WAEC Commerce 2012 Theory Past Questions

Model answer

(a) Completed chart of the main divisions of commerce: Commerce divides into Trade and Aids to trade. Trade divides into Home trade and Foreign trade. Home trade further divides into Retail Trade and Wholesale Trade. Aids to trade includes: Banking, Insurance, Advertising, Transportation, Warehousing, Communication, Tourism. (b)(i) Primary production: this can be defined as all activities that deal with extraction and exploration of natural resources from their various sources, such as mining, fishing etc. (ii) Secondary production: this involves all activities of converting raw materials to finished goods such as production, manufacturing etc. (iii) Tertiary production: this can be defined as all activities which involves provision of services. No physical output is produced but the services are essential to aid both primary and secondary production, such as transportation, banking etc.

Model answer

(a)(i) Limited liability means that the liability of the owners is limited to the capital contributed to the company. That is, in the case of winding up, the private property of the owners will not be affected. (ii) Separate legal entity: this means that the organisation is an artificial person that can sue and be sued in its name. (iii) Certificate of incorporation: this is the document issued by the Corporate Affairs Commission to the promoter of a company to indicate that the company is now a legal entity. (iv) Participating preference share: this is a type of preference share which allows the holder to share in additional dividend after the ordinary shareholders have received specific amount. (v) Ordinary share: this is the type of share in which the holders have no limit to amount they can receive as dividend even though they are the last to be settled. (b) Advantages of public corporation: - it is a going concern - it provides job opportunity to the citizen - it prevents the monopoly of the private sector - it can employ experts and expatriates - it provides essential services to citizens at a cheap price - it also participates in business to avoid the exploitation of consumers - also, to prevent the monopoly of private sector - also, some investments are so huge and have little profit but if it is essential for the sustainability of the state, the government invests in it.

Model answer

(a) Channels of distribution: this can be defined as various link in which the producer/seller is linked to the buyers. (b) Examples of channels of distribution: (i) Producer ⇒ wholesaler ⇒ retailer ⇒ consumer. (ii) Producer ⇒ wholesaler ⇒ consumer. (iii) Producer ⇒ retailer ⇒ consumer. (iv) Producer ⇒ consumer. (c) Advantages of home trade over foreign trade: (i) There is no currency barrier in home trade, which is one of the major headaches in foreign trade. (ii) Home trade involves relatively shorter distance. (iii) In most cases, there is no restriction on local trade as compared with foreign trade which is usually accompanied with different regulations. (iv) Home trade tends to be cheaper than foreign trade because there is no transportation cost. (v) Lesser risk in home trade as against foreign trade.

Model answer

(a) Credit: this can be defined as the act of buying with the intention of making payment in the future. Any purchase that is not accompanied with instant payment is credit. (b) Principles of insurance: I. Insurable interest: Before any person can undertake a policy, the person must be subjected to financial loss in the case of an unfortunate event which he intends to insure against. II. Utmost good faith: This principle states that all parties to the insurance policy must disclose all relevant information that relate to the policy. III. Proximate cause: This principle states that a loss must be caused by the event that it is insured against. IV. Indemnity: this principle states that an insured is entitled to compensation in case he suffers loss from the event he insured against. V. Subrogation: states that the insurance company can take act legally on behalf of the insured after when the insurance company has compensated the insured. VI. Contribution: this is the principle that allows two or more insurance companies to come together to insure a single policy with each company contributing a ratable proportion in the case of loss.

Model answer

(a) Factors that affect choice of transport for frozen food: - the destination that is intended - the volume of the goods to be transported - the cost of transportation - weather condition at the particular time - the urgency of need of the goods (b) Disadvantages of air transport: - it is too expensive - it can carry limited volume of goods - its accidents is very fatal - it works on schedule - it depends on other means of transport

Model answer

(a) Market segmentation: This is a deliberate act on the part of seller to divide his customers into different set based on some criteria best chosen by him. (b) Factors that influence market segmentation: - nature of the goods being sold: if the goods can be transferred from one place to another, segmentation of the market will be a bad idea. - distance between the two markets: there must be reasonable distance between the two market which the seller intends to segmentise. - income of the buyers: also, the income of the buyers also must be considered before segmenting market, if not, the segmentation will just be a futile effort. - cultural difference of the buyers: also, cultural differences can be a motivating factor to segregate market. - law that regulate the sector. - finally, buyers interest also can influence market segmentation. (c) Advantages of advertising: - through advertising, the sales level of the firm can be improved - it serves as means to sensitise the public about the product - it is used to create awareness about the product - it serves as a means of generating feedback about the product of the organisation - advertisement help to create employment.

Model answer

(a) Contract: This can be defined as agreement between two or more parties to discharge some responsibilities for consideration. It involves offer and acceptance. (b) Elements of a valid contract: - offer - acceptance - consideration - ability - validity (c) Ways a contract can be discharged: - frustration on the part of a party: If one of the parties to the contract is unable to discharge his responsibility, it may lead to frustration on the part of the other party and this is a valid point to terminate the contract. - insolvency: If a party to the contract became insolvent such that it cannot pay its consideration to the contract, then, such contract can be terminated. - discharge of the contract: If a party to the contract has discharged all its duties to the contract, the contract will be terminated. - expiration of the contract period: when the time specified for the contract to be executed expires, such contract can be terminated.

Model answer

(a) Indent: An indent is an order of goods from an overseas importer to a buying agent located in the exporting country. The importer usually gives all relevant information regarding the volume, price, and nature of the product. Indent may be of two types – closed and open. (b) Bill of lading: bill of lading is the document that shows that goods have been received for shipment. It will indicate the owner of the goods. (c) Consular invoice: A consular invoice is a document certifying a shipment of goods and shows information such as the consignor, consignee, and value of the shipment. (d) Certificate of origin: Is a document widely used in international trade transactions which attests that the product listed therein has met certain criteria to be considered as originating in a particular country. (e) Bill of exchange: A bill of exchange is a written order used primarily in international trade that binds one party to pay a fixed sum of money to another party on demand or at a predetermined date.

Model answer

(a) Nationalisation: This is the act of converting a privately owned firm to government owned corporations. This is done to improve the welfare of the citizens. Meanwhile, indigenisation is the act of making the citizen of an economy to participate actively in the control of the economy so as to save the economy from being controlled by foreign firms. (b) Reasons for indigenisation: - to encourage the citizens in participating in the economy - to avoid control of the economy by foreigners - to reduce unemployment in the country - to avoid transfer of capital abroad - to preserve foreign reserve - to provide essential services to citizens at a cheap price

Model answer

(a) Issued capital = #20×30,000 = #600,000. (b) Unissued capital = #20×(80,000−30,000) = #20×50,000 = #1,000,000. (c) Total assets = #(90,000+65,000+60,000+15,000+5,000) = #235,000. (d) Working capital = current assets − current liabilities = #(60,000+15,000+5,000)−35,000 = #45,000.