WAEC SSCE - Commerce - 2015 (Essay)

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(a) The abbreviations in full

• (i) COD = Cash On Delivery
• (ii) CIF = Cost, Insurance and Freight
• (iii) FOB = Free On Board
• (iv) E and O.E. = Errors and Omissions Excepted

(b) Calculation

Cost of goods = N100,000. Trade practice is to deduct the quantity (trade) discount first, then calculate the cash discount on the reduced amount.

(i) Value of the quantity discount

\[ \text{Quantity discount} = 5\% \times N100{,}000 = \frac{5}{100} \times 100{,}000 = N5{,}000 \]

(ii) Value of the cash discount

Amount after quantity discount \(= 100{,}000 - 5{,}000 = N95{,}000\).

\[ \text{Cash discount} = 7\tfrac{1}{2}\% \times N95{,}000 = \frac{7.5}{100} \times 95{,}000 = N7{,}125 \]

(iii) Net amount payable by the buyer

\[ \text{Net amount} = 100{,}000 - 5{,}000 - 7{,}125 = N87{,}875 \]

The buyer therefore pays N87,875.

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(a) Five reasons why manufacturers advertise their products

1. To create awareness: Advertising informs consumers about the existence of a new product or an improvement to an existing one.
2. To increase sales: By persuading more people to buy, advertising expands demand and boosts the volume of sales and profit.
3. To create and retain a market: It helps the manufacturer to win new customers and keep existing ones loyal to the brand.
4. To meet or beat competition: Advertising helps a firm to distinguish its product from those of rivals and to hold or increase its share of the market.
5. To build brand image and goodwill: Continuous advertising creates a favourable image and reputation for the product and the company.

(Also acceptable: to educate consumers on how to use the product, to introduce the product to new markets.)

(b) Five reasons for the continued criticism of advertising

1. It increases the price of goods: The heavy cost of advertising is added to the selling price, so consumers pay more.
2. It is often misleading and deceptive: Some adverts exaggerate the quality of products and make false claims that mislead buyers.
3. It encourages wasteful spending: It persuades people to buy goods they do not really need, encouraging extravagance.
4. It can be offensive or immoral: Some advertisements are indecent, exploit fear or sex, or offend cultural and moral values.
5. It promotes harmful and monopolistic tendencies: It may glamorise harmful goods such as tobacco and alcohol, and heavy advertising by large firms can drive out small competitors.

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(a) Five functions of commercial banks

1. Accepting deposits: They receive money from the public into current, savings and fixed deposit accounts for safekeeping.
2. Lending money: They grant loans and overdrafts to individuals and businesses at interest.
3. Facilitating payments: They provide cheques, standing orders, credit transfers, cards and electronic transfers that enable customers to make and receive payments.
4. Agency services: They act on behalf of customers by paying bills, collecting dividends, buying and selling shares and executing standing instructions.
5. Safe custody of valuables: They keep documents, jewellery and other valuables safe in strong rooms and safe deposit boxes.

(Other acceptable functions: foreign exchange dealings, advisory services, issuing travellers cheques.)

(b) Five ways the central bank controls the commercial banks

1. Open market operations (OMO): The central bank buys or sells government securities in the money market. Selling securities reduces the cash available to commercial banks and their ability to lend, while buying increases it.
2. Bank (discount) rate: By raising the rate at which it lends to commercial banks, the central bank makes borrowing costly, forcing banks to raise their own lending rates and reduce credit; lowering it has the opposite effect.
3. Cash reserve ratio: It fixes the minimum percentage of total deposits that each bank must keep with the central bank. Raising the ratio reduces the money available for lending.
4. Liquidity ratio: It fixes the proportion of a bank's assets that must be held in liquid form. A higher liquidity ratio restricts the volume of credit banks can create.
5. Special directives and moral suasion: The central bank issues instructions and appeals to banks to expand or restrict lending to particular sectors of the economy, and may impose selective credit controls.

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Explanatory notes on the insurance terms

(a) Subrogation

Subrogation is the principle by which, after an insurer has fully compensated the insured for a loss, the insurer takes over the legal rights and remedies of the insured in respect of the damaged or lost property. This prevents the insured from making a further gain by also recovering from a third party who caused the loss. For example, if an insured car is damaged by another driver and the insurer pays for the repairs, the insurer may then step into the shoes of the insured and sue the negligent driver to recover the amount paid. It supports the principle of indemnity by ensuring the insured is not paid twice for the same loss.

(b) Proximate cause

Proximate cause is the principle that an insurer is liable only for a loss that is directly and effectively caused by the risk insured against, without the intervention of any new and independent cause. It looks for the nearest, most dominant and effective cause of the loss rather than a remote one. If the actual cause of the loss is an insured peril, the claim is payable; if the effective cause is an excluded peril, the claim fails. For example, if a house insured against fire is damaged by water used to put out an insured fire, the proximate cause is fire and the claim is valid.

(c) Barratry

Barratry is a term used in marine insurance to describe any wrongful or fraudulent act deliberately committed by the master (captain) or crew of a ship against the interest of the ship owner or the owner of the cargo. Examples include the deliberate scuttling or sinking of the ship, setting it on fire, deserting it, or illegally selling the cargo. A loss arising from barratry is normally covered under a marine insurance policy because it is an act done without the consent of the owner.

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(a) Five reasons for government participation in business

1. To provide essential services: Government invests in services such as water, electricity, health and transport that are vital to citizens but may be unprofitable for private firms.
2. To prevent exploitation and monopoly: By running key industries, government stops private monopolies from charging excessive prices and exploiting consumers.
3. To generate revenue and employment: Public enterprises create jobs for citizens and provide additional income for the government.
4. To control strategic and sensitive industries: Industries connected with security and the economy, such as defence, mints and refineries, are kept under government to protect national interest.
5. To provide capital-intensive projects: Government undertakes projects requiring huge capital, such as railways, ports and dams, which private investors cannot easily finance.

(Also acceptable: to ensure even development of all regions and to check foreign domination of the economy.)

(b) Five problems encountered by government businesses

1. Inadequate capital: Government enterprises often depend on budget allocations that are insufficient and irregular, limiting their operations.
2. Poor management and inefficiency: Managers are often appointed on political grounds rather than merit, leading to low productivity and waste.
3. Bureaucracy and red tape: Decision-making is slow because of the many official channels and procedures that must be followed.
4. Corruption and mismanagement of funds: Public funds are frequently misappropriated, which leads to heavy losses.
5. Political interference: Frequent changes in government policy and undue interference by politicians disrupt planning and continuity of management.

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(a) What is a contract?

A contract is a legally binding agreement between two or more persons which creates rights and obligations that can be enforced in a court of law. For an agreement to be a valid contract it must contain the essential elements of offer, acceptance, consideration, intention to create legal relations, capacity of the parties and genuine consent, and its purpose must be lawful.

(b) Four ways by which a contract can be discharged

1. Discharge by performance: A contract ends when both parties completely and exactly carry out the obligations they agreed to. Once each party has done what was promised, the contract is fulfilled and comes to an end.
2. Discharge by agreement: The parties may mutually agree to bring the contract to an end before performance, either by cancelling it, replacing it with a new contract (novation) or by waiver.
3. Discharge by breach: When one party fails to perform, refuses to perform or performs badly, the innocent party may treat the contract as discharged and sue for damages.
4. Discharge by frustration (impossibility of performance): A contract is discharged when, through no fault of either party, an unforeseen event such as destruction of the subject matter, death, or a change in the law makes performance impossible or illegal.

(Also acceptable: discharge by lapse of time or by operation of law.)

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(a) What is a vending machine?

A vending machine is an automatic, coin or card operated machine that dispenses goods such as soft drinks, snacks, sweets, cigarettes or tickets to a customer without the involvement of a shop attendant. The buyer inserts the correct money (coins, notes or a payment card) and the machine automatically releases the selected item. It is a form of automated retailing that allows goods to be sold at any time of the day.

(b) Six reasons why supermarkets are popular with shoppers

1. Wide variety of goods: A supermarket stocks a large range of products under one roof, so shoppers can buy many different items in a single visit.
2. Self-service and convenience: Goods are openly displayed on shelves and customers pick what they want at their own pace without waiting for an attendant.
3. Lower prices: Supermarkets buy in bulk and sell in large volumes, so they can charge lower prices and often offer discounts and special offers.
4. Fixed and clearly marked prices: All goods are price-tagged, so there is no bargaining and the shopper knows exactly what to pay.
5. Ample parking and pleasant environment: Most supermarkets provide car parks, air-conditioning, trolleys and a comfortable, well-lit shopping environment.
6. Time saving and one-stop shopping: Because many goods and services (including banking points and payment counters) are available in one place, shoppers save time.

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(a) Classes of occupation

(b) Meaning of occupation

Occupation is any productive economic activity or work that a person does regularly in order to earn a living. It may involve producing goods or providing services.

(c) Three classes of occupation

1. Industrial occupation: This involves the actual production of goods. It includes extracting raw materials, manufacturing goods, and construction. Example: mining, where minerals are extracted from the ground.
2. Commercial occupation: This involves activities that help the exchange and distribution of goods and services. It includes trade and aids to trade such as transport, banking, insurance and warehousing. Example: a trader who buys goods and sells them to consumers.
3. Service occupation: This involves providing personal or professional services that people use but cannot physically touch as goods. Example: a teacher who provides education.

Examination point: Industrial work produces goods; commercial work helps goods and services move from producers to consumers; service work provides useful personal or professional assistance.

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(a) Five reasons for the presence of the customs and excise authority at seaports

1. Collection of import and export duties: They assess and collect duties and tariffs on goods entering and leaving the country, raising revenue for government.
2. Prevention of smuggling: They check vessels and cargo to stop the illegal movement of goods in and out of the country.
3. Enforcement of trade laws: They ensure that prohibited and restricted goods, such as hard drugs and expired products, are not imported or exported.
4. Compilation of trade statistics: They record the quantity and value of goods traded, which helps government in planning the balance of trade and payments.
5. Inspection and documentation of goods: They examine cargo and verify shipping documents to confirm that declarations are correct before goods are cleared.

(b) Five functions of the airport authority

1. Provision of airport facilities: It builds and maintains runways, terminals, hangars and other infrastructure needed for aircraft to land, take off and be serviced.
2. Air traffic control: It guides and controls the movement of aircraft in the air and on the ground to ensure safe landing and take-off.
3. Provision of security: It screens passengers, baggage and cargo and maintains security to protect lives, aircraft and property against attack.
4. Handling of passengers and cargo: It provides check-in, immigration, customs points and cargo-handling services for the smooth processing of travellers and goods.
5. Provision of navigational and safety aids: It supplies weather information, lighting, fire-fighting and rescue services to support safe air transport.