1. Commerce is an integral part of production.

(a) Justify the above statement

 Commerce is trade and aids to trade
 Production is the satisfying of human
 Needs andWants by provision of goods/services
 Goods and services are made by industry
 Goods/services can only satisfy the needs and wants when they are distributed to the
consumer
 Trade is buying and selling of goods/services
 Buying and selling is distributing goods/services with the view of making profit
 Production is therefore the total sum of industrial and commercial activities and
direct services
 Hence commerce is an integral part of production.
(b) What do you understand by the terms below and give examples of each?
(i) Exhaustive extractive industry
 A process of obtaining/extracting something from Nature
 In the course of time, that thing will run out (exhausted) e.g. fishing
 Examples: extracting minerals from the soil, fishing, lumbering, farming,
drilling
 Extractive industry is the first stage in the chain of production of goods
 Consumers use some raw materials like fruits and vegetables in forms but
most raw materials are processed before use.
(ii) Constructive industry
 Occupation concerned with using produced things/items by manufacturers
 To assemble them into an organized whole
 Example: House building, bridge building, vehicle and aircraft assembling
 Constructive industry is the second stage in the chain of production of goods.
(c) Indicate the problem for which the following are solutions:
(i) Transport Distance/Movement
(ii) Warehousing Storage/Time
(iii) Banking Finance
(iv) Communication Contact

2. (a) Discuss the main characteristics of a hypermarket. (8)

(b) What are the advantages of hypermarkets from the point of view of:

(i) The retailer? (6)

(ii) The consumer? (6)

(a) The main characteristics of a Hypermarket include:

 A very large retail establishment/outlet (with 5,000m² trading space)
 Offering a very wide range of goods (wider than a supermarket)
 Usually located outside town centres/outskirt/edge of towns
 Where land is cheaper and plentiful
  Situated where there are good road, network communications/near main roads
 Large car parks are available
 Self-service stores
 Goods usually sold on cash and carry basis
 Checkouts/trolleys/baskets are used
 Facilities such a restaurants, banks, filling stations may be provided
 Usually lower prices as a result of economies of scale i.e. buying in large quantities
 Goods displayed in appropriate section
(b) (i)Advantages of hypermarkets from the point of view of the retailer
 Economies of scale/buying in bulk
 Buying in bulk leads to lower purchasing costs
 And the possibility of offering cheaper prices
 Self-service promotes impulse buying
 Self-service may mean less staff required
 Large turnover leads to less stock wastage leading to high profits
 Land is cheap on the outskirts
(ii) From the point of view of the consumer
 Cheaper prices
 Easy parking
 Wide range of goods/one stop shopping
 Usually long opening hours
 Offer facilities such as restaurants, filling stations and banks
 Customers may browse at leisure or shop at own pace/self-service
 Good facilities for buying in bulk

3. (a) Explain the importance of warehousing in trade (12)

(b) Why is the wholesaler considered to be?

(i) Reservoir. (3)

(ii) Financier. (2)

(iii) Risk Bearer. (3)

(a) Explain the importance of warehousing in trade
 Warehousing is the storage of goods
 Which are not needed immediately
 It enables storage of seasonal goods
 Enables steady flow of goods
 Eliminates shortages
 Large scale producers/wholesalers are able to store their surplus goods
 And prevents goods from going bad, being damaged, stolen
 Warehousing avoids fluctuations of prices
 Prices would be low during the period of plenty and high during the time of scarcity
 Facilitates storage of goods awaiting re-export
 Storage of raw materials awaiting delivery or processing
  Storage of goods in transit/awaiting demand
 Processing goods for sale by blending, weighing, branding and bottling
 Storage of goods awaiting customs duty to be paid
(b) Why is the wholesaler considered to be:
(i) Reservoir
 Wholesaler stores goods and keeps them until they are required by retailers
 He/she buys in bulk from various manufacturers
 And stores them to avoid shortages
 Steadying the flow of supplies/providing ready supply when they are needed
(ii) Financier
 Usually pays cash for goods bought from manufacturers
 Enabling manufacturers to have sufficient working capital
 But giving goods on credit to retailers who can′t afford to pay in cash
 Hence he/she finances both the manufacturer and retailer
(iii) Risk Bearer
 Buys goods in bulk well in advance
 Goods that may not be required by the retailer
 Due to deterioration of going out of fashion
 Or losing goods while in the warehouse due to theft, damage or fire
 Or making loss if the prices fall while goods are kept in the warehouse

4. (a) Why does the principle of indemnity not apply to all forms of insurance? (3)

(b) Explain briefly how the principle of indemnity applies in each of the following cases:

(i)A plate glass window is insured for K1 000 000. It is broken and costs

K900 000 to replace (3)

(ii) A house valued at K30 000 000 is insured against fire for K20 0000 000.

It is damaged by fire and the cost of repairs amounts to K900 000. (4)

(iii) A motor vehicle cost K15 000 000 in 2000 and has been insured since that date.

In 2008 it was involved in an accident and was too damaged to be repaired (4)

(c) Describe briefly the insurance cover given by:

(i) Contents insurance (3)
(ii) Consequential loss insurance (3)
(a) The principle of indemnity does not apply to all forms of insurance because:
 Not all types of loss can be restored to the same position as before the occurrence of loss
 For example, life assurance, personal accidents (loss of limbs)
 In some classes of insurance, the company will offer to replace ′new′ for ′old′
(b) (i) The insured will receive K900 000
 He/she is over-insured
  Payment will be restricted to the amount of the loss or market value and not the insured
value
 Not allowed to make any profit out the loss

(ii) The insured would receive

K20 000 000 x K900 000 ꞊ K600 000

K30 000 000
 He/she is under-insured
 Payment is subject to average clause
 Insured becomes own insurer for the difference
(iii) The insured would be compensated the estimated current value of eight year old car
 So that no profit may be made from the loss
 After the insured is fully compensated, the remains (scrapped car) become the
property of the insurance company.
 Corollary of subrogation applies.
(c) (i) Contents insurance
 Covers all movable items in the home
 i.e. furniture, carpets, TV, fridges, jewellery
 cover losses resulting from theft, fire, flooding, lightening or accidental damage to
property
 policy covers a monetary compensation equal to the value of the goods stolen or burnt
 takes into consideration wear and tear but not a brand new replacement
 also offers a ′new′ for ′old′ content policy which offers a new replacement of the item
insured
 This attracts higher premiums.

(ii) Consequential loss insurance

 Covers for loss of profits suffered as a result of an insured risk

 For example, a trader may insure his/her retail shop against fire and
 Compensation calculated on the previous years′ profits earned by the business
 Also covers the breakdown of machinery
 Business expenses required to be paid when business buildings are out of use
 E.g. paying rental bills for an alternative building, wages/salaries.

5. Explain, giving your own reasons, why a firm would advertise:

(a) (i) On television (3)

 Gives widest national coverage/viewed in most households

 As it is directed to both eye and ear/can combine sound and vision
 Live demonstrations can be given
 Time chosen can suit the viewers
 Provide repeated adverts
(ii) Local Radio Station (3)
  Have wide coverage/most people have radios
 Repeated adverts are possible
 It is cheaper
 Many local radio stations are available
 Audience can be targeted i.e. specific time/language
(iii) Posters (3)
 Can be found on large billboards by side of roads or in shop windows, public
areas
 Message displayed is short so that passers-by can quickly read it
 It is eye catching
 Some posters are left in position for months
 Affordable/cheaper
(iv) Catalogue (3)
 Books showing descriptions/details of goods in stock
 Sometimes with illustrations in colour pictures
 With catalogue number for each item
 And prices (or with separate price list)
 Issued by suppliers to customers wishing to place orders
 Adverts have long lasting impression
 Can be used or shared by many people
(c) State the advantages of advertising to the firm. (8)
 Advertising informs consumers of goods available
 This allows customers make a more informed choice when buying goods
 Existence of advertising encourages competition between firms
 Which results in lower prices and better quality products
 Advertising maintains and increases sales
 Profits are increased with lower cost and larger turnover
 New products are well made known
 It generates confidence in the product by making it seem familiar to the public
 Promotes brand loyalty
 May persuade the public to buy
 Creates new markets
 Announces job vacancies

6. Lucas and Zulu decide to start a manufacturing business making blankets. They discuss whether
to

Enter into partnership or to form a private limited company.

(a) Explain the differences between a partnership and a private limited company. (6)

P A R T N E R S H I P PRIVATE LIMITED COMPANY

(i) Partners have unlimited liability except for (i) Al l sha re hol de rs ha ve l i m i t e d
limited partners l i a bi l i t y
(ii) A partnership does not have a separate (ii) A private limited company has a
legal entity separate legal entity
 (iii) Raises capital by contribution of the (iii) Raises capital by selling shares
partners privately
(iv) Owned and controlled by the partners (iv) Owned by shareholders and controlled
themselves by the Board of Directors
(v) A partnership is formed by between 2 (v) Can be formed by at least two(2) and
to 20 persons except for professional there is no maximum number
partnership
(vi) The owners of a partnership are (vi) The owners of a private limited
partners company are shareholders
(vii) There are less formalities in forming a
partnership (vii) There are more formalities in forming
(viii) There are less formalities in running a a limited company
partnership (viii) There are more formalities in running a
(ix) Lack of continuity after the death of a limited company
partner (ix) It has continuity after the death of one
(x) Lack of borrowing capacity. shareholder
(x) Have borrowing capacity.

(b) In the formation of a partnership, a Partnership Deed may be required.

(i) What is a Partnership Deed? (2)
 A partnership deed is a legal document drawn up by partners which gives details of
the way they want to organize and run the partnership.
(ii) Information it contains (8)
 The name of the partnership
 The amount of capital each partner should contribute
 The ratio of sharing profits and losses
 Specific role(s) each partner has to play in running the business
 Salaries of partners working full time in the business
 How and where financial records would be kept
 Names and addresses of the partners
 How much each partner can draw from the business for personal use
 The rights of each partner
 Whether or no interest is paid on the capital invested
 Duration of the partnership.
(c) A limited company may raise its capital by issuing debentures. List fourfeatures of debentures.
Features of debentures (4)
 They are long term loans to the company
 Debenture holders are not owners of the company
 But they are creditors of the company
 Debenture holders are paid a fixed rate of interest every year irrespective of the levels of
profits
 Debentures may be redeemable as they are loans
 Debentures holders are the first to be paid a fixed rate of interest before shareholders are
paid their dividends
  Debentures are repaid on fixed dates
 Debentures do not carry voting rights.

7. There are various services which a bank offers its customers which vary from each other. Explain the

following terms:

(a) Bank Giro Credits (5)

 This term covers cheque and credit transfers services
 Method used for direct debiting
 Enables a payee to claim amounts due to him from customers or others
 Paying account is directly debited
 No chance of accounts or payments being delayed
 Permission for paying firm or individuals must be obtained before the system can be
applied
 Offers a wide range of bank services for personal or business customers
 All accounts are held centrally
 Money can be cheaply and efficiently transferred from one account to another
 Or deposited from outside the system
 Or paid outside the system.
(b) Point of Sales Service (5)
 Method provided by some banks for customers to pay for goods and services using ATM
cards/VISA cards
 Used in shops where POS terminals are installed
 Terminal has computer programmed machine used to obtain authority to pay for each
transaction
 Cashier passes card through POS terminal to obtain authority to deduct money from the
customer′s account
 Issues a receipt by the machine, which instructs the bank to debit the customer’s account
by the invoice amount
 Money is electronically transferred from the customer′s account to the trader′s account
(c) Cash Dispensers (5)
 Also known as automatic teller machines (ATMs)
 Money can be withdrawn by account holders
 Situated outside bank buildings
 Money can be obtained 24 hours a day
 Customer provided with a coded plastic card (ATM card)
 And secret Personal Identity Number or PIN
 Issue mini statement/full statements
(d) Bankers Draft (5)
 Usually used for payments overseas/in international trade/foreign trade
 Is used where large sums are involved and
 Where the payee, not known by the debtor, is not happy/not willing to accept a personal
cheque
 Convenient for sending money to someone outside the country
  Equivalence of a banker′s own cheque
 Drawn by the bank on itself
 Is used for paying for goods and services

8 (a) In connection with the dispatch of goods from one firm to another, explain the terms, Advice

And Delivery Note. (6)

Advice Note (3)

 Informs the buyer that the order has been received

 Goods are on their way to him/her
 Allows the buyer to prepare for receiving the order
 And what method of transport has been used
 It will include a description of the goods

Delivery Note (3)

 Is usually sent together with the goods

 To assist the buyer to check the goods on arrival
 That correct quantity of goods has been received
 A duplicate copy is signed by the customer acknowledging receipt of the goods
 A delivery note is only used when the seller is using his/her own transport to deliver goods
to the buyer′s premises

(b) Give five reasons for returning goods to the seller (5)

 When wrong/incorrect goods are sent

 The wrong make, size, colour or pattern has been supplied
 Goods are damaged in transit
 Goods supplied on sale have not been sold
 When goods have been over supplied
 When goods are expired.

(c) (i) What are the uses of an invoice? (2)

 A bill requesting for payment of money for goods or services provided

 Provides a complete summary of all transactions of goods and services
 Quantity and description of goods/services
 Stating total price and the discounts
(ii) Give three items of information which must appear on an invoice. (3)
 The description of the goods or services
 The quantity of goods
 Unit/total prices
 Settlement terms (cash discount)
 Trade discount, carriage and VAT (Value Added Tax)
 Names and addresses of the seller and buyer
 (d) Explain the terms:
(i) E and O.E. (2)
 Errors and Omissions Excepted
 If a mistake is spotted in the invoice, seller has the right to correct the mistake
 Printed at the foot of an invoice
(ii) Cash Discounts (2)
 Encourages the buyer to pay quickly/promptly
 Aids cash flow/reduces bad debts
 May be allowed for payment with order
 It is conditional
 E.g. 21/2%, seven days
 Reduces amount paid by the buyer

9 Consumer credit refers to the lending of cash, goods or services to individuals in exchange for a

Promise to pay at a later date.

(a) Mention and explain the many forms in which consumer credit is available. (4)
 Service credit e.g. telephone, electricity, television
 Sales or purchase credit: to pay for large consumer durables e.g. freezers, cars, furniture
 Credit cards: bank cards (Barclays, VISA, Master Cards)
 Special cards (used by department stores, auto rental, airlines and hotels)
(b) Give reasons for the mushrooming of consumer credit in the last decade in Zambia.(8)
 Many people are unwilling to use their personal savings to buy something when they can
pay for it in another way
 Credit offers the choice of making small monthly payments over a period of time
 Prosperity has made people feel secured and able to take on debts for the good things in life
 Consumers now regard as necessities what used to be thought of as luxuries
 Credit is no longer for the wealthy
 It is available to nearly everyone
 The coming into Zambia of business houses that sell durable goods and offer consumer
credit (micro financial institutions for example Bayport)
(c) What are the advantages to the consumer of using consumer credit? (8)
 Improves the standard of living
 Convenient to use
 Credit customer may get better service than cash customer
 Customers short of cash can still get immediate possession of goods and services
 Consumers with low income are given chance to buy goods and services
 Certain credit arrangements enable people to get cash on demand
 It helps consumers to plan their budgets
 Consumers can take advantage of today′s prices that may look expensive a year from now.

10. (a) The following figures were extracted from Mwiya and Sons′ books.

Turnover K4 800 000

 Purchases K2 720 000

Opening stock K840 000

Cash in hand K400 000

Debtors K120 000

Creditors K240 000

Bank overdraft K200 000

Advertising K250 000

Other expenses K680 000

Closing stock K760 000

Calculate:

(i) Cost of goods sold (2)

CGS ꞊ Total stock available – closing stock
Total stock available ꞊ Opening stock + Purchases
꞊ K840 000 + K2 720 000
꞊ K3 560 000
CGS ꞊ K3 560 000 – K760 000
꞊ K2 800 000
(ii) Gross Profit (2)
Gross Profit ꞊ Turnover – Cost of Goods Sold
꞊ K4 800 000 – K2 800 000
꞊ K2 000 000
(iii) Net Profit (2)
Net Profit ꞊ Gross Profit – Expenses
꞊ K2 000 000 – K930 000
꞊ K1 070 000
(iv) Rate of Stock Turn
RST ꞊ Cost of Goods Sold
Average Stock
Average Stock ꞊ Opening Stock + Closing Stock
2
꞊ K840 000 + K760 000 ꞊ K800 000
2

Rate of Stock Turn ꞊ K2 800 000

K800 000

꞊ 3.5 times
 (v) Working Capital (2)
(vi)
Working Capital ꞊ Current Assets – Current Liabilities
Current Assets: Cash in hand K400 000
Debtors K120 000
Closing Stock + K760 000
K1 280 000
Current Liabilities: Creditors K240 000
Bank overdraft + K200 000
K440 000
꞊ K1 280 000 – K440 000
K 840 000

(b) Describe briefly and explain the importance to a business of fixed assets. (5)

 Fixed assets are properties of a business

 Which are bought to be used permanently over a long period of years
 They are assets that may appreciate in value and may be used in production
 They do not form part of the end product
 Examples: motor vehicles, buildings, land
 Fixed assets can be sold for cash
 Fixed assets can be used as security for a loan
 Fixed assets can be used to generate more profits which can be ploughed back into the
business.

(c) On 1st August 2008, a manufacturer sold 100 cases of biscuits to a wholesaler at K80 000 per

Case less 15 per cent trade discount and an invoice was forwarded to the wholesaler together

with the goods.

A cash discount of 5 per cent is allowed if payment is made within seven days. The wholesaler

paid the manufacturer on 6th August 2008 by crossed cheque drawn on Barclays BankPlc.

(i) What is the total amount due to the manufacturer as shown on the invoice? (2)
K80 000 x 100 cases ꞊ K8 000 000
15 x K8 000 000 ꞊ K1 200 000
100
K8 000 000 – K1 200 000
꞊ K6 800 000
(ii) How much did the wholesaler pay to settle the amount due on 6th August? (2)
K6 800 000 x 5 ꞊ K340 000
100
K6 800 000 – K340 000
꞊ K6 460 000
(iii) On what type of bank account would the cheque have been drawn? (1)
 Current account

Commerce

QUESTIONs AND ANSWERs

VOLUME ONE

FOR QUICK REVISION FOR GRADE 12s

BANKING INSURANCE BUSINESS CALCULATIONS

PRODUCTION BUSINESS DOCUMENTS WHOLESALE TRADE

COVER DESIGN BY: MR CHANSA CK

COMMERCE EXAMINER

ST JOHN′S SECONDARY SCHOOL

MONGU

EDITED BY: MR CHILESHE H

COMMERCE EXAMINER
ST CLEMENT′S SECONDARY SCHOOL
MANSA

PREPARED BY: MR TAMBUZI M.K

 COMMERCE DEPARTMENT
KASAMA GIRLS SECONDARY SCHOOL
KASAMA.

2014 EDITION

11(.a)What do you understand by commercial activities? (10)

(b)Show why commercial activities are essential to those engaged in farming. (10)

ANSWERS

(a)-Commercial activities include all activities concerned with the distribution of goods.

-They include trade and aids to trade and these are transport, insurance, banking,warehousing,
advertising, and communication.

-They also include raw material, partly or finished goods.

-Trade is necessary for the purchase of raw materials e.g fertilizers, seed, etc.

-And for the sale of farm produce at a profit.

(b) Transport moves farm implements e.g seed, fertilizers, to the farm.

-It moves employees to and from the farm.

-It moves farm produce to the market.

Banking.

- Allows farmers to make payments using cheques, standing orders, etc.

- Allows farmers to receive payments.

-Allows farmers to borrow money by means of loans and overdraft.

-Allows farmers to keep money safely.

Insurance

-Compensates/indeminifies (cover) for loss against third party e.g employers liability ,public
liability.
 Advertising

-This is needed to inform and persuade customers to buy their produce.

-To inform the customers about where, what price and when it will be ready.

-To inform customers of farm produce available.

-Get information from suppliers of seeds’ fertilizers, etc.

Communication

-Allows farmers to contact/ get in touch with customers or supplier

-Allows customers to place orders, solve querries, make payments by post, tel phones, etc

-To ensur farm produce is distributed to the right people at the right time .

-To speedy up contacts in home and foreign trade via e-post, e-mail,fax etc.

Warehousing.

-Act as storage of farm produce

-stores raw materials e.g seeds ,fertilizers

-Protection against bad whether ,theft ,fire etc .

-guard against price fluctuation .

-stores seasonal products.

-stores farm produce awaiting transport ,demand etc.

12(a)With respect to insurance, explain:

(i) Insurable risks

(ii) Non insurable risks

(B) (i) Hull insurance

(ii) Freigth insurance

(iii) Cargo insurance

Answers

(i) Insurable risks are risks which can be insured against because of the following reasons;
-They can be assessed
-They have have past records
-A fair premium can be calculated
Examples of insurable risks are;fire,theft, accidents and flood

(ii) Non- insurable risks;

(iii) These are risks that cannot be insured against because of the following reasons;
 -They cannot be assessed
-They have no past records
-Their probability/chances of happening are is not known
Examples of non-insurable risks are change in fashion, losses caused by bad
management, insuring another persons’ property

(B)Hull insurance

- This covers ships body and machinery against damage due to fire, collision and storm
against damage to other ships.

-This insurance can either be for a particular journey known as voyage or for a period
of time known as a time policy.

(ii) Freight insurance

-This covers the amount charged for transporting goods

-if the cargo is not delivered for some reasons, lets say it is lost at sea, the shipping
company may face a claim not only for compensation for the goods lost but also for the
refund of the freight charges(if it was prepaid)

-It is paid by shipping firm/ suppliers

(iii)Cargo insurance

-This type of insurance covers goods being carried by the ship

-This insurance cover may be for a single consignment or for several consignments

-It may be open/floating policy

13 Transport is the movement of goods , people, raw materials and equipment from one place to
another. It is a commercial service that is very essential to businessman’’

(a)Why is an efficient transport system important to a businessman?

(b) Outline the factors which will influence the choice of transport.

ANSWER

(A) -it creates utility by bringing goods within consumers reach

-It enables goods to reach the right place, right time, right condition.
-In order to satisfy human wants.
-Provides consumers with a much wider variety of goods.
-Enables consumers enjoy a higher standard of living.
-It levels out supply by transferring goods from where produced to where they are needed.
-Therefore, helps to prevent scarcity
-Provides more opportunities for specialization
-This leads to cheaper goods to consumers
-It clears the line of production for manufacturer
-Enables workers, salesmen etc to move efficiently
 -Enables people to move from one place to another either on holidays etc

(B) factors influencing the choice of transport are:

-Cost of transporting goods

-How urgently the goods are needed e.g medical suppliers
-Distance over which the goods must be transported
-Nature of goodse.g glass products
-size(1)and weight(1) of goods
-Quantity of the consignment
-Safety are there chances of theft and damages
-Terminal where the journey begins and ends
-Reputation of the carries
-value of the goods to be transported
-speed of the transport