WAEC Commerce 2013 Theory Past Questions

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(a) Commerce can be defined as the act of buying and selling of goods. It involves all acts of trading and aids to trade meanwhile industry is the act of combining efforts to produce a new product. Commerce deals with exchange and distribution of goods while industry involves actual production of goods. (b)(i) Activities involved in industry: Extractive industry — this involves exploring natural resources from their sources. Manufacturing industry — this involves conversion of raw materials to a more usable and consumable finished goods. Constructive industry — this involves combining two inputs to produce a new output. (ii) Activities involved in commerce: Banking — this involves all activities which involves movement of cash between buyers and sellers. Insurance — this involves providing cover for goods and employees involved in trading activities to cater for unforeseen contingencies. Transportation — this involves moving of goods and passengers from one location to another, i.e. from point of production to point of sellers etc. Warehousing — this involves providing storage facilities for goods earlier produced before there is demand for same. Advertising — this involves creating awareness for a product so as to improve sales of the product.

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(a) Features of public corporations: It is owned by the tax payer/government. It is established with the aim of maximizing welfare of the populace. No tax is charged. It is limited by guarantee in most cases. It is mostly a monopoly. (b) Sources of capital available to a limited liability company: Offer of ordinary shares for subscription: this is a unit of ownership in a limited liability company. The management of the company can issue ordinary shares to raise capital for the company. Issue of preference shares: this include shares that have fixed rate of dividends. Debentures: this is a document which specifies the indebtedness of a company to the bearer. The holder received a fixed interest. Also, the company can use its reserves and convert it to shares for capital. Also, the company can apply for long-term loan from banks.

Model answer

(a) Mail order business: Mail order is a retail outlet in which buying of goods or services is done through sending mail delivery. The buyer places an order for the desired products with the merchant through some remote methods such as applications or mail. Example of such is Jumia and Konga. (b) Trends in retailing: Credit cards: this involves using a special card for purchasing of goods in some particular stores. The customers will transfer some amount on the card so that he can use it to make purchase. A common example is the e-card for BRT buses. E-retailing: this involves buying and selling through the Internet. The buyer and seller will meet and transact through the internet. Self-service branding: this involves setting up shelves with which buyers can choose from. The shop will provide trolleys for the customers to push their items. Vending machine: this involves loading an automated machine with some goods. When the machine receives signal of card or money, it will release goods for the buyer. Mobile shops: this involves setting up shops in a vehicle and moving around the city to satisfy the demands of customers.

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(a) Bull: A bull is a person who buys stock in the stock market when the prices are low and sell it when the prices are high. It is opportunity seeker in the market. It is usually optimistic about the stock market. (b) Bear: A bear is an investor who believes that a particular security, or the broader market is headed downward and may attempt to profit from a decline in stock prices. Bears are typically pessimistic about the state of a given market or underlying economy. (c) Option: Options are financial instruments that are derivatives based on the value of underlying securities such as stocks. An options contract offers the buyer the opportunity to buy or sell — depending on the type of contract they hold. (d) Backwardation: Backwardation is when the current price-spot-price of an underlying asset is higher than prices trading in the futures market. (e) Contango: A contago is a fee paid by a buyer to a seller when the buyer decides to defer from the initial agreement or trade they had agreed upon.

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(a) Proximate cause: This is an insurance term that states that the loss suffered must be caused by the event insured against. A person insures against fire, he will not be entitled to compensation for loss caused by erosion. (b) Surrender value: Surrender value can be defined as the cash amount offered to the policyholder by the issuing life carrier upon cancellation of the contract. (c) Contribution: This can be defined as the coming together of two or more insurance companies to insure a single policy. If the policy is huge, the insurance companies can come together to insure and make each contribution in the time of indemnity. (d) Utmost good faith: This is a term in insurance policy which states that all parties to the policy must disclose all necessary information that relate to the policy being undertaken. (e) Premium: This is the periodic amount paid by an insured to an insurance company to specify his continual interest in the policy.

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(a) Importance of personal selling to a business: Personal selling makes the customer to be loyal to the seller. It enables the seller to know where the product lax and lag. It gives seller competitive edge over its rivals. It creates personal relationship between seller and buyer. Personal selling increases selling coverage of the seller. (b) Importance of communication to business: Communication allows managers and staff to perform their basic functions. It serves as foundation for planning. It facilitates exchange of valuable information in the organisation. Communication allows top management to get feedback from below. Communication enhances effectiveness in an organisation.

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(a) Tramp vessels do not have a fixed schedule while ocean liners do have a fixed schedule. Tramp vessels do not have an itinerary port of calls while ocean liners do. (b) A factor takes possession of goods while broker does not take possession of goods. The factor takes commission while the broker collects brokerage. (c) A commissioned agent does not guarantee the principal of bad debts on the part of the buyer while a del-credere agent does. A del-credere agent receives additional commission known as del-credere, a commissioned agent does not. (d) A consular invoice shows the certification for shipment of goods while a proforma invoice does not. A proforma invoice shows details of goods the buyer intends and their prices while a consular invoice does not. (e) Insurance is taken against indemnifiable events such as accidents, while assurance is taken against non-indemnifiable events such as life. Assurance is an endowment policy taking for life assurance, insurance is a compensating policy.

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(a) Market segmentation is a deliberate act on the part of seller to divide his customers into different segments best suited/best chosen by him. (b) Factors to be considered in segmenting a market: 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 markets 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.

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(a)(i) Nationalisation: This can be defined as the act of converting a privately owned firm to government owned corporations. This is done to improve the welfare of the citizens. (ii) Indigenisation: This is the act of making the citizens of an economy to participate actively in the control of the economy so as to save the economy from being controlled by foreign firms. (iii) Commercialisation: This can be defined as the act of making a public corporation profit oriented. When a public enterprise which was not profit oriented is restructured to become a profit-oriented firm, then, it has been commercialised. (iv) Privatisation: This is the process of converting a public corporation which is not profit oriented and which is owned by government to private individual with profit motive. (b) Reasons government participate in business: Government participates in business so as to provide 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) Turnover = Sales − Returns inwards = ₦850,000 − ₦25,000 = ₦825,000. (b) Cost of goods sold = Purchases − Returns outwards = ₦400,000 − ₦15,000 = ₦385,000 (based on the figures available in the source data, with no opening/closing stock given). (c) Gross profit = Turnover − Cost of goods sold = ₦825,000 − ₦385,000 = ₦440,000. (d) Net profit = Gross profit − Expenses = ₦440,000 − (Rent 25,000+Insurance 45,000+Wages&salaries 112,000+Transport 6,000) = ₦440,000 − ₦188,000 = ₦252,000. (e) Rate of stockturn = Cost of goods sold ÷ Average stock. No opening/closing stock figures were provided in the source data for this question, so average stock (and hence the rate of stockturn) cannot be reliably computed from the given information.