than one year) and is either cash or can readily be converted into cash in the ordinary course of business, for example stock, debtors and cash.

(c) One significance

Current assets provide the ready funds needed to meet short-term obligations and to keep the business running smoothly from day to day.

Maelezo ya Majibu

(a) The scope of commerce (illustrated with a diagram)

Commerce is that branch of business concerned with the buying and selling of goods and services together with all the services that assist in getting those goods from the producer to the final consumer. Its scope is divided into two main branches: Trade and the Aids to Trade. The chart below illustrates the full scope.

From the diagram, the scope of commerce covers:

• Trade - the actual buying and selling of goods. It is sub-divided into Home (internal) trade, made up of wholesale and retail trade carried on within a country, and Foreign (external) trade, made up of import, export and entrepôt (re-export) trade carried on between countries.
• Aids to Trade - the services that support and make trade possible, namely transportation, banking (finance), insurance, warehousing (storage), advertising and communication.

(b) Four commercial activities that facilitate buying and selling

1. Transportation: It facilitates the movement of goods and services from the point of production to the wholesalers, retailers and consumers where they are needed, so that goods are available for sale at the right place.
2. Insurance: It reduces and covers the risks associated with the production and distribution of goods, such as fire, theft and loss in transit, giving traders the confidence to buy and sell in larger quantities.
3. Advertising: It helps to create awareness about the existence, qualities and prices of goods and services, thereby persuading buyers and increasing the volume of sales.
4. Warehousing (storage): It provides safe storage of goods until they are needed, bridging the time gap between production and sale and making it possible for production to continue ahead of demand.

Maelezo ya Majibu

(a) Uninsurable risks

Uninsurable risks are risks whose occurrence and financial loss cannot be predicted or measured with reasonable accuracy, and which therefore no insurance company is willing to cover. They usually affect many people at once and cannot be pooled, and often no insurable interest or measurable premium can be fixed for them.

Two types of uninsurable risks:

1. Loss arising from changes in fashion or taste.
2. Loss from a fall in demand or from bad business decisions (speculative/trade risks).

(Others acceptable: loss from war, inflation, gambling losses.)

(b) Short notes

• (i) Hull insurance: a branch of marine insurance that covers the ship (the vessel itself) against loss or damage arising from the perils of the sea, such as collision, sinking or fire.
• (ii) Fidelity guarantee insurance: insurance taken by an employer to cover loss caused by the dishonesty, fraud or embezzlement of employees who handle cash or goods.
• (iii) Underwriter: a person or firm that agrees to bear an insurance risk in return for a premium, and who assesses risks and fixes the premium to be paid; the term is common in marine insurance and at Lloyd's.
• (iv) Insurance premium: the sum of money paid by the insured to the insurer, usually periodically, as the consideration for which the insurer undertakes to cover the risk.

Maelezo ya Majibu

(a) Four rights of an unpaid seller of goods

An unpaid seller is one who has not received the whole of the price, or whose bill/cheque has been dishonoured. His rights are:

1. Right of lien: to retain possession of the goods until the price is paid, where the goods are still in his hands.
2. Right of stoppage in transit: where the buyer becomes insolvent, to stop the goods while they are still in the hands of a carrier and regain possession of them.
3. Right of resale: to resell the goods to another buyer where they are perishable or where the original buyer defaults after notice.
4. Right to sue for the price (or for damages): to take legal action against the buyer to recover the price or damages for non-acceptance.

(b) Six duties of an agent to the principal

1. To carry out the lawful instructions of the principal faithfully.
2. To act in good faith and in the best interest of the principal.
3. To exercise reasonable care, skill and diligence in performing his duties.
4. To render proper accounts of all money and transactions to the principal.
5. Not to disclose confidential information or make secret profit from the agency.
6. To perform the work personally and not delegate without authority.

Maelezo ya Majibu

(a) Four factors that determine the choice of transport

1. Nature of the goods: perishable, fragile or bulky goods require particular means of carriage.
2. Cost of transport: the businessman compares the freight charges of the different means and chooses the most economical.
3. Distance and destination: long-distance or overseas movement may need rail, ship or air, while short distances suit road transport.
4. Speed and urgency: where goods are needed quickly, a faster means such as air or road is preferred.

(Others acceptable: safety/security of goods, availability of the means, value of the goods.)

(b) Four advantages of road transport over rail transport

1. Road transport offers a door-to-door service, delivering goods directly from seller to buyer without transhipment.
2. It is more flexible, as vehicles can reach interior areas not served by railway lines.
3. It is more suitable and cheaper for short distances and small loads.
4. It saves loading and unloading time, reducing the risk of damage and delay.

Maelezo ya Majibu

(a) Six reasons for government participation in business enterprises

1. Provision of essential services: Government participates in order to provide basic and social services such as water, electricity, health and education that private investors may neglect because they are not very profitable.
2. Provision of capital-intensive projects: Some ventures such as railways, refineries, steel and power plants require huge capital and long payback periods beyond the reach of private individuals, so government undertakes them.
3. Prevention of exploitation and monopoly: By owning or regulating key industries, government checks the exploitation of consumers by private monopolists through high prices and poor quality.
4. Creation of employment: Public enterprises create job opportunities and help reduce unemployment in the economy.
5. Control of strategic and sensitive sectors: For reasons of national security and public interest, government keeps control of sectors such as defence, currency printing and telecommunications.
6. Promotion of economic development and even development: Government invests in businesses to accelerate growth, develop rural and backward areas, and correct regional imbalances that private investors ignore.

(b) Four demerits of government participation in business enterprises

1. Inefficiency and mismanagement: Public enterprises are often poorly managed, wasteful and unprofitable because officials lack the profit motive that drives private owners.
2. Bureaucracy and red tape: Excessive rules and delays in decision-making slow down operations and reduce productivity.
3. Political interference and corruption: Appointments and decisions are influenced by politics rather than merit, leading to corruption and diversion of funds.
4. Financial burden on government: Loss-making public enterprises drain public funds through subsidies and bailouts, diverting money from other important projects.

Maelezo ya Majibu

(a) Difference between Hire Purchase and Credit Sale

(b) Four advantages of hire purchase

(i) To a seller

• It increases sales because customers who cannot pay in full at once are still able to buy.
• He earns extra income, since the total hire-purchase price includes interest and is higher than the cash price.
• The goods remain his property until fully paid, so he can repossess them if the buyer fails to pay, reducing his risk.
• It helps him to attract and retain more customers and dispose of stock quickly.

(ii) To a buyer

• He can obtain and use goods immediately without paying the full price at once.
• He pays gradually in convenient instalments out of his income, easing the burden.
• He can acquire expensive items such as machinery or vehicles that he could not afford to buy outright.
• The use of the goods (for example a machine or vehicle) can help him earn the money used to pay the instalments.

Maelezo ya Majibu

(a) What is a bill of lading?

A bill of lading is a document issued by a shipping company (or its agent) to the exporter acknowledging that the goods described in it have been received on board a named ship for carriage to a stated destination. It serves three purposes: it is a receipt for the goods shipped, evidence of the contract of carriage, and a document of title to the goods, so that whoever holds it can claim the goods at the port of destination.

(b) Six contents of a bill of lading

1. Name of the shipping company and the name of the ship.
2. Name of the shipper (exporter) and the consignee.
3. Description of the goods, including quantity, weight and marks.
4. Port of loading and port of destination.
5. Amount of freight charges and whether paid or payable.
6. Date of shipment and signature of the ship's master or agent.

(c) Clean bill of lading versus foul bill of lading