WAEC Commerce 2020 Theory — Question 3
Question 3 of 8 from the West African Examinations Council (WAEC) Commerce 2020 Theory paper, with the correct answer and a full explanation.
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3(a) List six credit instruments used in business transactions. (b) Mr. Sylva is considering hire purchase as a source of finance for his business operations. State four advantages and three disadvantages of this source of finance.
Model answer
(a) Credit instrument used in business: Credit purchase; Accruals; Overdraft; Loans; Hire purchase; I Owe You (IOU). (b) Advantages of hire purchase: It avails business to access assets which it cannot be acquired at once; It makes payment for huge capital easy for business; The interest on it is lower compared with other options; Allows business to access highly valued assets. Disadvantages of hire purchase: It is quite expensive than cash purchase; Depreciation of asset before actual acquisition; Cash commitment on the business will not allow it to diverse investment.
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