Page 1 of 80

/INTRODUCTION TO COMMERCE

1 Commerce is trade and aids to trade. Show how commercial activities are essential to those engaged in Secondary
Industries (e.g. manufacturer of textiles).

Trade is essential to those engaged in Secondary Industries to buy/purchase, raw materials

(or example) and selling of finished products goods (or example) in order to make a profit

Advertising to obtain information on sources and suppliers

to persuade potential customers to buy
to advertise for workers/job vacancies
to give information to customers

Banking is essential for depositing receipts from sales

and facilitates payments, credit transfer, standing orders, discounting bill of exchange (for ex-
ample – cheques direct debit etc)
and to obtain finance through loans and overdrafts (either)

Communication is essential to contact suppliers of raw materials and customers

and to settle queries, payments, orders etc
through telephone, Electronic-mail, telex, fax, internet, letter, data post, cellular phone

Insurance is essential to cover (indemnify) compensate losses of building, raw materials, finished
goods, equipment from fire, damage of goods in transit/theft
to cover claims from third parties (or example) e.g. employers, liability, public liability

Transport is necessary to delivery/carry raw materials

equipment to the industries
and also to move employees to and fro work
and to carry finished products to the market
by road, rail, sea, air

Warehousing is essential for the storage/keeping of

raw materials and finished goods/products
as some goods are seasonal (for an example) Jerseys, raincoats
and to protect from weather, deterioration etc.

2 Zambia Export Growers Association (ZEGA) comprises of commercial farmers who grow the follow-
ing; rose flowers. Vegetables and fruits for export. Explain how commercial activities will help the association.
- commerce is trade and aids to trade
- trade is essential to the association to buy/purchase
- equipment, seed and chemical
- and sell farm produce such as flowers, fruits and vegetables
- at a profit for the members

TRANSPORT
- delivers/carries/moves equipment or seed to the farm
- to carry the farm produce to the market
- to move the employees to and from work
- enables ZEGA officials to meet their clients
- this could either be by train, road, sea and air

INSURANCE
- is essential to cover/indemnify/compansate
- for any loss that may be suffered as a result of fire, theft, damage, accidents and bad debts
- to the equipment and farm produce being exported
- to cover claims from third party
- such as employers and public liability

BANKING
- it is essential to deposit receipts from sales
- to facilitate payment to home trade (cheque)
- electronic system, internet banking to foreign trade (cable transfer) and documentary credit
- finances the association by means of loan or overdraft

COMMUNICATION

Revision questions in commerce emiti2010

 Page 2 of 80

- enables the association to get in torch or contact with the suppliers

- of equipment, seed and chemicals
- and also get in torch with the buyers of the farm produce
- to settle querries, payment and collect orders
- this can be through the telephone, e-mail, internet, and/or view data

ADVERTISING
- to obtain information from the suppliers
- to persuade the potential clients to buy the products
- to look for staff/workers
- can be through internet, trade journal or international magazine

WAREHOUSING
- it is essential for the storage of equipment and farm produce while waiting for transportation
- it protects goods from detorioration due to bad weather
- might need a refridgerator for them to arrive fresh.

3 (a) Briefly discuss the term Production.

(b) Dr. S. Miti is a surgical doctor running a private Hospital. Show why commercial services
are important to a medical doctor running a private surgery.

(a) Production
- it is the provision of goods and services to satisfy human wants and needs
- it covers industries, direct service and commerce
- indusrty is the extraction of raw materials and converting/making them into finished goods
- direct service is the provision of non material goods
- commerce is trade and aids to trade
(b)
- Trade is the buying and selling of goods and services
- Essential for the buying of medical equipment/kits
- For example, x-ray machines, microscopes and stethoscope
- Essential for the purchase of medical drugs
- And selling of services such as consultancy and treatment
- With a view of making profits

Insurance
- essential to cover/indemnify/compensate/protect against any financial loss
- though the third party such as public liability
- and employers liability
- insurance of interest such as incorrect treatment of patients or loss of property

Banking
- essential for depositing receipts from the clients
- facilitates payments through cheques, standing orders, direct debit and electronic transfer
- finances the business through loans and overdrafts
- provides financial business advice

ADVERTISING
- essential for obtaing information from the suppliers of equipment and drugs
- to persuade the potential clients to come to the surgery
- informs their clients about the medical services being offered
- to publicise for staff/workers/job vacancies
- this can be through the radio, television, newspapers and health magazines

COMMUNICATION
- essential to contact suppliers of medical equipment and drugs
- provision of information to the would be clients
- to receive emergency calls from the clients and would be clients
- to settle querries on appointments and payments
- this can be through the telephone, fax, internet and e-mail
TRANSPORT
- is essential fo the delivery of medical drugs and equipment to the surgery
- moves patients to and from the surgery
- ferries staff to and from the surgery
- carries the doctor to call on patients
- this can be by air or road.
WAREHOUSING

Revision questions in commerce emiti2010

 Page 3 of 80

- essential for the storage of medical drugs and equipment

- essential for the storage of drugs awaiting use in the surgery
- avoids fluctuation in supply of drugs
- guarantees flow of medicine
- some drugs may needs special storage such as vaccines need refrigeration

4 (a) (i) What do you understand by commercial activities?

The meaning of commercial activities

- Includes all activities concerned with the distribution of goods and services and raw materials or partly fin -
ished products
- At all stages of production
- And includes trade and aids to trade
- That is Banking, Insurance, warehousing, advertising, transport and communication
- Trade is essential for the purchase of raw materials/finished goods
- And sale of goods and services at a profit

(ii) Explain the inter-dependence of commerce and industry

 Industry is concerned with obtaining of raw materials and process them into finished goods
 It can be divided into extractive, manufacturing and construction
 Commerce is concerned with all activities which aid extractive industry to the final consumer
 It will be impossible for industries to operate without the activities of commerce

(b) Show why commercial activities are essential to those engaged in farming.
TRANSPORT
 Moves farm implements to the farm such as seeds and fertilizer
 Carries farm produce to the market
 Moves employees to and from the farm
 It can be by road, rail, sea and air

BANKING
 Allows farmers to make payments using cheques, standing orders, direct debit
 And receives payment/receipts/to keep money/to deposit receipts
 Finances the farmer by means of loans and overdrafts

INSURANCE
 Indemnifies/compensates/covers the farm for any financial loss
 Against fire, theft, damage, drought and third party
 Such as public liability, employer’s liability and product liability

WAREHOUSE
 Acts as storage for raw materials such as seeds and fertilizers
 Stores farm produce awaiting transport or demand
 Stores seasonal products
 Protects against bad elements, theft and damage

COMMUNICATION
 Allows farmers to contact/get in touch with the customer or the supplier
 Allows customers to place orders, solve queries and payments
 It can be by post, telephone, electronic mail (email), telegram or facsimile

ADVERTISING
 Needed to inform and persuade potential customers
 Informs customers of farm produce available
 Get information from the suppliers of seeds and fertilizers
 Informs on job vacancies/employment seekers

5 Melchamos Company Limited is engaged in the copper mining industry.

(a) Give the meaning of the terms:
(i) Industry
(ii) Limited
(iii) State four possible effects of Melchamos Company Limited’s activities to the environment.
(b) Justify the relevance of the following services to the Mining Company named above;
(i) Communication
(ii) Transport
(a) (i) Industry
it is any economic activity which involves one or the combination of the following

Revision questions in commerce emiti2010

 Page 4 of 80

- extraction of raw materials from nature

- and processing of raw materials into semi/finished products

(ii) Limited
- the liability/debts of the shareholders are confined/restricted
- to the amount of capital/money they have put in/contributed/invested or agreed to pay in a
Limited Company
- their private assets/personal possessions/property/assets are not at risk/can not be grabbed/
taken away/touched or tempered with when the company is liquidated/
bankruptcy/insolvent/cease to operate.

(iii) Effects of Melchamos Company Limited’s activities to the environment

- air pollution
- water disposal
- noise pollution
- soil infertility/acidity
- occupational health hazards such as tubercrosis and skin cancer
- water pollution

(b) (i) Communication

- establishing contact/get in torch with the suppliers
- giving instructions to workers
- responding to enquiries from customers
- sensitising/informing the public through advertising
- this can be through postal services and telecommunication services
- such as fax, letters, internet, and telegram

(ii) Transport
- carriage of mining equipment such as drilling machines and motor vehicles from suppliers
- movement of workers to and from working places
- movement of executive to meeting and seminars
- carriage of copper bars to the market/buyers
- this can be by road, air, sea and rail.

6 Commerce is more than trade but without trade Commerce would not exist.
a. Explain this statement showing a clear distinction between trade and commerce
b. Show how commerce assists an oil company to trade.

(a) Trade is buying and selling of goods and services (both) with view of making profit
commerce is trade and aids to trade (or examples of aids) or similar definition such as the
distribution of goods.
aids to trade exist to help trade to function
if there was no trade there would be less reason for the aids to trade to exist
but commerce would still exist because it also assists primary/secondary industry to function

(b) Commerce assists an oil company by:

Trade buying equipment, selling petrol to garages
buying crude oil, selling oil products
oil Company may be producer, wholesaler and retailer

Banking make payments (cheques etc) direct debit, Standing order, Credit Transfers
receive payments
finance/loans/overdrafts for projects
advice on investment
dealing with payments for exports/imports

Insurance compensation/indemnity against any financial loss

protection against financial loss
employer’s liability insurance
public liability
many dangers in the oil industry such as fire, air thefts. So insurance is essential.

Communication to organise surveys

to take orders to make contacts

Revision questions in commerce emiti2010

 Page 5 of 80

to provide information
to inform public

Advertising persuading people to buy petrol/oil products

Informing people of new promotions
advertising for staff

Transport to move crude oil

to move products from refinery
To supply garages
to move employees
Use of pipeline/oil tankers

Warehousing store/oil storage tanks awaiting delivery to garages

To guard against price fluctuations
To guarantee future supplies

7 Explain how:
(a) banking helps the advertising industry
(b) communication services assist transport
(c) transport helps production
(d) warehousing aids transport

(a) Banking helps the advertising industry by:

- Provide finance such as loan and overdraft
- Offering financial advice
- May provide contracts for advertising banks
- Provides payroll services such as credit transfer

(b) Communication services assists transport by:

- contact between drivers through mobile phones
- contact between the business and drivers – information about routes
- sending invoices to customers by letter post
- orders placed for transport facilities such as new lorries
- for emergency uses such as accidents
- provides contact with repairmen or ordering spare parts

© Transport helps production by:

- moves finished goods to the warehouse and market
- moves raw materials to the industries
- moves machinery or equipment into the factory
- moves workers to and from work places
- extending the market for production
- helps to prevent wastage.

(d) Warehousing aids transport by:

- Providing storage for goods awaiting transportation
- Protects goods against adverse weather conditions/theft/deterioration
- Enables goods to be prepared before transport
- Enables return loads to be organised

8 (a) Explain briefly the following factors of production

(i) Capital;
(ii) Enterprize;
(iii) Labour
(iv) Land

Capital
- includes money, buildings, machinery, raw materials used to produce further goods
- and all man made assets used in the production of goods and services.
- Providers of capital are called capitalists/investors
- Capital can be accumulated by savings.
- The reward for capital is called interest.

Enterprise or organisation
- The ability to organise the other factors of production

Revision questions in commerce emiti2010

 Page 6 of 80

- Enterprise involves making decisions

- Such as expansion of the business, ploughing back, buying a new motor vehicle
- For production to take place, someone must have the idea and the skill to organise, direct and control the pro-
duction process.
- This person/provider is known as the entrepreneur or organiser. He is responsible for deciding what should be
produced, how to produce it, where and when to produce it. This decision involves risks and a special skill.
- The entrepreneur gets profit/loss as his/her reward.

Labour
- This is human effort or energy made/used in the production of goods and services.
- It can be manual(physical) and skilled(or mental) labour. Labour is limited in supply.
- Providers of labour are called workers
- workers receive/get a wage or salary as their reward for labour

Land
- includes all kinds of natural resources found on earth and underground
- Land refers to buildings, minerals underground, rocks of the crust, fish in the water, trees and all other natural
resources. It therefore, includes the earth and the oceans and everything which grows in them.
- Providers of land are called landlords
- Landlords receive rates/rents/loyalties as their reward

(b) State the three branches of production.

The three branches of production
 An industry is a branch of production that deals with the extraction raw materials/natural resources from the
ground
 and process/convert/transform them into semi finished or finished products (goods)
 Commerce is trade and aids to trade,
 is the branch of production that deals with the distribution of goods and services from the industry
 (place of extraction or manufacturing) to the Consumers/place of demand/scarcity
 Direct service is a branch of production that plays an indirect role in production
 and whose services are essential in enhancing production.
 It provides personal and public services to individual citizens.
 These includes teachers, doctors, nurses, policemen, lawyers and any service rendered by service providers.

© How are the three branches of production linked to each other?

How the three branches of production are linked to each other
 all branches contribute to production either indirectly or directly
 they are interdependent in their roles
 as they bring about the provision of goods and services in order to have utility/satisfy human needs and wants
 goods extracted/produced must be taken/distributed through trade and aids to trade
 in the process roles of policemen needed to maintain law and order may be needed, roles of lawyers to uphold
justice may be needed, medical facilities provided by nurses and doctors may be needed by producers and manu-
facturers as well as other service providers

(d) What are the effects of industries on the environment?

The Effects of the industry on the environment
- it causes soil acidity and infertility
- waste disposal
- unplanned settlement
- causes pollution, (air, water and noise)
- occupational health hazards (radiation)
(e) What are the possible solutions to environmental pollution
Possible solutions to environmental pollution
- government policy
- Civic education
- Provision of public utilities
- Provision of dust bins
- Provision of posters in the industrial area.

9 (a) Explain fully the meaning of the following:

(i) Production;
(ii) Specialisation
(b) (i) Giving examples, show why specialisation depends on trade.
(ii) What are the advantages and disadvantages of Specialisation?
(i) The Meaning of Production

Revision questions in commerce emiti2010

 Page 7 of 80

 Production covers all activities, which contributes to the satisfaction of the consumers’ demand for goods
and services or needs and wants or gives utilities can be defined as the provision of goods and services to
satisfy human needs and wants.
 This includes industry both primary (obtains raw materials from nature) and secondary industries(pro-
cesses raw material into finished products) ,
 Commerce is trade and aids to trade,
 Concerned with the distribution of goods from the producer to the consumer
 and direct service, provides personal and public services to individual citizens
 such as education provided by the teachers, health care provided by nurses and doctors, legal advice
provided by the lawyers, security provided by police officers and entertainment provided by the actors.

(ii) The Meaning of Specialisation

It is the concentration by an individual on a specific task or occupation or on a narrow range of work within
a particular occupation
Eg. Teachers, doctors, engineers and farmers
Specialisation does not only apply to individuals but also to countries/regions producing goods or services
for which they are best suited
Eg. Malawi specialises in tea production, Botswana wool,
It leads to greater skill and efficiency amongst workers and increased output.

(b) (i) Specialisation depends on trade and trade depends on specialisation

o if a person concentrate in producing one specific task, s/he may depend/rely on others to produce
necessities which s/he does not make,
o for example, a farmer depends on the medical doctor for health and the medical doctor depends on
the farmer for food,
o these can only be obtained by selling his/her labour
o in order to buy the goods and services which s/he can not produce required for his/her daily
survival/living.
o Therefore, without trade specialisation could not take place and individuals would have been self suf-
ficient, that is, provide all they need by themselves.

(iii) Advantages of Specialisation

- workers become skilled
- workers become efficient
- it leads to increased output/high production (mass production)
- time is saved because workers do not have to move from one operation to another
- training is easy as jobs are easy to learn
- everyone’s ability is made useful
- development of specialist machinery to perform the specialised task becomes easier
- labour is potentially more mobile as it is often possible to employ people who do not need any related
qualification and the tasks are simple and easy to learn

Disadvantages of Specialisation
- work becomes boring
- individual skill and crafts are lost due to use of machinery
- greater use of machinery leads to unemployment
- there is inability of slow workers to keep pace with others as the gap between management and work-
ers tend to be widened
- Products are all the same as the machine takes over, the goods are made in standard sizes and the
choice of goods available to the consumer becomes limited.
- workers become dependent on each other (in case of illness, production is disrupted)
- it is difficulty to find employment after loss of job due to limited skills
- discontent among workers may lead to low productivity
- there is a risk of contracting diseases, eg. Those in asbestos industry risk contracting cancer.

10 (a) Explain the role of commerce in production

The Role of Commerce in Production
 Buying of raw materials, spare parts and machinery
 Distributing goods from the producer to the consumer
 This is done by retailers, wholesalers, importers and exporters
 With the help of transport, warehousing, banking, advertising, communication and insurance.

(b) Explain the following methods of production

Revision questions in commerce emiti2010

 Page 8 of 80

(i) Direct Production

- This is the production of goods for one’s own use
- It is done on subsistence level without need for exchange/trade
- it directly satisfies one’s needs and wants such as a farmer who grows only enough maize or keeps
enough live stock for his own consumption is involve in direct production.
- If people where to provide all that they need by themselves, they would little or no need for trade. In
other words they would be self sufficient

(ii) Indirect Production

- This is the production of goods for the benefit of others/sale.
- It involves trading of what has been produced so as to obtain what one can not produce.
- Therefore it depends on trade and makes people to specialise in one field so as to sell their value.
- This is the most common type of production in the modern society, where few people satisfy their
needs directly by themselves.
- In this type of production people co-operate with each other to satisfy the needs or wants of every-
one.
- People usually engage in one particular occupation which they are best suited and sell their products
or labour in exchange of the goods or services they need.
- For example a farmer sells his farm products to other people like doctors to obtain medical services
or even to buy machinery to be used on the farm.

HOME TRADE (RETAILING AND WHOLESALE TRADE)

(a) What are the effects of retail trade on the environment?
EFFECTS OF RETAIL ON THE ENVIROMENT
 They cause poor urban sanitation
 Results in the mushrooming of street vendors
 Results in unnecessary littering of the environment
 Causes unnecessary squatting
 becomes health hazard such as cholera, air pollution and water pollution

(b) What are the possible solutions to the above problems?

POSSIBLE SOLUTION TO EFFECTS OF RETAILING ON THE ENVIRONMENT
 Deliberate Government policy such as keep Zambia clean campaign
 Civic education
 Provision of dust bins/rubbish pits
 Provision of public utilities such as toilets
 Building more markets

1 (a). List the main functions of a retailer.

(b) You wish to open a shop selling sports equipment.
(i) What will influence the choice of the site for the shop?
(ii) If the business is to be successful, what other factors must be considered before opening the busi-
ness?
(iii) What factors would you consider when expanding the business?
(iv)
© How does a street market (retail market) differ from a supermarket?
(d) State some of the hints on how to improve the business

(a) Functions of the retailer

selling to customers/breaking bulk buying from manufacturers/wholesalers
offering/provision of variety of goods displaying goods
pricing goods packaging goods
giving after sales services offering credit
giving advice/personal service advertising/promotions/special offers
providing goods in suitable quantity supplying local needs
acting as a link in the chain of distribution

(b) (i) Factors influencing the choice of site

Revision questions in commerce emiti2010

 Page 9 of 80

- Cost of site in relation to anticipated turnover and profit, that is town centre site too expensive
- Is there any competition with the same type of shops nearby?
- Are there sufficient customers in the area requiring sports equipment?
- Is the site in the shopping area that is, are there nearby shops to attract passing trade
- Is there any possibility of trade growth in the area as a result of population growth or
employment?
- Security of the shop
- If there is good communication network and easy accessibility to transport
- Whether the site is in the busy area, for example a shopping mall at the road
junction or simply in an area where it is able to attract passing trade.

(ii) Other factors to be considered if the business is to be successful

- Have you sufficient experience in the sports equipment
- Have you sufficient capital or the source of capital to meet the demands of the business envisaged
and to avoid daily cash flow problems
- What advertising policy may be necessary
- What prices or range of goods are suitable for the area in order to avoid slow lines
- What quantity will be required to avoid overstocking
- What source of supply is to be used
- Whether sales assistants will be required or whether some degree of self service may be operated
- What would be the best form of layout for the store or the best way to display the goods/equipment
- Whether to deal on the cash basis only or to give credit
- What make up will be required to make the required profit
- Opening and closing time must suit the customers
- Legal requirements

(iii) Factors to consider when expanding the business

- Have a vision of what you are going to do
- Concentrate on your original idea. Avoid diverging your line of business
- Expand in bits. Do not be too ambitious
- There might be need for finding new ways of doing things, for example, as the business grows, there
might be need for delegation. You might need to employ the manager to manage the business be-
cause good entrepreneurs are not always good managers
- See to it that there is enough structures to accommodate the expansion
- Focus on your core customers
- Keep record of your business activities
- Make sure there is enough cash coming into the business as you spend money on expansion

(d) HINTS ON HOW TO IMPROVE THE BUSINESS

 The service offered must be good with a smile
 Prices should be as competitive (low) as possible
 Quality products should be worth the price
 Provide a wide variety of goods and services
 The shop should be clean and attractive
 The goods should be well displayed in appropriate sections
 If possible find a better supplier offering better terms
 Improve on the facilitation of after sales service
 Improve on the credit buying rates to the customers
 Advertise locally

© Street market Supermarket

Consists of many retailers one retailer/chain of shops
Usually in open air under cover
May be in street or open space centre/out of town
Personal service/give advice self service
Variety of goods food + other items
Held usually once/twice per week open daily
Cheap prices competitive prices
Low overheads more overheads (or example)
Goods may be unpackaged goods likely to be packaged/branded/priced
No credit credit offered/credit cards accepted
Many/no brands use of own brands
Probably no other services provides other services eg car park, petrol run
run by local council by limited company, advertising
after sale sales

2 (a) Why does the number of small independent retailers continue to decline?

Revision questions in commerce emiti2010

 Page 10 of 80

(b) Why are some small traders still able to trade successfully?
© (i) what do you understand by sales after service?
(ii) What do you understand by loss leaders? For what reasons might a trader sell his goods at a loss?

(a) Reasons why small independent retailers continue to decline

- because of the growth of large scale retailers who are able to purchase in bulk direct from the manu-
facturers, thus leading to cheaper prices than the small retailers
- small retailers can no longer afford prime sites on main streets and can not offer a wide range of
goods as the large stores
- customers are attracted to large retailers by additional customer facilities such as restaurants, car
parks, boutiques, and music
- many customers prefer self service offered by large scale retailers
- many large scale retailers are taking advantage of new trends for retailing efficiency such computers
used in stock control and electronic check out devices
- modern trends in retailing such as distinctive packaging and branding of goods
- lack/limited capital to expand the business

(b) Reasons why some small independent retailers are still able to trade successfully
- if they are conveniently placed near their customers, such as house estates
- If they are supplying a specialised type of service or goods such as jewellery and sports equipment.
- If they offer services such as delivery, credit long opening hours etc.
- If the small retailer has own premises on the main street or busy area.
- Some people prefer personal service and advice offered by small shopkeepers.
- If they offer a wide range of goods and service to their customers.
- Some small scale retailers have formed voluntary inspired by wholesalers to with stand the even in-
creasing competition from large scale retailers

© (i) After Sales Service

This is the guarantee to maintain or repair the goods after they have been sold to customers
such as television set, stereos, cars, etc.

(ii) Loss Leaders

This is the sale of goods below their cost price in order to attract customers into the store.
Reasons why a trader may sometimes sell goods at a loss
- may encourage people to buy other items
- to dispose off old stock which may be deteriorate
- to raise quick cash for emergency purposes
- to penetrate new market and then raise prices
- when closing down the business
- to counter or meet competition

3 Describe in details, the main characteristics of the following retail organisations:

(e) a department store (e) Co-operative retail society
(f) a hypermarket (superstore) (f) What are the advantage of:
(g) a mail order company (i) co-operative retail society
(h) a variety chain store (ii) large scale retailers

(a) Features of a Department Store (b) Feature of a hypermarket(superstore)

- Found in town centre - very large shops covering an area of
- Offers luxurious shopping over 5 000 square metres
- Many departments or shops - usually situated on the outskirts of town
Under one roof - they offer a wider variety of goods than
supermarkets
- offers additional facilities such as - prices are relatively cheaper
- restaurants, banks and travel bureau - may be in chain
- offers a wide variety of goods - control from the head office
- operates on self service - customers pay at checkouts
- offers delivery - provides trolleys and baskets
- offers personal services - operates on self service
- may offer mail order - offers credit by accepting credit card
- often sells expensive goods - they have large car parks
- may sell own brand - purchases direct from the manufacturers
- may be in chain - may sell own brand
- they are owned by limited companies - may offer special promotions such as loss leaders
- goods are priced in bar codes
- facilities such as restaurants, car parks and other
social amenities may be provided

Revision questions in commerce emiti2010

 Page 11 of 80

© Feature of a mail order company

- shopping by post
- advertises through catalogue and (d) Features of a Variety Chain Store
newspapers - found in city centres/town centres
- credit may be offered - many retail shops under single
- may have retail shops ownership
- ordering by mail or phone - controlled from the head office
- ordering from overseas - have centralised policy making,
- uses part time agents such as centralised
house wives buying and centralised accounting.
- agents are paid a commission - offers credit by accepting credit
- it also referred to as armchair shop- cards
ping - offers a wide variety of goods
- operates from the warehouse - has similar stock in each branch
- wide range of goods may be - has standardised shop fronts and
offered fittings
- goods are delivered at home - the are easily recognised
- goods are sent on approval - they operate on self service
- may operate on cash on delivery

(e) Feature of a Co-operative Retail Society

- members are the owners (it is owned by the members)
- members purchase atleast one share
- maximum depends on the individual shareholding
- members are paid interest only on the share capital
- there is democratic control (equal voting right), one man one vote
- profits are distributed to members as dividends in relation to the amount of purchases
- management committee is elected by the members (Board of Directors)
- may offer special benefits to the members such as scholarships, loan, and death benefits
- they purchase from Co-operative Wholesale Societies enabling them to sell at lower prices to the
members

(f) (i) Advantages of a Co-operative Retail Society to the Retailer

- can raise large capital
- gets share of profit from the co-operative wholesale society
- co-operative wholesale societies ,can brand the goods, advertise them/carry out sales promotions
on behalf of the retailers
- buying in bulk results in low prices for the goods which attracts the customers
- retailers receives dividends on purchases
- interest is paid on capital
- there is equal voting rights regardless of the number of shares one has
- customers are the owners hence they serve their own interest

(f) (ii) Advantages of large scale retailing to the retailer’s point of view
- he is able to buy in bulk direct from the manufacturers
- enjoys the economies of large scale production due to bulk buying such as discounts
- he has large capital and therefore, he is able to pay for the goods promptly
- he is able to provide his own transport from the suppliers
- he is able to provide his own warehouse
- can compete favourably with other retailers
- he is able to employ self service which results in high turnover due to impulse buying
- there is a possible reduction in staff due to self service
- he is able to attract the customers through the provision of addition amenities such as saloons,
boutiques, music, restaurants and car parks.
- he is able to employ specialists
- he is able to benefit from the use of modern technology such as computers used in stock control and
check out points
- may brand and package own goods before selling them
- can advertise on large scale on a national wide basis

Advantages of large scale retailing to the customer

- Goods are relatively cheap
- They stock a wide variety of goods hence one stop shopping is possible
- Saves customers’ time by doing all the shopping under one roof
- They enjoy addition amenities such as music, restaurant and saloons

Revision questions in commerce emiti2010

 Page 12 of 80

- Self service enables the customers to choose the goods at leisure and browse without being pestered
by the salesmen
- May be provided with after sale service especially after buying durable goods

4 It is important for a business organisation to choose the best possible location for its premises. State with your
reasons, the most likely location for each of the following types of business:
(a) a branch of multiple store (chain store) selling footwear;
(b) a department store;
(c) a hypermarket (superstore)
(d) a wholesale cash and carry warehouse.

(a) A branch of multiple store selling footwear

Possible location:- in the high streets or near high street of towns or in the parades of shops in
the suburbs (busy streets
Reasons - because the store specialises in only one type of goods
- it will need to be near other stores selling general goods
- to attract shoppers/passer-by who come for day to day items but will not need to pay more for
premises than necessary in view of standardised goods sold

(b) A department store

Possible location – in main shopping centres of large towns or in the prominent position in a large town
Reasons – because the store offers excellent facilities such as saloons, banking, telephone etc.
- it requires large turnover to meet high overheads and therefore must be near other shops where many
people congregate as window shopping is important to attract customers

© A Hypermarket (superstore)
Possible location - on the outskirts of town
Reasons- because land is more readily available for large car parks and it is possibly cheaper
than in town centres
- the store will be relatively near both labour and customers
- easier access for traffic without town centre congestion

(d) A wholesale cash and carry warehouse

Possible location – on the outskirts of town, probably on the industrial/business site
Reasons - no need for prime retail site for display
- retailers will have own transport to travel and collect their goods
- site less costly and prices or costs must be kept as low as possible large space required for car park/
delivery bays

5 (a) Name five functions of a wholesaler that might be useful to the retailer.
(b) (i) What are the main feature of a cash and carry warehouse?
(ii) why are these features important to many retailers?
© Why do manufacturers of the following goods prefer to deal directly with retailers rather than use a wholesaler:
(i) bread (ii) furniture (iii) technical goods?

(a) Functions of a Wholesaler useful to a retailer

- Buying in bulk from the wholesaler and breaks the bulk
- Storage of variety of goods in one place
- He bears the risks by storing the goods in bulk (risk bearer)
- Assists in the steady flow of goods
- Operates a cash and carry warehouse
- Finances the retailers by allowing credit facilities
- Prepares the goods for sale by either packaging, blending or labelling them and branding
- Gives advice or information on the products
- He is a middleman or connecting link between the wholesaler and the retailer

(b) (i) Features of a cash and carry warehouse

- large building which is easily accessible
- goods are displayed in shelves in boxes (self service)
- customers use trolleys and delivery bays
- card often required to gain access
- payment in cash/no credit available
- no transport offered/provided
- they may sell to retailers as well as consumers
- there premises are usually large and sparsely decorated
- they usually save local market since they do not offer transport
(ii) Importance of the features of the cash and carry warehouse

Revision questions in commerce emiti2010

 Page 13 of 80

- enables small retailers to compete/survive against large retailers

- enables them to buy in relatively small quantity at reasonable price
- stores a wide variety/range of goods
- may give special offers such as loss leaders, free sample and gifts
- they provide a storage and reservoir for the retailer
- they usually serve a local market so they are nearby the retailer
- they prepare the goods for sale by branding, blending, labelling and packaging
- they tend to be cheaper because the retailers have to pay cash and organise their own transport

© Reasons why manufacturers prefer dealing direct with the consumer of the following goods
(i) Bread is perishable so needs to be delivered quickly
(ii) Furniture is fragile: - often very large so minimal handling required
(iii) Technical goods are fragile: - specialised knowledge required and may need installation by
the manufacturer hence there is need for direct contact between suppliers and retailers

6 Maambo owns a multiple chain of clothing shops.

(a) State the features of a multiple chain
(b) In what circumstances might Christine use a telephone rather than a fax machine as a means of communica-
tion in her business? Give reasons for your answer.
(c) State and explain three ways in which a computer might be used in her business.
(d) Why are prices charged by mail order firms likely to be higher than the prices charged for similar goods in
Christine’s shop?

(a) Characteristics of a multiple chain

- many branches selling similar goods in all the branches
- they are controlled by the head office
- they have centralised buying policy making, and accounting
- they have standardised shop fronts and fitting
- goods may be transferred from one branch to another

(b) Circumstances in which a telephone might be used rather than a fax machine
- when she needs to hold a discussion/conversation
- when she wish to speak to a particular person
- when she wants an immediate response
- when the fax machine is not available
- when she needs to conduct urgent business

© Ways in which a computer might be used in business

- it can be used for stock control
- used on stock tills – bar codes
- can be used to obtain information on customers purchases
- it can be used as an information panel for customers
- can be used to send electronic mails (e-mails) between branches and to customers
- internet – advertising her shop
- can be used for processing credit cards and contact with credit card companies
- can be used in the warehouse for easy stock taking
- can be used for record keeping, word processing and answering complaints
- can be used in her administration for accounting, spread sheet, data base, and obtaining suppliers or
customers information

(e) Reasons why prices charged by mail order are slightly higher
- due to high cost of postage/packaging/advertising/printing catalogues
- payment for the convenient of sitting at home
- prices may be held for six months where as shop prices may be altered frequently
- there is greater risk of being left with unsold products

7 (a) Describe the features of an organised wholesale and produce market

(b) State the differences between a cash and carry wholesaler and a traditional wholesaler
© Why is a wholesaler often reluctant to undertake retailing?
(d) How do the functions of a wholesaler affect the consumer?
(f) Explain briefly the reasons for the decline of the wholesaler.

a. Features of an organised wholesaler and a produce market

buy and sell in bulk, specialise in one particular area eg fruit and vegetables
Involves wholesalers and retailers, source of supply for retailers
may sell home produced goods and imported
(b) CASH AND CARRY WHOLESALERS TRADITIONAL WHOLESALERS

Revision questions in commerce emiti2010

 Page 14 of 80

Does not produce transport provides delivery service

Does not provide credit offers credit
operates on Self service orders submitted
Customers usually small retailers/ customers may be wide range of retailers
hotels/restaurants etc
membership may be required account holding customers

© Reasons why a wholesaler is often reluctant to undertake retailing

- would be in competition with his own customer
- cannot afford to run both kinds of business
- would need to hire more staff
- would spread resources too thinly and so might not be effective in either
- would need to have two different kinds of premises in very different locations

(d) How the functions of a wholesaler affects the retailers

- may add to cost of goods
- offers cash and carry services to some consumers
- provides variety to retailer which are passed on to consumer
- offer special promotions which are passed on to consumer
- offers cash and carry services to some retailers which results cheaper prices to consumers
- introduces retailer to new products which are passed on to consumer

(e) Reasons for the decline of a wholesaler

- growth of large scale retailing – own wholesaler
- change in the distribution pattern
- increase in trade of technical goods
- increase in trade of goods with low turnover such as furniture
- wholesaling functions being undertaken by manufacturer or retailer saving costs
- some retailers buying directly from manufacturers – reduced costs
- increase in sale of branded goods can be supplied directly from manufacturer
- demand for speedy delivery - perishables
- increased trade in particular kinds of goods – fragile/technical

8. (a) As a small retailer, what advantages would you expect to obtain by buying from a wholesaler in-
stead of direct from manufacturers?
(b) Despite these advantages, why are some goods supplied direct to retailers, both large and small,
from manufacturers?

(a) Advantages obtained by a retailler by buying from a wholesaler rather than from the manu-
facturers
- purchase of a wide variety of goods from one source in small quantity instead of buying in
bulk from the manufacturers, thus reduces storage requirements of the retailler and amount
of money invested in stock and the retailer will require large storage space
- the wholesaler is within easy reach (not far)
- it also saves the amount of time involved in dealing with many manufacturers and the
clerical work involved
- the retailler rmay obtain cheaper prices due to bulk purchasing by the wholesaler
- advice on a variety of products is obtained and advertising material covering
many goods and delivery service (transport) may be provided.
- more speedy delivery is obtained
- if cash and carry warehouse, can collect goods without delayat convinient times(after shop
hours)
- may sometimes be able to obtain finance purchases (credit purchases)
- may sometimes be able to obtain finance for store improvement.

(b) Despite the above advantages some goods are supplied direct to retaillers both large and
small from the manufacturers due to the following reasons:
- large scale retailers are able to buy in large quantities and therefore, find it cheaper to buy
from manufacturers
- some goods require installation or service
- increase in trade with low turnover
- manufacturers sell to retaillers in some case technical goods
- also in the case of branded and well advertised goods where the
manufacturer prefers to maintain the sales pressure
- in addition, the manufacturer may prefer to open his own retail outlet and only
distribute his products through them
9 (a) Explain the differences between trade discount and cash discount

Revision questions in commerce emiti2010

 Page 15 of 80

(b) Manda is a retailer who purchased goods from Rachael, a manufacturer as follows:
3 rd March: Manda purchased goods invoiced K80 000 less 20% trade discount
10th March: Manda Purchased goods invoiced K125 000 less 20% trade discount.
On 20th March, Manda drew a cheque in full settlement of the amount owing to
Rachael. Calculate the amount of cheque, assuming that Manda is entitled to 2 1/2 %
cash discount.
© Under what circumstances might a manufacturer sent a customer the statement of
Accounts?

(a) Trade Discount

- it is a reduction from in the list or catalogue price
- it is allowed to those in trade(one trader to another) or customers who are buying to sell
again for a profit
- usually varies with the quantity purchased and with the customer of that
trade
- it encourages bulk buying
- may be varied to avoid the expenses of reprinting the catalogues
- allows the trade to meet his trading expenses

Cash Discount
- it is a reduction from the invoice price
- it is given to encourage prompty payment (early payment), eg. 5% within 14 days
- it helps to avoid bad debts and speeds up the cash flow system of the business
- it enables the retailer to earn a good reputation with the supplier.

(b) 3rd March K80 000 x 80% = K 64 000

10th March K125 000 x 80% =K100 000
K164 000
Less cash discount K164 000 x 21/2% K 4 100
K159 900 is the amount of cheque drawn
© Statement of Accounts
- it is issued when the goods are sold on credit throughout the trading period/month
or when the customer has an account
- it shows the series of transactions such as invoices issued, payment made, credit
notes, debit notes and the amount owed at the end of the month/trading period
- it reminds the buyer that payment is due and it is a polite request for payment
- it enable the buyer to check that transactions listed are correct
- it also takes care of adjustments during the month such as goods sent back and
the credit note issued, buyer oversupplied/undercharged and debit note issued

10 (a) Name the commercial document which might be used in each of the following transactions:
(i) payment of a debt
(ii) return of empty crates
(iii) delivery of goods to a customer
(iv) undercharge for an order of goods
(b) How might a buyer obtain all the information he requires from the seller before placing an
order?
(c) A retailer has bought 25 dresses at K6 000 each. She is allowed 20% trade discount and
2% cash discount if pays within 28 days.
(i) How much will she pay if she settles the bill within 14 days? (show your working
(ii) She decides to postpone payment until next month. Why might she have reached
this decision?

(a) The commercial documents which might be used for the following transactins are
(i) payment of a debt –cheque/credit transfer/direct debit/bill of exchange
(ii) return of empty crates - credit note
(iii) delivery of goods to a customer - delivery note/consignmentnote/invoice/airwaybill
(iv) undercharge for an order of goods – new invoice/debit note

(b) How the buyer may obtain the information s/he requires before placing an order
- send for a catalogue and price list/trade journal
- send an inquiry and receive a quotation
- telephone the supplier and quotation him
- attend a trade exhibition/trade fair
- ask for a demostration
- visit by/from sales representative
(c) (i) 25 x K6 000 = K150 000

Revision questions in commerce emiti2010

 Page 16 of 80

K150 000 x 80% = K120 000

K120 000 x 98% = K117 600 the amount she will pay if
paid within 14 days
Reason: she qualifies for both trade discount and cash discount

(ii) Reasons why payment may be postponed in business

- cash may not be available
- hoping to sell the goods and use the revenueto pay for the goods
- low discount is offered, so not worth paying easily
- it is a common practice to delay payment in business

QUESTION 11
SAMARITAN CENTRE LTD
P o Box 409710
Luanshya

5th November 2009

James Daka
P O Box 452100
Choma
BOUGHT OF SAMARITAN CENTRE
ORDER NO. 221
LIST NO. DESCRIPTION QUANTITY UNIT PRICE(K) TOTAL (K)
15 White collarless shirts 50 45 000 ? (a)
20 Navy blue Neck Ties 50 9 000 450 000
22 Royal Blue Trousers 50 100 000 ? (b)
?©
Less 20% Trade Discount ? (d)
? (e)
Terms: 2% one month, 1% two months, net three months, E and O E
(a) What is the name of the document above?
(b) What parties are Samaritan Centre Ltd and James Daka to the transaction
above?
(c) Calculate and show the amounts the places a, b, c, d and e.
(d) When was the document prepared and who prepared it?
(e) Explain the terms 2%, 1% and Net.
(f) What does the letters E and OE stand for?

(a) An invoice
(b) Samaritan Centre Limited – seller/creditor/supplier
James Daka – Buyer/Debtor/customer
© (a) K45 000 x 50 = K2 250 000
(b) K100 000 x 50 =K5 000 000
© K450 000 + K2 250 000 + K5 000 000 = K7 700 000
(d) 20% x K7 700 000 = K1 540 000
(e) K7 700 000 – K1 540 000 = K6 160 000
(d) 5th November 2009
Samaritan Centre Limited
(e) 2% - cash discount will be allowed if payment is made within one month
1% - cash discount will be allowed if payment is made within two months
Net – No cash discount will be allowed/full amount owing to be paid
(f) Errors and Omission Excepted

12 On 21st October 2004, Mubanga a stationery dealer bought goods as follows

72 units ink pads at K26 000 per unit
80 units ribbons at K20 860 per unit
100 units file fastener at K4 300 per unit
140 box files at K3 600 each
All subject to 25% trade discount

On 25th October 2004, Mubanga returned 56 ink pad because they were damaged. The terms of

Revision questions in commerce emiti2010

 Page 17 of 80

payment were21/2% 21 days and 5% 14 days. Mubanga paid on 2nd November 2004
(a) Calculate the amount to be paid by Mubanga
(b) Name the document issued to Mubanga on the following dates:
(i) 21st October 2004
(ii) 25th October 2004
(iii) 2nd November 2004
State one reason in each for using the document mentioned.
© Indicate the importance of:
(i) Statement of Account
(ii) Trade Discount
(iii) Cash Discount

(a) Amount to be paid-21st October 2004 (K)

72 x K26 000 1 872 000
80 x K20 860 1 668 800
100 x K4 300 430 000
140 x K3 600 540 000
Total 4 474 800
Less 25% trade discount (25/100 x 4 474 800) 1 118 700
Invoice Amount 3 356 100

25th October 2004

Returned 56 x K2 600 145 600
Less 25% trade discount 36 400
Total Returns 109 200

Amount owing:
K3 356 100 – K109 200 K3 246 900
Less 5% Cash discount 162 345
Total paid K3 084 555

Note that a unit had 10 items and a dozen has 12 items

(b) (i) 21st October 2004 – Invoice -contains details of goods supplied
- informs Mubanga the amount owed to the supplier

(ii) 25th October 2004 – Credit Note – corrects the errors/mistakes made on the invoice
-Reduces the amount of the invoice
(iii) 2nd November 2004 – Receipt
- gives proof of payment

Statement of Account
 Confirms the transactions made during the month
 Reminds the customer that payment is due
 Enables the buyer to compare account records

Trade Discount
 Enable the trader to meet trading expenses
 Enables the trader to make profit
 Encourages bulk buying
 Avoids reprinting of catalogues

Cash Discount
 Minimises bad debts by prompt payment
 Improves cash flow of the business

13 A manufacturer purchases raw materials from a number of suppliers and during the transactions
receives the following commercial documents:
(a) Quotation
(b) invoice
© credit note
State the main items of information to be found in each of these documents and explain for what
purposes this information is required by the manufacturer.

(a) Quotation

Revision questions in commerce emiti2010

 Page 18 of 80

- it is a reply to the letter of inquiry

- it gives a detailled description of goods offered together with the quantity available,
prices at which the goods are offers, the terms and conditions of sale including delivery
dates, discounts offered and terms of payment
- it is required by the manufacturer to compare prices and conditions with that of the
other manufacturers to decide which is the most favourable before placing an order with
a particular supplier.

(b) Invoice
- it is a bill containing a detailled description of the goods together with the quantity sup-
plied, the price of each item (including the trade discount) and the total cost of the or-
der(consignment)
- it is required by the manufacturer to check that he has been charged correctly and to
ascertain how much he owes
- it can also be used to enter the transaction in the manufacturer’s books(it starts the ac-
counting process)

© Credit Note
- contains details of the sum of money owed to the manufacturer by the supplier, such as
details of an overcharge, details of goods returned or goodsshort deliverd, details of re-
turned containers and states the amount due
- it is useds by the manufacturer to enter the refund in his books of accounts and to re-
duce the amount due to the supplier in his books

13 Given below is a statement of account

STATEMENT OF ACCOUNT

PHIRI & SIMMS BROTHERS

2060 WALKWAY
NEW YORK
1 November 2002
To P Sung
1 Hills Avenue
New York

Terms: 5% monthly

Date Item Debit Credit Balance

K K K
Oct 1 Balance 500 000
Oct 10 Cheque 475 000
Discount 25 000 -
Oct 14 Goods 250 000 250 000
Oct 24 Returns 200 000
Oct 28 Goods 150 000

E & OE

Answer the following questions relating to the statement given above:

(a) Who is the seller of the goods?

(b) Why are statements used between buyers and sellers?
© How much was owed on 31 October?
(d) Name two other documents used by the buyer to check his transactions.
(e) Explain ‘Terms: 5% monthly’.
(f) How much would be paid by P Sung if he paid on 6 November?
(g) Explain the entry on 24 October.
(h) Under what circumstances might the buyer delay payment rather than accept the terms
offered?
(i) Name two methods of payment which could be used by P Sung to settle this account
(j) P Sung has a query about his account. What method of communication might he use to con -
tact Phiri & Simms Brothers? Give a reason for your choice.

a. Phiri & Simms Brothers

Revision questions in commerce emiti2010

 Page 19 of 80

b. Reasons why the statement of account may be used between the buyer and the seller
to show a series of transactions when goods are bought on credit
to allow for checking of transactions to provide a record
to request for payment
c. K350 000
d. order form, invoice, credit note, delivery note, advice note.
e. cash discount of 5% was allowed if paid within a month
f. K350 000 - K17 500 = K332 500
g. goods to the value of K50 000 were returned and the amount was credited/amount owing
reduced
h. when insufficient funds
when in dispute about the statement
mistakes have been made/errors

i. cheque, credit transfer, credit card, direct debit, cash

j. Cellular phone,
telephone :- immediate, discussion possible
or letter:- can set out queries clearly
or fax :- speedy, written record
or electronic mail :- speedy, written record
k. when P Sung is a trader
when goods are bought in bulk to a regular custom to allow mark up
14 (a) Name the document which may be used in each of the following transactions.
(i) Sale of goods on credit
(ii) Allowance for cartons or crate used and returned
(iii) Payment for a debt through the bank
(iv) Details for goods requested for
(b) What information would you expect to find on each document which you have mentioned above?

(a) (i) An invoice

(ii) Credit Note
(iii) Cheque
(iv) Quotation/Price List/Catalogue

(b) (i) An Invoice

 The date
 Shows the quantity of goods supplied
 Unit price and total price
 Details and description of the goods
 Discount given(trade and cash discount)
 Value added tax if any
 Name and address of the buyer and the seller

(ii) Credit Note

 the date
 the quantity of the goods returned
 unit and total price of the goods returned
 reason for returning the goods
 details of the goods returned
 name and address of the buyer and the seller of the goods

(iii) Cheque
 The date when the cheque is written
 Name of the payee
 Name of the drawee/bank on which the cheque is drawn
 Drawer’s name
 Drawer’s signature
 Amount to be paid in words and figures

(iv) Quotation
 Date
 Details of the goods asked for
 Prices and description such as colour, quality and quantity
 Name and address of the buyer and the seller

Price List

Revision questions in commerce emiti2010

 Page 20 of 80

 a list of goods in stock with their prices

 description of the goods such as colour, quality and quantity of the goods in stock
 name and address of the supplier

Catalogue
 booklet with pictures of goods in supply/stock
 shows prices and quantities
 trade discount and other terms of payment
 description of the goods

TRENDS IN RETAILING
Retail trade has undergone through a number of changes in recent. The main changes has been due to the
following reasons:
- The change in the pattern of spending due to the rising in the standard of living
- Fewer customers now request for the delivery service resulting in lowering the retailers cost
- the quickening pace of modern life and shopping
- The growing pressure of competition among retailers and rising labour costs.
- The need to save/cutting intermediary costs
- New technological development which has brought about the use of cash registers, computers
which are now widdely used in computerised stock control
BRANDING
Branding means the use of a name or mark to distinguish one producer’s product from another. It makes the
product unique and easy to identify.

PREPACKAGING
Pre-packaging is the putting of goods in distinctive packets of standard sizes such as boxes, tins, cartons
etc. by the manufacturer before (prior) selling them. It allows a customer to handle the goods without dam-
aging the content.

1 Many of the goods sold by supermarkets have been branded and pre-packaged (ie packaged by the manu-
facturers).
(a) What are the advantages of brabding and pre-packaging from the point of view of:
(i) the manufacturer or producer;
(ii) the supermarket?
(b) Why would a chain of supermarkets normally purchase such goods direct from the manufacturers
rathers than from wholesalers?

(a) (i) The advantages of branding and prepackaging to the manufacturer

- branding helps to distinguish its products from those of its competitors
- once the brand name is registered, no other company may be allowed to use the same
name again
- branding establishes the company’s name as representing a quality of standard of the
goods and may create a brand loyalty
- branding allows/enables the product to be advertised
- branding and prepackaging facilitates display of the goods in a self service store.
- Branding gives the goods an individual identity
- Without packaging, the brand name could not be shown on the goods
- The package may be made distinctive to attract customers
- Packaging prevents damage to the goods both in sore and in transit
- The goods may be packed in amounts suitable for the consumers

(ii) Advantages of branding and prepackaging to the supermarket/Retailer

- The goods are more easily displayed and stacked/stored
- it facilitates self service as the customers can easily identify the goods without help from
the staff
- staff is kept at a minimum hence saving costs
- The goods have a longer shelf life, for example, tinned fish and finta/supa milk can stay
on the shelves for monthswithout going bad as the goods are protected when handled
by the customers(pretects the goods from contaminationdue to constant handling by
consumers)
- Speeds up the service by eliminating the need for weighing and wrapping of the goods
- It attracts the customers to buy the goods
- It facitates advertising of the goods
- Customers can easily identify the goods

(b) Goods are purchased direct from the manufacturer because:

Revision questions in commerce emiti2010

 Page 21 of 80

- it is cheaper as goods are purchased in large quantity/bulk

- it is sufficient to enable better terms to be negotiated than be obtained from the whole-
saler such as large trade discount, this allows goods to be sold at a lower price than a
small retailer
- in the case of supermarkets, the goods can be delivered direct to regional warehouses
and distributed direct according to branch requirements
- supermarket chains are large enough to undertake the functions of the wholesaler

SELF SERVICE
Self service is the method of selling where the goods are well displayed on the shelves within the easy reach
of the customers. It was firstly used in supermarkets, but nowadays it is used by main retail outlets.

The self service system of retailing has always been associated with supermarkets and the sell of groceries,
but nowadays it is widely used by most retailers.
2 (a) How do you account for the development of self service?
(b) What are the main features of self service?
© State three disadvantages of self service to the consumer.
(a) The Development of Self Service
Self service has developed because it has benefits (advantages) to both the retailer and the
customer.
Advantages of self service to the Retailer
- less staff is required (possible reduction) as customers serve themselves
- the staff requires less specialised knowledge thus costs are reduced
- it leads to impulse buying which results in high turnover and profit

Advantages of Service to the Consumer/customer

- possibly quicker service (saves time)
- has more time to browse and choose the goods at leisure without being pestered by the
salesmen
- the consumer is able to compare brands
- prices may be cheaper due to the use of loss leaders
Its development has been aided by both prepackaging and branding which enables the goods to
be clearly be distinguished by the customers without assistance.

(b) What are the main features of a self service

CHARACTERISTICS/FEATURES OF SELF SERVICE
 Goods are displayed on the shelves within the easy reach of the customers,
section by section or according to their families just lije books in the library
 Customers serve themselves
 Goods are usually prepacked, branded and priced in bar codes
 Facilities such as trolleys and shopping baskets are provided for the customers to put their pur-
chases
 Customers pay at check outs/pay desks are installed near the exist where the customers pay from
 It requires few sales assistants, mainly to replenish the stock
 It requires large selling space, and large parking area

© DISADVANTAGES OF SELF SERVICE to

the customer
 May lead to (encourages) impulse buying
 Lacks personal service/attention
 It is not suitable for the old and illiterate people
 Services such as delivery and/or credit may not easily be arranged, though credit may be ac-
cepted through the use of credit card/cheque cards
 The customer can not closely inspect the goods before buying them because they are usu-
ally prepacked

The Retailer/Shop owner

 More trading space is needed and this may lead to high overhead expenses, especially if the shop
is located in town centres
 Pilferage or shop lifting is very common as the customers serve themselves and this may cause se-
rious losses to the retailer
 The retailer have to incur additional costs in securing the shop shop lifting or thefts by customers
 Constant handling of the goods may result in damages to the goods though they are packaged
 Needs more capital for the equipment such as baskets, trolleys, cash registers and display shelves.

3 In most countries the modern trend is to build shopping complexes such as Manda Hill and Arcades
Shopping Complexes.

Revision questions in commerce emiti2010

 Page 22 of 80

What are the the benefits and dangers of shopping complexes?

A shopping complex is a variety of shops in the same location, under different management and
do not compete directly with each other but work to stimulate business for one another. An example
of shopping complexes in Zambia is Manda Hill and Arcades situated along the great East Road in Lusaka.
It is also referred to as a shopping mall.

Advantages of a shopping complex to:

(i) Retailer
 shops do not compete directly with each other but work to stimulate business for one an-
other
 they are large enough to carry out national wide advertising to attract the customers from
all over the surrounding areas.
 they are located outside the town centers where land is cheap hence saving overhead
costs

(ii) Consumers
 they purchase all their requirements from one place since there is a variety of shops in the
same location, such as chemists, department store, etc.
 they are located in free trafic areas
 they are easily accessible by the customers as they are near the bus stops
 they have extensive parking for the customers
 they also provide banking facilities and other additional ammenities such as restaurants
and entertainment like video shows.
 may offer competitive prices/goods may be low priced
 the atmospere is very conducive for shopping

(iii) Disadvantages of shopping complexes

 supermarkets at shopping complexes incur extra expenditures on providing parking facili-
ties and on the staff employed to retrieve the trolleys used to take the goods to the nearby
car park
 a large area of land is required for avariety of shops and car park
 consumers cover long distances to reach the shopping complexes and they have to pay
for taxi and mini bus fares.

(b) Explain the main features of Discount Stores.

- they work on the principle of low mark up but large turnover
- they are located out of town centres
- they specialise in branded durable goods such as electrical appliances
- they do not offer delivery service for bulk goods, that is, customers collect their own goods
- they operate from large warehouses where the customers go to buy the goods
- they sell at competitive prices/lower priece goods
- goods are usually not displayed

ELECTRONIC COMMERCE (E-Commerce)

(a) What is electronic commerce?
- Electronic Commerce is the buying and selling of goods and services on internet.
- Electronic commerce is also referred to as on line shopping using computers.
(b) Explain the advantages and disadvantage of Electronic Commerce to
(i) the retailer or trader
(ii) the consumer

Advantages of Electronic commerce to:

(i) The owner of the online store (or retailer)
- The whole world is one huge market for internet users. Thus the market for online store
products is worldwide.
- Business is conducted by on 24 hours a day and 7 days a week.
- Shop buildings do not need to be expensively furnished because customers do not visit
them.
- The online store may be located on outskirts of a town where land is cheaper.
- Goods are not soiled or damaged in any way because customers do not handle them.

(ii) The consumer

- Electronic commerce is open for 24 hours a day and 7 days a week, and therefore con-
sumers are able to purchase goods and services at any time.
- Consumers are able to purchase a variety of high quality goods, which are cheap in
price and may not be available locally.
- Online stores offer convenient shopping from the comfort of a consumer’s home.

Revision questions in commerce emiti2010

 Page 23 of 80

- Internet customers are able to decide on how they want their goods packaged.
- Online stores save consumers’ time and money from travelling to far places in search of
goods.
- No postage of letters for inquiries required.

Disadvantages of Electronic commerce to the owner of the online store(or retailer):

- Many people find Electronic commerce too complex to use being the latest develop-
ment in retailing.
- Methods of payment for online transaction such as credit cards are not commonly used
in most developing countries like Zambia, thus limiting online business.
- There is a possibility of credit card fraud.

Disadvantages of Electronic commerce to the consumer

- Unscrupulous people may set up fake online stores that cheat consumers out of their
money.
- Many people do not have computers, and therefore may have access to internets.
- Goods bought especially big items may take a long time to deliver.
- Goods shown on internet may not be the exact goods delivered.

© Explain the meaning of Automatic Vending Machine;

- it is a retail machine that releases items required when a coin/token is pressed in the
slot
- used in busy central sites such as hotels, bus and rail stations
- sells the goods such as drinks, chocolates, cigarettes and stamps
- can be hired or be bought
- it is a labour saving retailing machine
- it is available 24 hours daily

CREDIT BUYING AND SELLING

Why do businesses purchase on credit?

Reasons why businesses purchses on credit
- do not have the capital to pay immediately
- it a common practice and businesses are encouraged to do so
- may sell the goods bought before payment is due and use the money to pay for the
debt
- it is a short term form of financing the business
- to overcome cash flow problems/liquidity problems

Mr. Kokoliko wants to purchase a television which has a cash price of K3 000 000 but does not have suffi-
cient funds. If bought through Hire Purchase it would require a 10% deposit followed by 24 monthly instal-
ments of K200 000. He decides finance this by means of hire Purchase.
(a) Calculate the extra cost of buying the television set on Hire Purchase.
(b) Explain to him the main features of Hire Purchase.
© What are the advantages and disadvantages of Hire Purchase to Mr.Kokoliko’s point of view
and the Retailer?
(d) Indicate the three main differences between Hire Purchase and credit sales (ie deferred
payment).
(e) Giving examples, why is it necessary for hire purchase to be strictly controlled by legislation.
(f) Many small retaillers can not afford to wait for customers to make repayment on hire purchase sales
over a long period of time. How are such hire purchase transactions financed?

Deposit = 10% of K3 000 000

10 x K3 000 000
100
K300 000
Instalments = 24 x K200 000
= K4 800 000
Total cost = K4 800 000 + K300 000
K5 100 000
Exxtra cost = K5 100 000 – K3 000 000
K2 100 000

(b) The main Features of Hire Purchase

- Initially a deposit is paid followed by equal monthly instalments paid over a period of

Revision questions in commerce emiti2010

 Page 24 of 80

time until the total price is paid which includes interest

- Interest is usually expressed as a percentage of the market price of the item
- Although the goods may be taken, the buyer only becomes the legal owner of the
goods after paying the last intalment, hence the item purchased can not be sold until
the last instalment is paid
- The buyer has the use of the goods whilst paying for them
- It usually deals with durable goods such as machinery, vehicles, stereos, refridgerators,
buildings and furniture.
- In the event of the buyer failing to pay the instalments, the goods may be repossessed,
however, it is subjected to certain legal limitations, for example, if 1/3 of the purchase
price has been paid, then court order is required
- There is usually a maximum value of transactions

(c) Advantages of Hire Purchase to the Buyer(Mr. Kokoliko)

- it enables the buyer to acquire the goods which s/he can not afford on cash basis
- the buyer has the use of the goods whilst paying for it
- some goods may pay for themselves such as tractors (vehicles), stereos, machinery,
cookers and refridgerators
- the buyer may obtain the goods on current price to beat inflation
- it may improve the standard of living of the buyer

Disaadvantages of Hire Purchase to the Buyer(Kokoliko)

- may take on the great burden by forcing him to live beyond his means
- in case the buyer defaults in payment the goods may be repossessed and the buyer will
lose both the money paid and the article
- goods are expensive as interest is added to the cash price
- the buyer only becomes the legal owner of the item after paying last instalment hence
he can not sell the article until the last instalment is paid

Advantages of Hire Purchase to the Retailer

- it increases the sale of durable expensive goods hence the retailer has high turnover
- the seller may get high profit margin since interest is charged
- he may get commission if it is financed by the finance company

Disaadvantages of Hire Purchase to the Retailer

- Goods repossessed may not be worth reselling
- It involves a lot of paper work
- Much of the traders capital is tied up in debts hence it requires high capitalinvestiment
- Court action against defaulting customers is very unpopular and may turnish the image
of the trader which may scale away customers

(d) The differences between Hire Purchase and Deferred Payment under Credit Sales
- In Hire Purchase, the buyer becomes the legal owner of the item after paying the last
intalment while in deferred the buyer becomes the legal owner of the item immediately
the deposit is paid
- Hire purchase deals with durable goods while credit sales deals with non durable
- Under Hire Purchase, the goods may be repossessed in case the buyer defaults in pay-
ment while in deferred payment the goods may not be repossed but the buyer will only
sued for the remaining balance
- Hire Purchase may be financed by the finance company while credit sales may not be
financed by the finance company
- Under Hire Purchase, the buyer can not sell the goods until all the payments are com-
pleted but under deferred payment thre buyer can sell the good any time as she be-
comes the legal owner of the goods as soon as the deposit is paid.

(e) The necessity of Hire Purchase to be controlled by legislation

- the purchaser may not fully understand the contract worded in legal terms
- the charges may not be clearly be stated and they may be too high, therefore, the An-
nual Percentage Rate or true rate of interest must be stated with the Hire Purchase
price and cash price
- repossession of the goods amy occur on trivial grounds if protection is not given, that is
if 1/3 of the purchase price has been paid the court order is required
- some salemen are too persuasive
- cooling off period (contract made outside business premises can be cancelled) allowed
under some circumstances
(f) The Role of the finance Company in Hire Purchase
- The arrange Hire purchase and leasing terms

Revision questions in commerce emiti2010

 Page 25 of 80

- the finance company provides finance by paying the supplier of the goods the cash
price for the item and the buyer becomes indebted to the finance company who collects
the instalments
- the raise money for Hire Purchase by allowing high rate of interest and deposit allowing
the seller commission on introduction
- the seller is essentially acting as an agent between the finance company and the buyer
- the finance company makes it profit by charging interest on the amount lent

4 Give brief answers to the following.

(a) Why do consumers need protection when purchasing goods and services?
(b) what advantages may be obtained by a retailer who joins a voluntary chain?
(c) What are the functions of a commodity market?
(d) What are the functions of a marketing board?
(e) What are the functions of a co-operative wholesale society?
(a) Reasons why the consumers need protection when buying goods and services
- different consumers might be charged different prices (fluctuating prices)
- the consumers might not receive the right content of the goods (under weight goods)
- advertisers might make false claims (misleading advertisements)
- some salesmen are too persuasive to induce to the consumers to buy the goods
- some manufacturers might try to cut the production cost by using inferior or dangerous
ingrediates in the products
- some traders may over charge the consumers by fixing prices at high levels

(b) Functions of the Voluntary Chain

- enable a large number of small retailers to obtain the advantage of bulk buying and to
compete with large scale retailers if they agree to buy from certain wholesalers
- advertising assistance is offered such as national advertising
- credit/financial assistance may also be available

(b) Advantages that may be obtained by a retailer who joins a voluntary chain
- benefits from bulk buying by the wholesaler(s) thus reducing prices paid by the retailers
- goods may be delivered to the retailers
- national wide advertising is undertaken
- advertising display material are supplied
- advice on stock display is given to the retailers
- financial assistance such as loans for the improvements to the premises may be avail-
able

© The Functions of the Commodity Market

- to provide a highly organized market for the sale and purchase of commodities such as cotton
and wheat
- arranges dealings in “futures”, particularly where the commodity can be graded or arranges
sale of auction

(e) Functions of the Co-operative Wholesale Society

- to provide a centralized purchasing for the co-operative retail society and to supply retail societ-
ies with goods in order to reduce dependence on other form of wholesaling
- in order to do this, it undertakes manufacturing, farming, so as to obtain own label goods and to
break bulk for the retail societies

.INTERNATIONAL TRADE
The total value of the country’s exports for an average month was divided as, Manufactured goods 40%, Raw materials 15%,
Services 30% and other goods 15%. The total exports was K900m.
(a) What is the value of manufactured goods exported in one month? (show your working).
(b) Name two services the country might export.
(c) What would be the value of exported goods for one year? (show your working)
(d) Total imports for the month are K990m. Calculate the Balance of payment for one month. (show your working)
(e) Why is International Trade important to your country like Zambia?
(f) Why, despite the benefits of international trade, may countries:
(i) impose customs duties
(ii) restrict the entry of goods from abroad?
(g) What are excise duties? Why are they levied?
(h) What difficulties might an exporter face when selling its products overseas?
40
(a) /100 x K900m = K360m

(b) Services that a country might export

Revision questions in commerce emiti2010

 Page 26 of 80

Tourism, Banking, Transport, Insurance, Accountancy, Education and Health.

© 40% + 15% = 55% x K900m = K495 x 12 months = K5 940

or 70/100 xK900m = K630m x 12 = K7 580

(d) K900m – K990m = -K90m

(e) Importance of International Trade to a country like Zambia:
- No country can produce or manufacture all the goods it needs. For example climatic
conditions limit the type of crops that can be grown in countries of the world.
- Certain minerals are not found in some countries. Therefore countries must import
goods which they do not produce.
- International trade enables consumers to have a higher standard of living by making
available a wider range of goods in the country.
- International trade enables a country to specialise in industries in which it has an
advantage.
- International trade brings foreign currency in the country which can be used to pay for
imported goods
- International trade fosters political friendship and mutual understanding
- It may be cheaper to buy certain goods from abroad than producing them in Zambia
- International trade avoids wastage of surplus goods by allowing any surplus goods
produced to be exported to other countries to pay for goods being imported in order to maintain
the balance of trade and the balance of payment.
- it brings about new technological development into the country

(f) (i) Countries may impose customs duties for the following reasons:
- To obtain revenue for government purposes e.g to build schools hospitals etc.
- To protect home industries by raising the price of imported goods.
- To save foreign currency by reducing imports.
(ii) Countries may restrict the entry of goods from abroad in order to:
- Prohibit undesirable or harmful goods e.g spirits, tobacco, firearms etc.
- Protect home industries by imposing quotas.
- Assist in maintaining a favourable balance of trade.
(g ) Excise duties
Excise duties are duties levied on some goods produced and consumed within a country e.g
spirits, cigarettes etc.
Excise duties are levied for the following reasons:
- To balance any price advantage of home produced goods over imported goods which are
subject to import duty.
- To raise revenue for the government.
- To restrict consumption of certain goods.
In addition payments for certain licences are classified as excise duty
Excise duties are of two categories. Namely; Specific Excise duty and Advalorem.

(h) Problems in International Trade

- distance involved
- different methods of payment due to different currencies used in different countries
- language problems such as in communication and advertising
- obtaining orders on foreign market
- customs duties imposed, quotas, prohibitions may be involved
- delays in settlement due to political factors and exchange controls
- different customs are involved
- different forms of transport may be needed due to long distance involved
- different laws for example in product specification and labelling
- additional and complicated documentation involved
- Production problems
- Possible customs/cultural barriers

(a) What are the functions of the Customs an Excise Department of the Zambia Revenue Author-
ity? Functions of the customs and Excise Department of the Zambia Revenue Authority
 Collection of data (statistical records on imports and exports)
 Control of the Bonded warehouses
 Collection and calculation of duties

Revision questions in commerce emiti2010

 Page 27 of 80

 Enforcing trade restrictions such as quotas

 Stops entry of prohibited goods
 Prevents smuggling
 Inspection of ships/vehicles/aircrafts
 Supervision of imports and exports

(b) Why do countries impose tariffs and restrictions?

 Protect local industries
 prevents a country from being turned iinto a dumping ground
 raise revenue for the state
 prohibit undesirable or harmful goods such as fire-arms
 reduce imports whereby saving foreign currency
 makes local goods competitive

© Distinguish between Customs and Excise Duties.

CUSTOMS DUTY EXCISE DUTIES
 levied on imported dutiable goods-exports levied on certain locally produced goods
 levied to restrict imports levied to restrict consumption
 to raise prices of imported goods to balance any price advantage of home
so as to enable local goods compete with cheap produced goods over imported goods
imported goods which are dutiable
2 (a) State the similarities between home and foreign trade
(b) One of the SADC countries has been experiencing unfavourable balance of payment for the past two years.
List the corrective measures that might be taken by this country to improve the situation.
(c) State the differences home and international trade
(d) Why are the following necessary in international trade?
(i) the collection of statistics by customs officials:
(ii) the completion of documents such as the bill of lading and the airway bill
(iii) the enforcement of quotas;
(iv) the provision of warehousing at ports and airports?

SIMILARITIES BETWEEN HOME AND FOREIGN TRADE

 They both require the use of the aids to trade
 Both are conducted with a vie of making profit/they both buy and sell the goods
 They both result from specialisation of labour and distribution of resources
 The both use money as a medium of exchange

(b) MEASURES TAKEN TO CORRECT ADVERSE BALANCE OF PAYMENT BY A SADC COUNTRY TO IM

PROVE THE SITUATION
 May impose customs duties on duty free goods
 May increase customs duty on dutiable goods
 May introduce a system of import quotas/ embargo/sanctions
 May curb foreign travel
 May introduce export incentive
 May introduce a system of exchange control
 May restrict credit in order to decrease the demand for both imported and locally manufactured goods
 The step would bring about a fall in imports and a rise in exports
 May inform people about the benefits from potential exports
 May devalue the currency as the last resort
 The action will raise the prices of foreign goods and services and make exports more profitable

HOME TRADE FOREIGN TRADE

(c) ii) No language problem in home trade (ii) There is language problem in international
trade because many countries use different
languages .
(iii) No customs duties imposed in (iii) Customs duties are imposed in international
home trade trade
iv) One form of transport may be (iv) Different forms of transport may be needed to
needed in home trade deliver goods in international trade
v) There are no import regulations in ( v) There are import regulations in international trade
home trade .
vi) Usually the country has one custom, (vi) There are different customs in different
thus making home trade easier. Countries, thus making international
trade difficult

Revision questions in commerce emiti2010

 Page 28 of 80

vii) Same laws are used in home trade (vii) Different laws are applied in different
countries.
viii) Documents used in home trade are (viii) Documents used in international trade
easy to understand. Are lengthy and complicated
ix) One currency is used to pay for goods ix) Different countries use different currencies
for goods and services in home trade. Thus making international trade difficult

(d) (i) The collection of statistics by customs officials is necessary for the following reasons;
- To give details of imported goods
- To give details of exported goods
- To enable the calculation of balance of trade to take place.
- To enable the calculation of the balance of payment to be done.
- To allow for the government remedial action e.g to reverse the unfavourable balance of trade

(ii) To completion of documents such as the bill of lading and the airway bill is necessary for
the following reasons;
- To give title to goods where a bill of lading is used.
- To provide evidence of a contract of carriage of goods
- To give details of goods being transported.
- To accompany goods being delivered.
- To enable the calculations of customs duties.
- To act as a receipt for goods to be transported.

(iii) The enforcement of quotas is necessary for the following reasons:

- To prevent dumping of goods in countries where goods are being sold.
- To protect home industries from foreign competition.
- To help correct unfavourable balance of trade.
- To allow home industry to become more competitive.
- Quotas can be used as a retaliatory action against another country.

(iv) To provision of warehousing at seaports and airport is necessary for the following reasons:
- To keep goods safe whilst awaiting transport.
- To store goods on which customs duty has to be paid.
- To keep goods safe while awaiting sale.
- To provide protection of goods against theft, deterioration, bad weather etc.
- To enable the processing of some goods to take place.

3. Explain the functions and importance to those engaged in international of the following:
a) Bill of lading
b) Documentary credits
c) Export credits guarantee Department
(d) Charter Party
(a) Bill of lading
The functions of a bill of lading are:
- it acts as a document of title and it is a negotiable document.
- it acts as a receipt of goods received on board a ship
- it is an evidence of a contract of carriage of goods by ship between the sender of goods and the
shipping company
- it is a quasi-negotiable instrument which can be used to negotiate for a letter of credit from the bank
- it is prepared atleast in a set of three
- it gives details of goods delivered, that is the quantity, description and the number of packages
A bill of lading is an essential document in the carriage of goods by sea. It shows:
- the details of goods being transported by a ship
- the ports of embarkation (loading) and disembarkation (discharge).
- the name of the ship
- freight receipt if payment had been made in advance.
The holder of a bill of lading may take possession of goods stated on the bill. A bill of lading is therefore an
essential document in documentary credit procedures.

3. (b) Documentary credits

A documentary credit is a means of payment in international trade.
A documentary credit is granted by the importer’s bank referred to as the issuing bank
a named bank in the exporter’s country. The bank in the exporter’s country is referred as correspondent
bank.
The exporter receives payment for his goods when he presents documents such as bill
of lading, insurance policy, certificate of origin, letter of hypothecation etc at the
correspondent bank.

Revision questions in commerce emiti2010

 Page 29 of 80

A document credit may be revocable, irrevocable or confirmed.

A revocable documentary credit is a credit arrangement that can be cancelled at any time by the importer.
For example if the importer is not happy with goods delivered by the exporter, or she cancel a revocable
documentary credit.
Irrevocable documentary credit is a credit arrangement that can not be cancelled.
A confirmed irrevocable documentary credit is credit arrangement that is guaranteed by the im-
porter’s bank that is should not to be cancelled.
A documentary credit is therefore important because:
(i) Payment is guaranteed by the bank to the exporter on production of the necessary of
documents.
(ii) the exporter does not need to wait until goods reach the importer before receiving payment.
(iii) the importer is also secure in the knowledge that payment will not be made to the exporter until the
necessary documents are handed to the correspondent bank and the documents found to be in order.

3. (c ) Exporter credit Guarantee Department

The Export Credit Guarantee Department is a government department which covers business people against
risks of international trade which ordinary insurance companies do not normally insure against.
The following are examples of risks the Export Credit Guarantee Department covers or insures:
- Insolvency of the buyer
- Failure of the buyer to take delivery of goods
- political events such as civil war in the buyer’s country.
- Changes in foreign government.
- Cancellation of the importer’s import licence.
- Government exchange controls.
- Export licensing controls in the importer’s country.
The Export Credit Guarantee department is therefore important because:
(i) it protects exporters against risks which ordinary insurance companies cannot cover traders
(ii) it assists exporters in obtaining loans from banks as a result of the additional security it provides

(d) The Charter Party

- It acts as a contract for the hire of the ship or part of the ship on time or voyage basis
- it gives details of the route and destination of the goods
- it gives details of the goods to be carried
- it gives the name of the ship hired
- it states about care and maintenance of the ship
- it shows the number of lay days and demurrage (demurrage is the penalty for exceeding the number
of lay days).
4 (a) What are the functions of the Port Authority?
(b) Why do countries form trading Blocs such as SADC or EU
(c) Explain the differences between;
(i) The Balance of Trade and the Balance of Payment
(ii) The Port Authority and the customs authority;
(iii) Customs Duty and Excise Duty

(a) Functions of the Port Authority

- They maintain the approach to the port by road, rail sea etc.
- They provide warehousing facilities for the goods
- they provide customs and immigration offices
- the provide ship repair yards
- they provide landing facilities such as lock gates, buoys and wharves.
- they maintain port equipment and charge users
- provides communication by radio and telephone
- they provide markets, dock rooms, banking facilities, rest houses and restaurants for passengers
- provides offices for agents
- provides security offices such as police offices
- provides health and sanitation facilities
- provides efficiency labour supply by hiring dock labourers, engineers, maintaining good industrial re-
lations and licensing lighter men
- the provide refuelling and fresh water
- they dredge the port to maintain the depth
- they levy port labours and dock dues to pay for the above
- they undertake all clerical work concerned with the above

.(b) Reasons why countries form Trading Blocs

- to encourage trade between member countries by reducing tariffs
- to reduce economic dependence from outside region
- to mobilise resources more efficiently such as technology and hydropower

Revision questions in commerce emiti2010

 Page 30 of 80

- to have more bargaining power when negotiating as a group

- to promote peace with the region

(c) (i) Balance of Trade

- This is the financial record of the country’s trade in goods
- It is calculated by subtracting imported goods from exported goods or simply visible exports less
visible imports

Balance of Payment
- This is the record of trade and financial transactions with the rest of the world
- It may be divided into two sections, that is current account and capital account
- calculated by exported goods + services less imported goods + services or visible exports + invisible
exports less visible imports + invisible import
(ii) Port Authority
- maintains/supervises a port Customs Authority
- by keeping channels open - Supervises the movements of im-
- by providing docks ports and exports
- by providing fuel - supervises the movement ships/air-
- by providing passenger facilities crafts
- by providing storage - prevents smuggling
- by providing unloading facilities - collects statistics of imports and ex-
- by providing roll on, roll off ports
- by providing repair services - stops entry of prohibited goods
- by providing efficient labour - supervises bonded warehouses
- by providing office - collects duty
accommodation - enforces trade restrictions

(iii) Customs Duty

- levied on imported and Excise Duty
exported dutiable goods - levied on certain locally
- levied to restrict imports produced goods
- levied to raise prices of - to restrict consumption of goods
imported goods such as beer and cigarettes
- to enable local goods compete with - to balance any price advantage of
cheaper imported goods home produced goods over impor-
ted goods which are dutiable

In connection with International Trade, describe and explain the purpose of the following:
a. certificate of origin b. indent . © consular invoice (e) Manifest
d. certificate of insurance (f) Letter of Hypothecation
(a) Certificate of origin © Consular Invoice
exporter declares where the goods are giving detailed instructions of goods
produced to certify country of origin and to be bought
is signed by consul of importing country issued by exporting country and is
resident in the exporters country signed by the consul of the importing
which lowers rate of duty on goods coming country resident in the exporter’s
from trading partners eg EEC, PTA, SADC, country to certify that the prices
COMESA duty free as duty varies depending indicated are genuine for correct duty
on country of origin and goods are not to be charged in the importer’s
allowed from countries with a trade embargo country

(b) Indent
an order from a broad containing (d) Certificate of Insurance
description of the goods, prices agreed on issued at time when contract is made
quotation quantity of goods ordered to cover goods in transit
shipping instructions, date of delivery may be for a specific journey voyage
address of delivery policy or for a period of time, time
may be sent, through a buying agent policy
then it is a closed indent or general nature of used in documentary credit
the goods required then it is an open indent when placed with the bank by
the exporter for credit facilities

(e) Manifest (f) Letter of hypothecation

- is prepared by the shipping company it is a letter from the exporter
- when it has received on its ship giving authority to the post office/bank

Revision questions in commerce emiti2010

 Page 31 of 80

- sent to customs and excise authority in the importer’s country to sell the
- it gives details of the goods received on board goods when the importer fails to pay
- such as quantity, description of goods for the goods
value and weight it is used when goods are sold on cash
- used customs officials to check on goods and delivery
being exported

(g) Entrepot Trade

- form of international trade where goods are temporarily imported into a country
- goods may be processed or stored in the bonded warehouse to avoid or postpone payment of duy and
then re-exported

(h) Customs Drawback

- refund of duty when customs duty has been paid on the goods
and later the goods are re-exported
- payment of duty may be avoided by storing the goods in the bonded warehouse

(i) Airway Bill

- t is a consignment note giving details of any item such as goods carried
- used when goods are sent by air
- repared in a set of atleast three
- ne copy is carried with the goods
- it not a document of title
- so can not be used to transfer ownership of the goods
- evidedence of contract of carriage
- acts as a receipt to the goods
- gives approximate value of goods for customs purpose

Differentiate between the following:-

(a) The Credit Note and the Debit Note
CREDIT NOTE DEBIT NOTE
- it is issued when there has been an overcharge or it is issued if there has been an undercharge
undersupply of goods or over supply of goods
- or return of empty crates the prces of containers or crates not included
- a return of goods for various reasons such as not or- it increases what the buyer owes the seller
dered, damaged in transit, and unfit for human con- issued if the buyer was not charged for
sumption transport or caariage/delivery expense
- it reduces what the buyer owes the seller
- it is usually printed in red

(b) Quotation and Consignment Note

QUOTATION CONSIGNMENT NOTE
- A reply to the letter of inquiry used when sending goods by hired transport
- Contains a detailed of goods available it is a request and instruction to the carrier to
- It gives prices and terms of payment accept and deliver a certain consignment to
- The customer uses it to compare prices and conditions the consignee
for the selected of the best qutation/offers by various sup- sent together with the goods/accompanies
pliers the carrier will then produce this copy when
claiming the freight charges

© Bill of Lading and the Charter Party

Bill of lading Charter Party
- Used whenever goods are sent by sea transport it is a contract made between the ship owner
- It is a document of title to the goods and the shipper(exporter)
- It is a contract of carriage it is used when hiring the ship/part of the
- It acts as a receipt of goods ship for transporting the goods
- It is quasi-negotiable instrument it can either be a voyage or time charter
- Contains the full details of the goods on board the ship it contains details of lay days and demurage
- It is prepared atleast in a set of three

(d) The Order and the Statement of Accounts

The Order Staement of Account
- it is an instruction given to the supplier to supply it contains a summary of transactios in a given
particular goods period such as at the end of the month
- it may be placed verbally or orally but must it gives details of the goods supplied on credit,
be followed with a written document credit notes and debit notes issued
- it shows the quantity of goods, description, it shows the amount owing at the beginning and
Revision questions in commerce emiti2010
 Page 32 of 80

price, trade and cash discount if any end of the period

- it is reply to the letter of inquiry, price list, quota- it is a polite request of payment/settlement of a
tion, catalogue or estimate when the buyer is debt
satisfied with the terms it allows the buyer to compare with his own
entries for any querries
- it is sent periodically

MIDDLEMEN IN TRADE
Explain the work of factors, brokers, merchants and Forwarding agents in home trade and show how
each is remunerated.
Factors
Are agents concerned with selling of goods in the home trade in their own names, although not theirs
They sell on behalf of their principals/someone else or other people but
Have possession of the goods and documents of title
They are remunerated by a commission and when they guarantee payment by buyers, they get an
extra del Credere commission

Brokers
Are agents concerned with buying and selling the goods on behalf of the principal/someone else or
other people do not have possession of the goods nor sell in their own name, they merely bring buyer
and seller together. They are remunerated by the commission called brokerage

Merchants
are (traders) principals who buy goods for themselves. They import to sell at home. They act as
wholesalers and provide delivery, warehousing etc. They are remuneration is profit

Forwarding agents
Forwarding agents are middlemen in foreign trade who assist traders that export and import. The functions
of the forwarding agents include:
- to offer specialist advice on transport facilities.
- to organise collection of the goods from the manufacturer for export.
- To arrange shipment of goods reserve space in ship.
- to deal with import and export formalities.
- to undertake transport documentation e.g. bill of lading, airway bill, consignment
warehousing, insurance etc.
- To arrange warehousing, insurance etc.
Forwarding agents are of particular importance to smaller companies that to not possess specialist exporting
expertise or exporting department.

WAREHOUSING
1 (a) Explain in details, why warehousing is an important aid to trade
(b) Why are warehousing facilities essential to:
(i) a cash and carry wholesaler
(ii) an importer of dutiable goods such as wine.
(iii) an importer of coffee who plans to sell it in the home market
(iv) an exporter of locally produced software

(a) The importance of the warehouse to those in trade

- it provides a place for the storage of raw materials, partly finished goods and finished goods awaiting sales,
transportation and processing
- it provides storage for the seasonal goods such as rain coats, jerseys, Christmas cards etc.
- provides storage for goods in transit (entrepot) trade
- it allows production to take place ahead of demand
- it evens out prices/avoids price fluctuations of goods and it helps to prevent shortages of goods
- reduces pilferage/theft of goods
- it protects goods from adverse weather conditions
- it provides room for the goods to be prepared for sale such as branding, blending packaging and labelling
- it allows some goods such wine, tobacco, and cheese to mature
- it provides space for the retailers to inspect the goods before buying them
- it may be a cold storage or a wholesaler cash and carry
- it may be a bonded warehouse which provides storage for dutiable goods awaiting duty to be paid or
imported goods awaiting re-export
- may be at the airports/seaports/bus terminals

(b) (i) Reasons why warehousing is important to the cash and carry wholesaler
- need to store the goods for customers/small retailer
- offers large variety of goods from manufacturers

Revision questions in commerce emiti2010

 Page 33 of 80

- breaks the bulks, prices the goods, displays the goods

- enables retailers to chose their own goods using trolleys and pay for them at the checkouts
- provides place where retailers/customers can inspect the goods
- prepares the goods for resale

(ii) Reasons why warehousing facility is essential to an importer of dutiable goods such as wine
- need to store goods on which duty has not yet been paid
- enables wine and spirits to mature
- reduces theft/pilferage of goods
- useful in entrepot trade or when bottling/blending has to take place or when seeking a buyer
who will then pay the duty hence economising on the traders’ working capital

(iii) Importance of a Bonded Warehouse to an importer of Coffee

 storage of coffee on which duty has not yet been paid
 allows space for preparing coffee for sale/blending, bottling or packaging
 imported dutiable coffee can be store if the importer hasn’t got enough money
 allows postponement of duty
 hence economising/maximizing his working capital

(iv) Importance of a Bonded Warehousing to an Exporter of locally produced Computer Software

 to protect the computer software from damage/theft/bad weather
 storage of computer software pending export and awaiting transport
 storage of the computer software needing further packaging

(c) What are the functions of the Marketing Board?

 To ensure the efficient marketing of agricultural products
 to restrict undue fluctuations or variations in prices
 collection and storage of agricultural products
 to maintain a steady supply of goods on the market
 purchases total supply and releases quantities as appropriate
 fix prices of agricultural products
 advices farmers/producers
 supplies farm inputs and equipment to the farmers such as seeds and fertiliser
 offers loans to farmers
 carries out agricultural research
 gives producers a sure price/market
 gives consumers a steady supply of the goods

BUSINESS UNITS.

6. In relation to the organisation of business answer the following questions:

Revision questions in commerce emiti2010

 Page 34 of 80

(a) Why is the sole trader the most common form of business ownership in most countries?
(b) What disadvantages does a partnership have when compared to a private limited company?
© (i) Why does a public limited company find it easier to expand than a private limited company?
(ii) Explain the reasons why a private limited Company may not wish to become public.
(d) (i) What is a multinational company?
(ii). Why do they continue to grow in importance.

a. Advantages of Sole Trading:

- easy to set up - cheap to set up
- suitability for many different businesses
- flexibility offered - often outside help offered
- encouraged by government - suited to personality of many people
- may be no alternative as no other work available.

b. Disadvantages of the partnership compared to the private limited company

- it has unlimited liability v limited liability
- it has no legal status(entity)/not a legal entity v legal status
- less easy to expand because possibly less or easy to raise capital/easy to expand/easy to raise capital
- less legal protection for owners v protection for shareholders from companies

c. (i) Reasons why a Public Limited Company finds it easier to expand than a private limited company
- share ownership available to general public
- shares sold on stock exchange
- banks likely to lend more favourably as possibly less risk
- enjoys economies of scale
- may be able to merge/take-over/acquire other businesses

(ii) Reasons why a Private Limited Company may not wish to become public.
- Public Limited Companies may be subjected to takeovers if another company obtains 51% of shares
- Directors and shareholders may wish to remain as they are
- cost in tome and money in the formation of a Public Limited Company
- the shares of the public limited company are quoted on the stock exchange
- public limited companies publicise their accounts – private companies file accounts with the registrar
of Companies
-
(d) (i) Meaning of a Multinational company
a company based in one country but operating in several countries/factories/sales offices in other
countries, examples of a multinational company/Bp, Shop rite/Pep

(ii) Reasons why multinational companies continue to grow in importance

- they function in areas of high demand - can move capital around easily
- they are welcomed by many countries - offer attractions eg employment to them
- can take advantages of economies of scale success feeding on success
- they have wider world market - they have better communications

Compare and contrast

(a) Partnership and Private Limited Company
(b) Public Limited Company and Public Corporation

(a) Partnership Private Limited

Unlimited liability ie Separate legal existence entity
many lose private property debts of the business limited liability i.e lose only
unless limited partners amount paid for shares
easy to set up-few many legal requirements to documents required
eg partnership deed set up Memorandum of Association, Articles of
Association
lacks continuity as the business is dissolved has greater continuity of business even when one
on the Death of a partner shareholder dies
lack of capital and borrowing more capital and have more have borrowing capacity
accounts not lodged with the Registrar accounts lodged with Registrar
i.e Private of companies i.e public

(b) Public Limited Company Public Corporation

set up by a minimum of two set up by an Act of Parliament
shareholders

Revision questions in commerce emiti2010

 Page 35 of 80

Board of Director elected Board of Directors appointed by Minister in charge

of ministry
motive is profit motive is to provide services
owned by shareholders owned by government
profits distributed to share profits used for improvement of government
holders as dividend infrastructure e.g Health, education
capital raised through sale capital raised through government grants
of shares to the public
Board of Directors controls parliament investigates working of corporation
the workings of the company through select Committees

3 (a) In connection with a Public Limited Company, explain the meaning of:
(i) public;
(ii) limited
(b) why may a public limited Company issue a prospectus? What information does it contain?
© A Limited Company is said to be a separate legal entity. What does this mean?
(d) A shareholder in a limited owns:
1 000 7% K1 preference shares
4 000 K1 ordinary shares
What would be the income from these investments in a year when a company paid a dividend of
121/2% on the ordinary shares? (ignore taxation)

(a) (i) The meaning of the word Public

- The general public are invited to subscribe for the shares
- information regarding the running of the company is made available to the investing public, for ex-
ample, through the prospectus and by the annual reports and accounts

(ii) The meaning of the word Limited

- The liability of the company is limited to the total resources
- The liability of the individual shareholder is limited to the amount invested in the company or the
amount agreed to invest
- the shareholder’s personal possessions are not at risk.

(b) A company may issue a prospectus :

- in order to obtain capital from the sale of shares to the public
- the prospectus is an invitation to purchase shares
- it gives details of shares available and the price at which they are offered
- it gives details of the company’ past results and the future prospects of the company.

© Separate Legal entity

- separate legal entity means that the company has got its own legal existence separate from that of its
shareholders
- it can sue or be sued in its own name
- thus the company can enter into legal contracts in its own name

(d) The income would be:

7% of 1 000 preference share x K1 = K 70.00
121/2% x 4 000 ordinary shares x K1= K500.00
K570.00

4 A public limited company has an issued share capital of:

1 000 000 ordinary shares of K1 each
200 000 8% preference shares of K1 each.
The company’s net profit for the trading year ended 31 December 2002 was K100 000. It paid the dividend on the
preference shares and distributed half the remaining profit to its ordinary shareholders.
(a) Explain briefly the difference between Preference shares and Ordinary shares.
(b) Calculate:
(i) the total amount required to pay the dividend on the preference shares;
(ii) the percentage dividend paid on the ordinary shares
(iii) the amount of profit retained by the company (that is, not distributed to shareholders).
© Why is the undistributed profit important to the company?

(a) Ordinary Shares

- risk bearers/type of investment
- receives variable dividend based on profits

Revision questions in commerce emiti2010

 Page 36 of 80

- one vote per share

- have a voting right at the Annual General Meeting
- are able to elect the Board of Directors
- paid their dividend after the preference shareholders
- they are easy to procure
Preference Shares
- safe type of shares/investment
- receives a fixed rate of dividend
- paid before the ordinary share but after the debenture holders
- they usually have no voting rights
- may be no dividend if there is insufficient profits unless cumulative preference shares
- may also be participating share
- they are not easy to procure

(b) (i) 200 000 x K0.08 = K16 000

(ii) K100 000 – K16 000 = K84 000

K84 000 = K42 000 available for distribution
2
K42 000 x 100 = 4.2%
1 000 000
50
(iii) /100 x K84 000 = K42 000

© - it can be transferred to the general reserves

- can be used to fund new projects
- can be used for the day to day expenses
- can be used into other businesses
- can be deposited in the bank to earn interest
- can be held for use in a poor year of trading
- future payments of dividends
A Limited Company has paid up capital of 200 000 ordinary shares of K500 each, its net profit for the year for the year is
K20 000 000. It was resolved that three quarters of this sum shall be distributed as dividends.

(i) How much will the owner of 10 000 ordinary shares receive? (ignore taxation)
¾ x K20 000 000 = K15 000 000
Investment Dividend
200 000 @ K500 K100 000 000 K15 000 000
10 000 @ K500 K5 000 000 ?
K5 000 000 x K15 000 000 = K750 000
K100 000 000

(ii) Calculate the returns of capital invested of K5 000 000.

K750 000 x 100 15%
K5 000 000

5 (a) State the similarities between the Public and Private Limited Company.
similarities between the Public and Private Limited Company
- may be formed by a minimum of two persons and have no maximum number an have no maximum
number
- must be rgistered with the registrar of companies
- they are legal entities/legal status, (can sue or be sued in its own name or separate from the shaare -
holders)
- theya re controlled by the Board of Directors
- raises their capital by the sale of the shares
- their capital is divided into small units called shares
- it is owned by the shareholders
- all the shareholders have limited liability
- they are required by law to prepare the Memorandum and Articles of Association prior to their registra-
tion
- they are legally required to hold an Annual General Meeting

(b) What are the advantages and disadvantages of a Limited Company

Advantages of a Limited Company
- all the shareholders have Limited liability

Revision questions in commerce emiti2010

 Page 37 of 80

- they have greater continuity despite the death or retirement of a shareholder

- it has a separate legal existance separate from that of ots shareholders
- it has more capital because of greater participation than a partnership
- it has more borrowing capacity
- shareholders are protected from malpractices and fraud
- they enjoy the economies of scale

Disadvantages of Limited Companies

- ther are too many formalities and costs of forming a limited company, such as registration with the regis -
trar of Companies
- theere are too much formalities in running a limited Company, such as holding of the Annual General
Meeting and filing of the audited financial reports with the registar of companies
- there is separation between the management of the company and the shareholders
- the easy transfer of shares in a Public Limited Company may result in the company being taken over
- the restriction of the shares in a private Limited Company may limit the capital raised

© State the arguments for and against setting up of Public Corporation.

ADVANTAGES (arguments for) setting up a Public Corporation
- the government can control the provision of essential or strategic goods and services such as electricity
- they are usually big, so they enjoy the economies of scale which results in cheaper goods and services
- they provide secure employment to a large number of the local people
- they help to implement government policies such as on prices of essential goods an services
- they provide comprehensive services such as health, education and energy
- they are a source of income to the government, thereby helping to reduce tax

Disadvantages (Arguments against) setting public co-operations

- they can be inefficient and wasteful
- because of their monopolistic nature, they tend to provide poor quality of goods and services
- all loses made are to be borne by the tax payers
- the “I do not care” attitude dampens the enthusiasm of workers
- they are too expensive to run and over stretches the tax payers money
- lack of initiative amongst workersleads to inefficiency
- workers do not usually identify themselves with the enterprise
- there is too much bureaucracy and red tape in decision making

(d) What are the advantages and disadvantages of a partnership compared to a sole trader?

The Advantages of changing from a Sole Trader to a Partnership

- They will have more capital than that of a sole trader.
- Partners are able to raise additional capital more easily.
- The business benefits from the expertise of both partners e.g. one may be an accountant and the other a marketer
- There will be division of labour between the partners
- The partners can consult each other (sharing of ideas) in solving problems.
- The overhead expenses may be saved by closing one shop or premises and concentrate on one side.
- Additional savings may be made because duplication of advertising.

Disadvantages of the Partnership type of Business

- The Profits of partnership have to be shared amongst partners
- There may be disagreements between partners
- Decisions may not be so speedy
- Decisions are binding on all partners even if one of them has not been consulted and may cause problems.
- Relationship in partners can be broken up by conflict between partners
- Capital may be more difficult to withdraw
- Partnership becomes dissolved on the death of an individual partner (when a partner dies)
- Partners have unlimited liability
- Lack of capital may limit expansion
- Membership in partnership is limited to 20; this restricts the firm’s ability to raise more capital.

(e) What are the main Characteristic of

(i) Private Limited Company

Revision questions in commerce emiti2010

 Page 38 of 80

- owners are share holders

- Minimum of two share holders but no maximum number
- It has a separate legal existence from its shareholders
- Shareholders have limited liability i.e. can only lose amount paid for shares
- It must be registered with the registrar of companies.
- Many legal requirements to set up a private limited company e.g. memorandum of association and articles of as-
sociation have to be submitted to the registrar of companies.
- It does not need a certificate of trading
- Profits are distributed to share holders as dividends
- Managed by board of directors who are elected by shareholders
- Board of directors appoints the managing director who is responsible for the day to day running of the business.
- Capital is raised through Sale of shares
- The shares for a private limited company cannot be offered for sale to the general public i.e. they cannot be
quoted at the stock exchange.
- They have greater continuity of business even when one share holder dies
- Private limited company has LTD after its name
- Accounts are filled with the registrar of companies and are not published
- The capital and ownership of a private limited company is divided into shares

(ii) Public Limited Company

- The company is owned by share holders/owners are shareholders
- It is a separate legal entity
- Share holders have limited liability
- Set up by minimum of two shareholders but no maximum
- Registered with the registrar of companies
- Many legal requirements e.g submits memorandum and articles of association
- And it requires trading certificate
- Capital is raised through the sale of shares to the public
- It issues a prospectus in order to appeal to the public for them to buy shares
- Share holders elect a board of directors at the Annual General Meeting.
- Board of directors controls the workings of the company
- Day to day running of the business in under the control of managing director
- Public limited company has the motives of making profits
- Profits are distributed to share holders as dividends
- Name ends with PLC after the name of the company.

(g) Give a brief Explanation of the following terms:

(i) Board of directors
(ii)Managing directors
(iii) Annual General Meeting

(i) Board of Directors

- These are leaders of the company.
- They control the business
- They are elected by shareholders at the Annual General Meeting
- They appoint the managing director who is in charge of day to day running of the business
- They recommend the rate of divindeds p[ayable to shareholders

(ii) Managing Directors

- He is charge of day to day running of the business
- He co-ordinates policy matter of the company

(iii) Annual General Meeting

- A meeting held yearly and is attended by all the shareholders of the company.
- At this meeting, Board of Directors gives financial report and other reports.
- At this meeting accounts of a company are approved and board of directors are elected.
- The aims of the Annual General Meeting are as follows:
(a) Approve the audited accunts presented by the managing Director
(b) Elect Board of Directors
(c) Receive the Directors reports
(d) Discuss the affairs of the company
(e) Deal with issues that could not be sealed by the Board of Directors

(h) Describe the formation of a Limited Company

Procedure in the formation of companies
- There are certain legal requirements that must be before a limited company can start.

Revision questions in commerce emiti2010

 Page 39 of 80

- The following are the formalities involved in the formation of a Limited Company:

1. MEMORANDUM OF ASSOCIATION
- This is an application to the registrar of companies that a company may be formed by promoters of the compan-
ies.
- It relates to the external affairs of the company
- it is given to the registrar of companies before a company is incorporated (started)
- It states the following:
- The name of the company with the word Ltd or plc
- The objective (aim) for which a company is to be established for.
- The address where the registered company will be situated (Headquarters)
- The statement that the liability of shareholders is limited.
- The amount of capital showing its divisions (shares)
- A statement whether it is private or public Limited Company
- The number of shares to be taken by each of the Directors.
Reasons for including these items
The name of the company is there because no other name will be mixed with the name of another company.
- The company must state the objective of the company because it is required in order to make known what
the company is going to do.
- The company must state the address where it will be situated for easy contact
- The statement that liability is limited to show that shareholders’ liability is limited to the amount invested.
- A statement of amount or capital is necessary in order to let what would be shareholders to knowthe amount
to shares and types.

Articles of Association
- it is a document setting out the constitution and regulations (set of rules) of a registered company.
- These rules are drawn up to govern the internal affairs of the company(it relates to the internal affairs of the com -
pany).
- There rules include:
- the rights of shareholders
- the powers of directors
- the procedure for calling up meetings
- the procedure of dividing profits
- borrowing powers of the company
- The issue and transfer of shares
- The method of audit

- the articles of association is then submitted to the registrar of companies.

- The registrar of companies examines the two documents (memorandum of association and articles of associa-
tions)
- If the registrar is satisfied, he allows the company to start by issue certificate of corporation.

Certificate of incorporation
- It is a confirmation by the registrar of companies that a company can start trading
- It recognizes the company as a separate legal body
- But a public limited company must first issue the prospectus.
- The certificate or incorporation contains the following information:
- The name of the company and its registered number
- A statement that it has been registered in accordance with the law.
- The signature of the registry.

6 (a) Difference between a private limited Company and a Partnership

- A private limited company has two to unlimited number of shareholders whilst a partnership limied to 20 partners.
- In a private limited owners are shareholders wishing in a partnership, owners are partners.
- A private limited company shareholders have limited liability while partners have unlimited liability.
- A private limited company has continuity on the death of a member whilst with a partnership no continuity on death
of a pertner.
- Many legal requiremnet to set up a private limited company e.g. memorandum of association aand Articles or As-
sociation whilst with a partnership it is easy to up few documents required e.g. partnership deed.
- A private limited company has more capital and have borrowing capacity whilst partnership lack capital and bor -
rowing capacity to expand.

(b) Which of the two would you recommend

- I would recommend a private company because (advantages)
- a private limited company has continuity on the death of a member

Revision questions in commerce emiti2010

 Page 40 of 80

- more capital is available and have borrowing capacity

- It confers limited liability to shareholders
- It is a separate legal entity

© What are the differences between shares and debentures?

Differences between debentures and shares

 A share is a unit of capital whilst a debenture is a loan borrowed from members of the public.
 A shareholder is a part-owner of the company and may vote but a debenture holder is a creditor and has no vot-
ing right.
 Shares a re paid dividends when profits are made but debentures are paid interest, whether or not the company
makes a profit.
 Shares are usually irredeemable although they may be transferred, whilst debentures are redeemable as they are
oloans.
 When a company is liquidated, debenture holders are paid only the face value (plus any outstanding interests) of
the debentures held. But, if more money is raised by the sale of assets shareholders may get more than the face
value of their shares.
 The interest paid to debenture holders is fixed but dividends paid to especially ordinary shareholders is variable.

(d) What are the advantages and disadvantages of a multi-national company?

Advantage of multi-national companies
- they pay tax to the host government, which boosts the country’s economy
- they bring new technological skills to the host government
- they provide employment to the local citizens
- they bring foreign exchange into the country
- they provide vital goods and services to the country
- they offer attractive conditions of service to the employees
- they improve mutual understanding between the host country and the parent country

Disadvantages of Multi-national companies

- they tend to exploit underdeveloped economies and local employees
- they usually bring their own expertise instead of training the local one people
- they can prevent the transfer of technology by carrying out the market research in the parent country
- they disadvantage the local industries by offering better working conditions of service such as salaries
- they are centrally controlled and do not take into account the conditions in the host country when drawing up the
policies

(e) The Directors of Chilanga Cement Plc have been considering the following methods of financing the
new factory:
RETAINED PROFIT
SALE AND LEASE OF EXISTING PREMISES
BANK LOAN
A MORTGAGE
A RIGHT ISSUE
GOVERNMENT GRANTS
FACTORY
Show why they might be suitable for this project.
Retained Profit
- no cost on borrowed money
- no security needed
- it is readily available

Sale and Leaseback of Existing Premises

- ready cash
- regular income from lease
- plan ahead /budget

Bank Loan
- lump sum for large amount
- repayment is done over a long period of time
- the same premises can be used for security

A Mortgage
- it is a lump sum
- it saves time
Revision questions in commerce emiti2010
 Page 41 of 80

- the existing premises can be used for security

- the repayments will be done over a long period of time

Right Issue
- sale of shares to the existing shareholders
- it saves on the cost of advertising
- it is easy to get money
- no interest will be charged

Government Grants
- the firm may seek government assistant in form of grants as a loan
- suitable for setting up or bailing out the business

Factory
- a debtor is sold to a factory company which pays less than the face value of the amount owed
- the company is given immediate cash and its disposal and not bothered with the collection of funds

(f) What are the benefits and risks of being a Share holder?
THE BENEFITS OF BEING A SHAREHOLDER
If you buy shares in a public company you stand to benefit in a number of ways:

 You receive dividends from the companies whose shares you own. Dividends are a distribution of part of the com -
pany’s net profits to shareholders. (a)
 ity?
You can expect the value of your shares to increase over time since if your company performs well, the shares will be
in high demand and the share price will go up. On selling the shares, at the right time, you can receive substantive
gains
 You may attend and vote at the company annual general meeting receive regular information on
the company and copies of the annual report and accounts.
 You have the right to buy further shares if the company decides to issue them. This type of issue is known as a
‘Rights Issue’.
 You also benefit if the company declares a bonus issue which is a free issue of shares to shareholders
 Make Capital Gains – This is the capital appreciation or growth of your investment over time and is measured by the
rise and fall of the share price.
 Get New Issues of Shares – You can get the benefit of Bonus Issues and Rights Issues. A bonus issue is a free issue
of shares to existing shareholders based on a ratio of the number of new shares to the number of shares held.
 A Rights issue is an issue of new shares based on a ratio of the number of new shares to the number of shares held,
and to which existing shareholders have a right to subscribe in priority at a fixed price.
 Security and Collateral – Your shares can be pledged as security for borrowing money from financial institutions such
as banks.
 Liquidity – You can sell your shares anytime to obtain cash.
 Diversifying your risk – You have a wide choice of companies to invest in. By spreading your investment in a num-
ber of companies you significantly reduce the risk exposure you would face, if you only bought shares in one com-
pany.

The risk of being a shareholder

- the share price may drop/stock price may fall
- may not receive any dividend in bad years

The pie charts below shows how the total value of the country’s exports for an average month are divided.
Total Exports - K72m Total Imports - K75m

Revision questions in commerce emiti2010

 Page 42 of 80

Revision questions in commerce emiti2010

 Page 43 of 80

(i) What is the value of raw materials exported in one month? (show your working).
K72m x40 =$28.8m
100
(j) What is the total value of manufactured goods imported in one month?
K45m x 75 =K33.750m
100
(k) Name three services the country might import.
- Banking
- Tourism
- Insurance
- Loans
- Electricity
- Consultancy
- Electricity

(l) What would be the value of exports and imports for other goods for one year? (show your working)
Other goods Exports = (25 x K72m) x 12 = K18m x 12 = K216m
100
Imprts = (20 x K75m) x 12 = K15m x 12 = K180m
100

(m) Calculate the Balance of payment for one month. (show your working)
Balance of Payment for the year:
Exports = K72 000 000 x 12 = K864 000 000
Imports = K75 000 000 x 12 = K900 000 000
calculated by( exported goods + services ) less ( imported goods + services)
or( visible exports + invisible exports) less (visible imports + invisible import)
= K864 000 000 les K900 000 000 = - (K36 000 000) Deficit

(n) State and explain two reasons why it is important for a country to improve its total export figure each
year.
 in order to have a favourable balance of payment
 where total expenses exceeds total earnings
 this will mean more income coming into the country
 and thus more wealth available in the country

(o) State and explain three difficulties an exporter might have in trying to increase sales to
other countries.

- distance involved
- different methods of payment due to different currencies used in different countries
- language problems such as in communication and advertising
- obtaining orders on foreign market
- customs duties imposed, quotas, prohibitions may be involved
- delays in settlement due to political factors and exchange controls
- different customs are involved
- different forms of transport may be needed due to long distance involved
- different laws for example in product specification and labelling
- additional and complicated documentation involved
- Production problems
- Possible customs/cultural barriers

(o) Nationalisation is the process of turning Public Limited Companies into Public
Corporation. State any four reasons for Nationalisation.
 For the central government to control the prices
 Provision of essential goods and services by the government
 Undertake large scale projects
 Such as the construction of rail line and/hydro power stations/dams
 Control of essential services
 such as water and electricity
 Safeguard strategic industries
 For political reasons
 Such as creating more employment opportunities to citizens

Revision questions in commerce emiti2010

 Page 44 of 80

STOCK EXCHANGE
(j) Describe the functions of a stock exchange and ex[plain its importance to investors
(k) Expain the role of :
(i) stock broker
(ii) dealers on the stock exvhange
© What are the functions of the stock exchange council?
(d) What factors determine the price of shares on the stock exchange?
(e) What are the functions of the contract note on the stock exchange?

(a) Functions of the Stock Exchange and its importance to investors

 Providing a market where stocks and shares can be sold and bought.
 Stock exchange approval gives indication to the investors that the company quoted is reputable.
 It provides a pace where people with savings can invest and lend those companies that need to raise finance.
 Prepares reports and data concerning all organisation on the Stock Exchange
 It establishes a code of conduct which members of the stock exchange must follow.
 Enable government to raise funds.
 Gives savers opportunity of investing in industry and commerce.
 Regulates members of the market
 Provides rules to protect investors against fraud.
 Enables transfer of second hand securities.
 Provides place where prices can be determined freely on basis of supply and demand.
 Vetting companies applying for stock exchange quotations/listing.
(b) (i) The Work of the Stock Brokers on the Stock Exchange
Because members of the public are not allowed to trade on the stock exchange:
 the Stock broker acts as agents, buying and selling shares on behalf of the general public.
 They try hard to obtain the best possible prices for their clients
 The brokers compare prices in the market and usually buy and sell acording to their clients’ instructions
 They prepare a contract note setting out the amounts to pay or receive their commission.
 The arrange for share certificate’s or stock transfer forms to be dealt with.
 The broker advise their clients on matters relating to market conditions.

(ii) The work of Dealers on the stock exchange

 The are principal who buy and sell shares on their own behalf with a hope of making profit
 The deals with stock brokers only as the members of the public are not allowed to deal directly with them
 The may specialise in certain types of securities such as dealing in oil shares or mining shares

© Functions of the Stock Exchange Council

 to control the admission of new members
 to discipline members who are guilty of misconduct
 to formulate the stock exchange rules
 to settle disputes between members
 to provide information services to members
 to accept and publish shares of companies to be quoted on the stock exchange.

(d) Factors that Determine the prices of Shares at the Stock Exchange
 To supply and demand for the shares  Recent performance of the company
 Political changes in the country e.g. change of gov-  The popularity of the company’s product
ernment  The general prosperity of the country
 Changes in interest rates or taxation  Changes in market trends
 Strike/industrial disputes in the company
 Take overs and merges being considered

(e) Functions of the Contract Note on the Stock Exchange

 Informs the client number of shares bought or sold
 Shows the type and the unity price of shares
 Shows the commission to be paid by the client
 Shows the total amount to be paid or due to the client
 Shows settlement date, when payment or delivery of share to be made

BUSINESS CALCULATIONS.
1 (a) Describe briefly and explain the importance to a business of
Revision questions in commerce emiti2010
 Page 45 of 80

(i) working capital

(ii) rate of stock-turn
(iii) Fixed Assets and ;
(iv) Current Assets
(b) A trade purchases goods for K280 000. At what price must the goods be sold to make a gross profit of 20% on
turnover?
(c) The following figures relates to the firm for the year ended 31 December 2002
Average stock at cost K40 000
Mark up 331/3%
Expenses K51 856
Calculate:
(i) Turnover
(ii) Net Profit
(iii) Percentage of gross profit on selling price

(a) (i) Working Capital

- amount by which current assets exceeds current liabilities
- current assets less current libilities
- or assets and libilities which which are constantly changing such as stock, cash, bank and debtors
- should be atleast in the ratio of 2:1
- adquate working capital is imprtant because it enables creditors to be paid promptly and stock to be easily
replenished without seeking any further financial aid
- lack of working capital will restrict expansion and may lead to insolvency
- or shortage of working capital indicates cash flow problems and does not indicate bankruptcy but over-
trading
(ii) Rate of Stock-turn
- it is found as Cost of Goods sold
Average stock at costprice
- it is the number of times the stock is sold in a given period
- it varries with the type of goods slod
- for example, the difference in stock turn between a hardware shop and a supermarket
- it is an important means of comparing the efficiency and profitability of firms in the same trade
(iii) Fixed Assets
- items which are permanently or used overover a period of years
- enables production to take place or remains in business to assist in the generation of incomes but do not
form part of the end product
- for example land,buildings, machinery, vehicles and furniture.
(iv) Current Assets
- these are short term assets which are used in the day to day trading
- can easily be turned into cash within the shortest period of time
- examples includes, stock, debtors, cash, bank and prepaid expenses

(b) Selling Price = Cost price + Mark-up

= K280 000 + (25/100 x K280 000)
= K280 000 + K70 000
= K350 000

© (i) Turnover = Cost of Goods sold + Mark-up

Cost of Goods sold = Rate of stock turn x Average stock
= 6 x K40 000
= K240 000
Turnover = K240 000 + (331/3% x K240 000)
= K240 000 + (1/3 x K240 000)
= K240 000 + K80 000
= K320 000

(ii) Net Profit = Gross Profit – Total Expenses

= K80 000 –K51 856
= K28 144

(iii) Margin = Gross Profit

Turnover
= K80 000 X100
K320 000
25%
2 (a) The following information relates to two firms in the furniture trade.
FIRM MARK-UP TURNOVER RATE OF EXPENSES

Revision questions in commerce emiti2010

 Page 46 of 80

ON COST (K ) STOCK-TURN ( K)
X 331/3% 60 000 5 4 000
Y 25% 100 000 4 8 000
For each firm, calculate (clearly show your workings):
(i) gross profit
(ii) net profit
(iii) average stock
(iv) net profit percentage in relation to sales

(a) (i) Gross profit = Turnover x margin

¼ firm x = 60 000 x 25/100 = K 15 000

1/
5 Firm y = 100 000 x 25/125 = K 20 000

(ii) Net profit = Gross Profit less Expenses

x = 15 000 - 4 000 = K11 000
y = 20 000 - 8 000 = K12 000

(iii) Average stock = Cost of Goods sold

Rate of stock-turn

x = 60 000 – 15 000 = K9 000

5
y = 100 000 – 20 000 = K20 000
4

(iv) Net profit percentages in relation to sales = Net Profit x 100

Turnover

x = 11000 x 100 = 18.3%

60000
y = 12000 x 100 = 12%
100000

(a) State, giving two reasons, which firm you consider to be most profitable.
Firm x
Lower average stock
high percentage of net profit in relation to saleslower expenses

3 Zaninge and Tionge have a business with the capital of K10 million. The following figures were extracted from their
books:
Year ending 31/12/2001 Year ending 31/12/2002
(K) (K)
Turnover 2 400 000 3 168 000
Purchases 1 360 000 1420 000
Stock in hand (at cost) 420 000 540 000
Cash in hand 200 000 220 000
Debtors 60 000 56 000
Creditors 120 000 140 000
Bank overdraft (current liability) 100 000 170 000
Advertising 125 000 130 000
Other expenses 340 000 390 000
Stock in hand 01/01/2001 was K380 000
Calculate for each year:
(i) Net Profit
(ii) Returns on Capital invested
(iii) Rate of Stock turn
(iv) working capital as at 31/12/2001 and 31/12/2002

(b) Give two factors that might have contributed to the increased profitability of the firm.
(a) (i) Net profit = Gross Profit less Expenses
Gross Profit = Turnover (Net Sales) less Cost of Goods Sold
Cost of Goods Sold = (opening stock + purchases) – Closing stock
2001 – K615 000
2002 – K1 348 000
(ii) Returns on capital invested = Net Profit x100
Capital at start of the year

Revision questions in commerce emiti2010

 Page 47 of 80

2001 – 6.15%
2002 – 13.48%

(iii) Rate of stock turn =Cost of Goods Sold

Average stock
*where the rate of stock turn is not known
Average stock = opening stock + closing stock
2
2001 - 3.3 times
2002 2.7 times

(iv) Working Capital = Current Assets less Current liabilities

= (debtors +cash at close +closing stock) less (creditors +Bank overdraft)
2001- K460 000
2002 – K506 000

(b) Reasons for the increased profitability of the firm

- Increased profit as a result of increased turnover
- Increased working capital resulting in the availability of cash to meet daily expenditure

4 El-Shaddai owns a travel agency. He is concerned about the business’ turnover, gross profit and net profit which are
as follows:

TURNOVER down 15%

GROSS PROFIT down 12%
NET PROFIT DOWN 18%
(a) Explain each of these three terms showing clearly the difference between them.
(b) State two ways in which he might improve each of these figures..

(a) Turnover is the total sales less sales returns

Gross Profit is equal to turnover (net sales) less Cost of goods sold/cost of sales
Or it is profit before expenses of running the business are taken into consideration
Or simply selling price less cost price

Net Profit is equal to Gross profit less expenses of running the business
Or it is the actual profit made

(b) Turnover - lower prices of new kind of holidays

- intensify on advertising to find new market segments

Gross Profit – increase the turnover

- look for new cheaper suppliers of holidays
- increase the mark up on the holiday sold
- obtain better discount from the hotels
- obtain more commission from the travel companies

Net Profit - look at the individual expenses and see if there is a way of reducing them
- try to increase the turnover/sales
- try to increase the gross profit

5 The following is the Balance Sheet of Mulenga, a sole trader, as at 31 December 2002

MULENGA BALANCE SHEET AS AT 31 December 2002

Capital K100m Premises K120m
Mortgage on premises K50m Equipment K24m
Creditors K18m Stock K22m
Bank overdraft K18m Debtors K20m
K186m K186m
(a) (i) Calculate the amount of Mulenga’s working capital
Working Capital = Current Assets less Current liabilities
=(K22m + K20m) – (K18m+K18m)
= K42m - K36M
=K6m

(ii) Why is working capital important?

- it enables creditors to be paid without much difficulties

Revision questions in commerce emiti2010

 Page 48 of 80

- it enables stock to be replenished easily

- cash discount can be obtained for prompty payment
- enables the traader not to seek any further financial aid
- enables the trade to pay its day to day running expenses
- lack of working capital may restrict the expansion of the business

(b) Explain to what extent Mulenga’s working capital would be affected if:
(i) she sells K5m of her stock for K6m and receive a cheque in settlement
Gross Profit is equal to Selling Price minus Cost Price
K6m – K5m = K1m
This will result in the increase in his working capital
(ii) she pays a creditor K50 000 by cheque thus increasing her overdraft
K18m – K50 000 = K18m + K50 000
= there will be no change in the working capital

© Describe two ways in which Mulenga might obtain additional finance to expand her business
- increase mortgage or obtain a loan
- plough back the profits
- additional capital through forming a partnership or a limited Company

TRANSPORT

1 (a) Explain, with example of goods carried, the importance of sea transport in international trade.

- still used to carry bulky Cargoes/Large quantities of heavy goods

- of low value
- used to carry goods not urgently required
- used to carry specialised go – Cargoes – oil, gas
- to carry containers
- for long distances
- still relatively cheap
- operates world wide
- many countries gave parts/coastline
- and offer quick handling facilities
- many different routes
- can also offer roll on, roll off facilities
- examples of goods carried: timber, coal, steel, etc.
- examples of types of vessels – tanker, ferry etc.

(b) Why is road transport more important than rail transport for the carriage of goods over short distances?

- roads are almost everywhere

- usually faster over short distances
- goods can be delivered any time
- goods can be taken door to door (no transhipment)
- you can use your own transport
- does not follow a fixed timetable (flexibility)
- goods are supervised by the driver
- there is less chance of theft/damage
- most goods can be carried by road

(c) Indicate, with examples, the commercial importance of efficient passenger transport system.

- enables people to go to and from work.

- enables people to meet others.
- encourages people to purchase goods/go shopping.
- brings revenue for the transport company.
- enables business to be located close to passenger transport e.g. hypermarket near to motor-
way junction
- helps to develop economy (by opening up wider markets)
- encourages tourism
- provides employment
- enables sales representatives to visit clients.
- increased importance of air freight
- growth of containerisation of goods
- modernisation and mechanisation of seaports e.g. for containers less clock labours
- growing importance of airports – large airports, larger aircraft
Revision questions in commerce emiti2010
 Page 49 of 80

- more goods carried by air

- importance of security measures
- importance of roll on – roll off ferries
- removal of customs barriers
- speeding of freight movement
- increased volume of traffic on raods at an expense of railways.
- decline in railway volume of goods carried in many parts of the world
- increased movement of goods because of the formation of trading blocs
- growing competitive markets/extended markets
- increased international transport of goods.

3. Transport facilities have expanded over the last thirty years.

(a) Briefly describe the modern developments in transport.

- containerisation
- improved roads and motorways
- high speed trains
- modern handling devices e.g. at ports
- increased use of air transport
- move airports and air routes.

(b) What are the advantages of sending goods:

(i) by air rather than by sea.

- Speed
- less handling of goods
- less packaging
- safer for certain types of goods
- security
- economical for small loads
- reduced insurance charges

(ii) by road rather than by rail?

- Speed
- use own transport
- more roads available
- suitable for deliveries of perrishable goods
- greater control/supervision
- flexibility
- suitable for small loads
- no transhipment required

(c) State the ways in which airports assist the transport of goods and people.

- runways
- warehousing
- emergency services
- bonded warehouses
- providing transport
- passenger facilities/shops
- repair facilities
- fueling services
- facilities for immigration/customs car parks/security

4 Giving examples of goods carried, discuss the circumstances in which a firm would:

(a) hire other firm’s transport rather than its own.

- when the firm cannot afford its own transport
- when other means of transport is readily available
- when specialised transport is needed
- when exporting
- when no drivers are available
- when there is more business than own transport can cope up with
- when a small business

(b) Use road transport rather than rail transport

Revision questions in commerce emiti2010

 Page 50 of 80

- when wants flexibility/no fixed time table and fixed routes.

- When he wants to use own transport
- When delivering service required/door to door delivery
- When goods are to be taken for a short distance
- When there is no railway line
- When transporting fragile/perishable goods
- When it is cheaper to use road than rail

(c) Instal a pipeline for the handling of its products

- when moving liquids

- when moving gases
- for short distances
- from ship to refinery
- from processing to storage
- when safety is important
- when protection is importamt
- when it is economical to use a pipeline
- to avoid road congestion/pollution.

(d) make use of containers for the tansport of its goods.

- when using two forms of transport
- when exporting
- when grouping goods
- when protection from weather is required
- to reduce theft/damage
- whne packing is to be done at the factory
- to speed customs clearance
- when transhipment required
- clothes/books/shoes.

5. (c) Discuss the advantages and disadvantages of Sea transport for the carriage of goods.
(d) Advantages of Sea transport

- it is relatively cheap form of transport

- particularly over long distances
- especially for goods not urgently required e.g.
- large quantities/weight can be moved in one vessel.
- bulk consignments e.g. grain

Disadvantages of Sea transport

- slow
- high insurance costs, because of high risks
- high cost of packaging
- transhipment
- risk of pilferage/damage
(b) Briefly describe the following:
(i) Container vessels

- specially designed vessel to carry goods

- in order to save space when storing containers on board.
- and the problem of loading and unloading
- Such vessles assist in turn-round time in ports
- Saving harbour dues/levies (reducing freight costs)

(ii) Tankers
- are a type of bulk carrier
- carrying oil or any bulk liquid
- specially designed to maximize safety
- to simplify loading and unloading of the liquids
- large tankers are required to carry the increasing amount of oil
- demanded world – wide
- are necessary to cut the costs of transporting large quantinties of oil

(iii) Roll – on Roll – off ferries

Revision questions in commerce emiti2010

 Page 51 of 80

- such ships are specially designed to allow vehicles to drive on and off without difficulty
- firms are enabled to deliver door-to-door to overseas destinations
- eliminating delays on loading/inloading goods (saving time) and reducing possibilities of pilfer-
age
- damage to goods on route

6. (a) What is containerisation?

system of transportation/delivery
containers which are large metal boxes of standard sizes/specified sizes in which the goods are
packed e.g. at the manufacturers premises/warehouse and sealed under supervision of customs
authorities of that country and are opened until they reach the destination
This form of transport is used mostly in road, rail and sea

(b) What are the advantages of containerisation?

Advantages of Containerisation
- increased speed of delivery as containers can be transferred quickly/fast between different
forms of transport
- goods are not taken out of containers until they reach the country destination which eases
the problem of loading (saves time)
- eliminates the use of warehousing as containers can be stacked outside
- increased safety as there is less risk of pilferage/theft and damage
- there is a quick-turn round of vehicles/ship which may reduce transport costs or of handling costs
- TIR (Transport International Routier) allows increased speed through customers

© Containerisation has improved the security of the goods in the following ways:-
- There is less handling of the goods Since containers are sealed at the place of departure
- There is less risk of pilferage/theft and damage to the goods (contamination)

7 Describe modern developments and trends in international transport of goods including in your answer the
handling of cargoes at seaports and airports.
The modern developments and trends in international transport include:
- The growth of containerisation for the carriage of goods by road, rail, sea and by air trans port systems.
- the growing in importance of air transport as result of improvements in airports, size and number of aircrafts.
- The improvement in security measures for goods being transported e.g. the use of container for the carriage
of goods.
- The development of roll on, roll off ferries.
- The removal of customs barriers at entry points to a country has facilitated the use of trans-continental
vehicles known as the Carriage of Merchandise by Road (CMR) and transport by International Road hauler
(TIR)
- The general improvement in transport facilities has speeded up the movement of goods worldwide.
- The increase in volume of traffic on roads at the expense of railways.
- The decline in volume of goods carried by railway in may parts of the world.
- the use of free ports.
- the increased movement of goods because of the formation trading block such as the
European Economic Community (EEC) , Southern and Central African Development
Community (SADC) etc.
- The handling of cargoes at seaport and airports has greatly improved because of the
modernisation and mechanisation of sea ports and airports. Modernisation of seaports has
resulted in great use of containers to carry goods thereby lessening dock labour.

8 How do you account for the fact that:

(a) in most countries the majority of the goods are carried by road transport rather than rail transport;
(b) the transport of goods by air continues to increase?

(a) Advantages of Road Transport over rail Transport

- door to door delivery is possible by road but not by rail
- convenient and fast over short distances
- flexible timing, that is no time tables and schedules required
- may be cheaper due to no capital costs/transhipment cost
- goods may be better protected/less pilferage
- as they are under the control of the driver most of the time
- roads reach almost everywhere
- rail is restricted to certain area, that is, they might be no alternative

(b) Advantages of Air Transport

- speed of delivery is increasingly becoming important to the modern world

Revision questions in commerce emiti2010

 Page 52 of 80

- there has been an increase in the number and size of planes

- there has been an increase in the volume of trade in small and valuable consumer goods
- air transport charges have become more competitive
- less packaging/lower insurance costs may make air transport more economical
- less possibilities of pilferage (loss) as there is more security

9 A large scale manufacturing company whose products are distributed throughout the world has
factories and offices in many countries.
(a) Explain in details why efficient means of transport are important to the company.
(b) What factors would influence the company’s choice of the type of transport for a particular
consignment of goods? Give examples to illustrate your answer.

(a) Importance of Efficient means of Transport

- used for the delivery of raw materials to the factories
- used for the delivery of partly finished goods
- used for the delivery of equipment/spare parts to the factory
- used for the delivery of finished goods to the warehouse and customers
- used to move workers to the factory and offices and between sites
- allows the executive/management to travel between offices and factories
- allows the salesmen/agents to travel both within and overseas to meet their customers
The above would usually include sea and air transport for overseas transactions or road
and rail transport for transactions within the countries
Air transport is particularly important to such a company for urgently needed goods/travel world wide
Road transport is important for the carriage of goods and persons door to door delivery

(b) Factors influencing the choice of transport

- cost of transportation for example sea transport being cheaper than air
- speed of transport/urgency required, such as perishable goods and pharmaceutical goods
- size/bulk of the consignment, for example oil by pipeline not air
- value of the goods, for example coal can not bear the cost of air transport but rail
- type of the goods, for example, products like oil requires special facilities
- accessibility of transport to the terminals
- The reputation and reliability of the carrier of the goods
- The security/safety involved

10 What are the advantages and disadvantages of operating own fleet?

Advantages of operating own fleet

- it can be cheaper if the company produces enough goods to keep the trucks busy
- it gives direct contact between customers and supplier. This means problems can be identified and solved more
quickly before they become too serious/big
- better care can be taken to the goods as the business will be handling its own goods
- the business can respond more quickly to customer’s needs
- deliveries can be arranged more flexible with respect to time and routes
- the company’s vehicle can be painted with advertisements on the sides so the fleet provides free advertisement
for the business wherever the vehicle goes
- the use of own fleet means that fewer documentation would be required
- raw materials and equipment can be collected as and when they are needed
- own fleet is more convenient as goods can be delivered when necessary

Disadvantages of own fleet

- it is expensive to operate one’s own fleet of vehicles as vehicles have to be bought, licensed, maintained, fuelled
and insured
- drivers are to be paid regularly and transport managers have to be employed
- long distance deliveries to overseas customers for example, may not be possible in own fleet. This simply means
that sea, air or possibly rail have to be hired even if the company has its own fleet
- it may not be economical to have its own fleet if output is too small
- The other problem of road transport like traffic congestions, limit the carrying capacity and the fact that trucks have
to return empty from delivery trips remains a problem

(i) 6.
Revision questions in commerce emiti2010
 Page 53 of 80

(a)
In
wha
t cir-
cum
stan
ces
is
roa
d
haul
age
of
goo
ds a
mor
e
de-
sir-
able
met
hod
of
tran
s-
port
tha
n
rail
tran
s-
port
?

A
d
v
a
n
t
a
g
e

o
f

R
o
a
d

T
r
a
n
s
p
o
r
t

o
v
e
r

Revision questions in commerce emiti2010

 Page 54 of 80

r
a
i
l
t
r
a
n
s
p
o
r
t

It offers


It faster


It re

Revision questions in commerce emiti2010

 Page 55 of 80


Can


It has a


It is

Revision questions in commerce emiti2010

 Page 56 of 80


Less


It is

(b)

Stat
e,
giv-
ing
you
r
rea-
son
s,
wha
t
met
hod

Revision questions in commerce emiti2010

 Page 57 of 80

of
tran
s-
port
wou
ld
be
mos
t
suit-
able
for
…
…
…
…
(ii) a human kidney from Paris to Lusaka
Air
 it is faster/speed
 the kidney is needed urgently/emergency

(iii) 250 tonnes of coal from Hwange, Zimbabwe to Kitwe, Zambia

Rail
 bulkness or large quantity
 it is not urgently required/needed
 it is cheaper/economical

(iv) 25 tonnes electric generator from Lubumbashi, DR Congo to Kafue Gorge, Kafue, to replace one which
was gutted by fire.
Road
 urgently required
 it is relatively faster
 it is cheaper than air
(v) A consignment of diamonds from South Africa to Brussels, Belgium
Air
 It is faster/speed
 It is safer
 It is valuable and can bear the cost

© Briefly discuss the requirement of the good habour or port

- it should be sited as near as possible to a town or city but not near high building and cause as little pollution
as possible
- it should have speed and efficient roads and rail network to provide easy access and departure of travellers
and goods
- it should have good equipment and repair service necessary to keep aircraft flying such as sophiscated ra-
dios, , radors, computers and technical equipment
- it should have customs facilities to regulate the importation of goods and to to check for prohibited goods
such as firearms and mandrax
- should have immigration offices to ensure that only people with valid documentsdo enter or leave the country
- buildings for hotel and accomodation, police stations,health centres, banks, restaurants, post offices etc.
- must have safety procedures such as fire engines and ambulances
- must have good warehousing facilities

ADVERTISING.

1.. (a) What are the aims or purpose of advertising?

(b) Giving one example of each, distinguish between collective and competitive advertising
© What are the advantages of collective advertising to the producer?
(d) What are the dangers of competitive advertising to the consumer?
(e) Why do many companies who use collective advertising also find it essential to use competitive advertising?

Revision questions in commerce emiti2010

 Page 58 of 80

(a) Aims of Advertising

- to increase the sales
- to widen/increase the market
- to maintain the good will of the business/favourable image of the business
- to educate the general public on the new and existing products
- to inform the general public on the nature of the goods and where the good are found and at
what price.
- to introduce or launch new products on the market
- to persuade the general public to buy the product or change their brand
- to keep/maintain the brand name in the minds of the public
- to sustain or create demand for the product

(b) collective advertising

- it I done by more than one supplier or a group of businesses in the same trade
- advertising of a product in general instead of competing
- to promote the use of the product e.g beer, meat, milk, wool or banking sector

competitive advertising
advertising of a particular manufacturer’s product/branded product
to promote that particular product or brand rather than other brands
eg Kellogg’s cornflakes Heinz baked beans/Colgate/boom

(c) Advantages of Collective Advertising

gives general information about the product
may be cheaper as cost is spread between several producers
should increase overall demand for product
allows competitors to group together for mutual support
any other relevant advantages

(d) Dangers of Competitive Advertising to the Consumer

adds to cost of the product
may be misleading
may be harmful/emphasises on good points of product only
encourages impulse buying
provided insufficient information
may promote dangerous products
encourages spending beyond means

(e) Why many companies who use collective advertising find it essential to use competitive
advertising
to defeat competitors to sell more goods
to earn greater profits to give information on new products
to obtain greater market share to emphasise own particular products
to make use of other media to target different markets/market segments
may not believe collective advertising is effective

2 (a) What are the benefits of advertising to

(i) the manufacturer (ii) to the consumer
(b) (i). What are the functions of the advertising agencies?
(ii) What is the purpose of a code of advertising practice?

(a) (i) Advantages of advertising to the manufacturer:

- enables the manufacturer to publicise the products
- informs on both new and existing products
- enables to persuade the public to buy which
- may lead to increased sales (stimulating demand)and increases profit
- increased sales may lower the cost of the product
- advertising brings competition amongst manufacturers of similar products
- information may be obtained from advertisements on goods and services which are
available
- place advertisement on staff vacancies

Revision questions in commerce emiti2010

 Page 59 of 80

(ii) Advantages of advertising to consumers:

- informed of goods and services of which they might otherwise not be aware
- especially new products
- allows a wide range of goods and many improve standard of living
- informed of where, when, price etc
- competition between manufacturers may lower prices/improve quality of goods and services
- prices for newspaper/magazines/entertainment are subsidized
- consumers may obtain useful information on public announcement
- informed of events – bus fares, weddings, air timetables, education

(b) (i) Functions of Advertising Agencies:

- they undertake market research concerned with obtaining information on potential
sales, consumer like and dislikes, package
- give advice and assistance on choice of media
- booking space and time on media
- creating the advertisement and produce the advertisement

(ii) Code of Advertising Practice:

Protect Consumers from misleading, dishonest, untruthful advertisement from,
unscrupulous advertisers by laying down rules which require that all advertisement
should be legal, honest, decent and truthful

3. a) How does advertising help a company to maintain and increase its sales?
b) In each of the following cases explain why you consider the advertising medium
chosen is suitable.
i) A food manufacturer advertiser a new brand of canned meat in a grocery trade journal.
ii) A manufacture of breakfast cereal advertises his product on television.
C) For what purposes other than increasing sales might advertising be used?.
(d) (i) What factors would you consider when choosing the media?
(ii) Why are most national advertising campaign undertaken by advertising agencies?

a) Advertising helps a company to maintain and increase its sales by:

- informing consumers and traders on new goods on markets.
- reminding consumers and traders of existing goods.
- persuading customers to buy goods by using various methods appeal, for example
emotional and psychological and inducing customers to change their brands
- informing customers where goods are available and at what price.
- possibly reducing cost/prices of goods to the consumer.

b) The advertising medium chosen is suitable because:

i) A trade journal is a specialised magazine aimed specifically at those traders who
are engaged in a particular trade e.g the food trade.
A manufacture needs initially to contact wholesalers and retailers in the food trade as they
will buy in bulk and without their assistance the new product will not be made available in
the retail stores.

ii) Breakfast cereal is a family product sold on a nation wide basis. Television has a
very wide national coverage and will be seen by all the family. The product also tend itself to
visual display and demonstration

c) Other purposes for which advertising might be used are:

- To make government announcements such as national insurance rates or change of the
school calendar by the Ministry of Education.
- To make public announcements such as legal and company notices and announcements to
public by Zesco of mass electricity disconnections
- Advertise national campaigns e.g. road safety health campaign against Aids.
- To advertise new jobs.
- To announce births, deaths, marriages, charity appeals, lost and found property etc.

(d) (i) Factors to consider when choosing the media.

- the nature of the product to be advertised
- the availability and cost of the media
- the targeted group of the product or service such as geographical area and age group
- the duration of the advertising campaign
- the competitor’s activity
- the area to be covered by the advertisement

Revision questions in commerce emiti2010

 Page 60 of 80

(ii) Why most of the large companies use the services of the advertising agency
- it may not be economical for the company to have its own full time advertising
staff or department
- it may not have the staff with the necessary experience in large scale advertising
- advertising agencies undertake work for many companies and they have highly
equipped and specialised staff to assist with the aspects of advertising

(e) Advertising creates demand for goods and services by informing and persuading.
State four ways/methods of appeal used in persuading consumers to buy goods and services.
Personality
- famous people may be shown using a product in the advertisement such as Dr Kenneth Kaunda and Cherise to
give the product/service an acceptable image (Colgate and Ditto)
- Romance
- The advertisement suggests that the use will be successful in his/her ambition such as Milo drink and Muzi High
School
- Work Simplification
- The product is shown in the advertisement to simplify work performance such as computers and cell phones
- Social Acceptability
- The product is claimed to make the user more acceptable to other people
- Health
- The product is claimed to make the user more healthier such as lifebuoy and protex
- Display of goods
- Attractive display of goods on windows and shelves.
- Excellence
- The advertisement suggests that the services offered are of high quality such as Palmodzi Hotel and Lake Road
PTA School

4 Study the advertisement below and answer the questions that follow.

GRAND SALE OF THE YEAR!

HURRY TO SHOPRITE SHOPS
PRICES REDUCED BY .50%
(a) State two suitable media for this advertisement and give the advantages and disadvantages for each
choice.
(i) National/National Press and Local Newspapers
Advantages of Newspaper advertisement
- the give a wider national coverage
- they are relatively cheap than television adverts
- the advert can be placed in appropriate places in the paper to catch the eyes of the leaders
- information can be stored and refered to later, so it gives a long life to adverts
- the use of daily newspapers for advertising ensures an immediate coverage of the intended audience.
- The advert may be more detailed
- It may be passed on to otherss
- Can circulate amongst readers
- Space can easily be booked

(ii) Television
Advantages of television advertising
- it combines visual impact with sound, so it is very effective(lasting impression – sound and vision)
- it gives the widest coverage(massive coverage)
- it can be seen by many viewers especially at peak hours
- it can be shown at the right time for the right audience(time selectivity, that is can be shown at specific
time)
- it reaches people’s homes when they are relaxing, so it can create an aspiration
- can be booked at peak hours, eg. News time
- the advert can be repeatedly be shown

Disadvantage of television advertisements

- it is very expensive
- it is not always well received by the viewers
- they tend to be short lived and may not produce a long lasting impact
- they are very few television sets in rural areas
- not all the places have televison signals
- some people may take them as entertainment
- they may be submerged in a large number of others if not well planned

Revision questions in commerce emiti2010

 Page 61 of 80

(iii) Radio
Advantages of radio advertising
- it has the widest coverage
- many people have access to the radio
- radio signals reach almost everywhere, including the remotest place
- many radio stations are now available, this provides an opportunity to target a particular ethnic group
- repeated adverts are possible
- ths specific audience can be targetted at specific time/language
- it is cheaper than television
- it has a lasting impression through catchy tune or jingle

Disadvantage of radio advertisements

- the advert can only be heard and not seen- no visual stimuli
- the advert may only be received by a secondary audience who may not may much attention to the advert
- radio adverts tend to be short lived

6 (a) What are the benefits of advertising to the consumer?

Advantages to consumers:
- They are informed of goods services of which they might otherwise not be aware.
- Especially new products
- It allows them to choose form a wide range of goods brought to their notice
- And may improve standards of living
- It informs them of when, where, price, quantity , size and brand.
- Competition between manufactureres may lower prices improve quality of goods and services.
- Advertising revenues subsidizes the prices for newspapers, magazines and other forms of media.
- It informs consumers of events, weddings, fairs, and air time tables.

© What are the dangers (disadvantages) of Advertising to consumers

dangers (disadvantages) of Advertising to consumers
- Encourages overspending
- Makes people buy what they do not need
- and indeed what might harm them e. g. smoking
- Encourages duplication of brands
- Adds to the cost of production
- Discourages discrimination as a result of persuasive, as a result or appeals to the emotions
- Sometimes makes false claims by publicizing only the better points of the product

(d) What should you consider when designing an advertisement for a part- time job in a shop?
Factors to consider when designing ann advertisement
- Content of the advertisement
- Display of the Advertisement
- Layout of the advertisement or the key words.
- Where the advertise to be placed
- Cost of advertising
- Whether it is a one-off or a repeat

7 Explain briefly the following types of advertising:

(a). Information Advertising
- This gives publicity by merely starting facts.
- It therefore gives services and does not seek to induce the consumer to buy the product.
- Examples information advertising would include health warning on a packet of cigarettes, the use of safety
belts in a motor vehicle, the announcement of an electionresults etc.
- It is aimed at creating a demand for a new product(usually used when launching a new product on the
market), changes made in the product and reminds the people of the existing products.

(b). Persuasive Advertising

- This tries to induce the consumer to buy, by the use of certain key words, models or ideas
- It aims to create in the mind of the consumer pleasant association with product
- For example the use of female models to advertise cars and tobacco makes appear that buying such
goods the consumer will be able to attract the opposite sex.
- It camn be instructional or product oriented
- Also the advertiser may use a good persoanality so that there is the implication that if you buy it you will
be as successful as the famous person advertising it.
- Advertising slogans are usually used to persuade the public to buy.

Revision questions in commerce emiti2010

 Page 62 of 80

©. Collective/Generic Advertising
- It is where a group of organizations in the same trade or industry join together to advertise the product for
mutual benefit instead of competing with each other.
- They promote a product in general terms.
- For instance, the advertisement could be arranged by a Marketing Board, Tourist Board.
- Examples would include the advertising of eggs, milk, insurance companies and banking institutions.

Advantages of Collective Advertising

gives general information about the product
may be cheaper as cost is spread between several producers
should increase overall demand for product
allows competitors to group together for mutual support

(d) Competitive Advertising

- This is undertaken by an individual company/competitors usually promoting it’s own product.
- By branch name
- Against similar products of competitors
- The product is highly high lighted as the most outstandind
- For example Uni-Lever South East Africa may advertise its products as themost outstanding ones.

What are the dangers of competitive advertising to the consumer?

Dangers of Competitive Advertising to the Consumer
- adds to cost of the product
- may be misleading
- may be harmful/emphasises on good points of product only
- encourages impulse buying
- provided insufficient information may promote dangerous products
- encourages spending beyond means

8 Explain, with your reasons, why a company would:

(a) advertise in a trade journal

 He is targeting a certain group
 As trying to attract the wholesalers and the retailers
 Because he is aiming to sell through them
 He is able to give detailled information
 Wholesalers and the retailers read the magazines
 Other means of advertising may not be effective

(b) issue a catalogue

 To attract customers
 As a mail order company or a wholesaler selling to the retailers
 To show the goods offered
 To give detailled information, such as size colour and measurements
 To give prices, the terms of trade, such as trade discount offered, cash on delivery and cash with
order.
 To enable the customers make their own choice in their own time.

(c) send a quotation to a consumer

 In response to a letter of inquiry
 It gives details of goods/services
 It gives details of prices
 It gives details of delivery dates and discount offered
 It enables the trader to chose.

(d) send a statement of account to a customer

 Because the customer is receiving the goods on credit throughout the trading period/month
 It shows a series of transaction and the amount owed at the end of the month or trading period
 It acts as a polite request for payment/reminds the buyer that payment is due
 Enables the company/buyer to check the transaction and compare with his record if they are cor
rect
 It takes care of adjustments during the month such goods sent back or credit note issue
 If the buyer was oversupplied or undersupplied-debit note issued

Revision questions in commerce emiti2010

 Page 63 of 80

18. Advertising aims to inform and to persuade.

(a) State three reasons why manufacturers wish to inform consumers by advertising?
- to tell the consumers about the changes in the product/prices
- to learn of a fault in the product
- to give information about the product
- to tell the customers that the product is to be withdrawn
- to tell the consumers where they can buy the product

(b) Why do Governments advertise to inform the public?

- to give information on health warning
- to make public announcements such as new laws
- to announce fare charges

© Why do most advertisers aim to persuade consumers?

- so as to maintain market shares
- to make profit
- to extend the market shares
- to penetrate new market
- to defeat their competitors

(d) Explain why consumers need protection from some forms of advertising.
- customers can easily be influenced by some adverts which are illegal
- some adverts are indecent
- some adverts may make false claims
- advertising may be intrusive and the advertisers may go to extremes
- advertising emphases only on the good points

(e) Why are most advertising campaigns undertaken by advertising agencies?

Advertising agency are used because:-
- it may not be economic for the company to have its own full time advertising staff or department.
- Or it may not have staff with necessary experience in large scale advertising.
- An advertising agency however undertakes work for many.
- And has highly specialised staff to assist with all aspects of advertising Such as:-
- Give advice on choice of needs
- Booking space and time on media
- Produce the advertisement
- Market research-commercial with obtained information.

COMMUNICATION
1 (a) Why do businessmen require an efficient means of communication
(b) Describe the following forms of communication and give an example of the Commercial use of each of them.

(i) Business Reply Service (ix) Phiately

(ii) Facsimile transmission (fax) (x) Confravision or Conference vision
(iii) Radio paging (xi) Internet
(iv) Data post (xii) satellites
(v) Telex (xiii) View data
(vi) Poste Restante (xiv) Voice Mail
(vii) Electronic mail (e-mail) (xv) Collect Call/Reverse Call
(viii) Express Mail Service (EMS)

(a) Efficient means of communication assists businessmen by providing efficient means of contact
within business eg between departments, branches etc
and also outside the business local and international
with individuals or firms with whom business is conducted
with travelling salesmen/sale, representatives/commercial travellers
with stock markets worldwide on price/market movements
widening the market

(b) (i) Business Reply Service

Postal Service which enables potential clients to send replies without paying postage
in special envelopes provided by firm/companies who have been issued with a licence after
paying a deposit. It is used for sending first and second mail. e.g Mail Order business-for
Clients to order goods

Revision questions in commerce emiti2010

 Page 64 of 80

(ii) Facsimile Transmission (fax)

Telecom service used for sending/receiving exact copies of documents
Using machines connected to telephone lines Which reproduce the copies of documents
being sent. Can send and receive messages twenty four hours eg invoices, letter of
inquiry and drawings

(iii) Radio paging

a person to be contacted carries a bleeper when indicates wanted by giving a
bleeping/buzzing sound and person confirms message by going to nearest telephone e.g in
a plant/factory

(iv) Data post

a speedy and reliable postal service which offers overnight door to door delivery of
packages or parcels handed in at the nearest post office counter displaying data post sign
packages or parcels are given special security treatment
operates both local and international, e.g. Computer materials-tapes, diskettes

(v) Telex
telecomm system that uses teleprinter which is a combination of typewriter and telephone
for sending written messages
To operate the system both the sender and receiver must be connected to a telex line and must be
connected to a telex line 1
The message is sent by dialling the telex number of the receiver and message is typed
which is automatically printed on receiver’s teleprinter, eg. statement, invoices, letter of inquiry etc.
(vi) Poste Restante
The letter or the parcel is addressed to the particular post office and to the particular person
to be collected in person. The envelope is to be marked poste restante. It is used by someone on
holiday or visiting. The person must show identity before collection

(vii) Electronic Mail

It has many facilities. It allows the use of the computers through the telephone circuit. It is
one of the fastest means of sending written records as the message is sent electronically.
The subscribe has an e-mail address and uses a secret code or password to access the
information, therefore, information is secret

(viii) Express Mail Service (EMS)

It is used for sending important/urgent documents. It enables the quick sorting of mails and
delivery of mails and an extra fee is charged in return. The mail is personally accepted at
the post office counter and delivered to the destination. It faster and safer way of sending
valuable information/documents

(ix) Philately
This is the postal service department which is responsible for issuing postage stamps and
historical items of the post office. Philately products depicting postal services are sold at
the post office such as neck ties and stamps

a. Confravision or Videoconferencing
This service allows people situated at different distant locations to hold face to face discussions but
without the inconvenience of anyone travelling to the same meeting place. Studios which links up
sound and vision are provided. It eliminates the need for time consuming and expenses of travelling
as well as the trouble of arranging overnight
accommodation and having to face the hazards and delays that may occur

(xi) Internet
It is a global network of computers which allows the uses to have access to world wide
information. It is inter-connected by satellite, fibriptic and cable system. It can be use for education,
business advertisements, entertainment, e-mails and the world wide web and news group.

(xii) Satellites
These are essentially used for television programs around the world. Sporting activities such as the
world cup soccer can be seen live and clear around the world through the satellite.
(xiii) View Data
It allows a two way communication where the subscribers can make booking, place orders,
access their bank accounts and send messages. This allows companies with their own
view data to link to their various branches and offices using prestel computers. the charges
are based on the telephone distance, complete time and frame character for the information given.

Revision questions in commerce emiti2010

 Page 65 of 80

(xiv) Voice Mail

a telephone activated and voice prompted system
allows the subscriber to leave or receive the message
enables the subscriber to communicate at their own convenience
it is a like a telephone answering machine, answering calls when you are unavailable/absent
the message is accurate and confidential
available 24 hours/always answered when connected

(xv) Collect/Reverse Call

A call made through the telephone operator
Arranged by the caller or called subscriber
It is connected with permission from the called subscriber (receiver)
The charge is paid or transferred to the receiver through the bill
Allows the businesses to receive fast information without putting the customer to expense
Available within and outside other countries

INSURANCE.
1 (a) What are the main functions of Insurance?
(b) Explain with examples, why some business risks can not be insured
© Describe briefly the insurance cover given by;
(i) employers’ liability insurance
(ii) consequential loss insurance.

(a) The main functions of Insurance

- to pool the risks of many insured persons and to spread the financial losses of the
unfortunate few over all those insured
- it reduces the risks of financial loss by giving indemnity, that is it gives security to the
insured and by reducing few it releases funds which might other wise have to be set aside
in case of a calamity (misfortune)
- it allows businessmen and women to enter into large scale contracts which might other wise
be avoided for fear of loss
- it is also an invisible export and means of saving for some people (endowment policy)

(b) Reasons why some risks can not be insured

- for a risk to be insured it must be capable of being assessed/calculated from the past
records of the event occurring from the past statistics and a fair premium fixed as in the
case of fire, accidents, life assurance and theft
- However, in some cased, the risk can not be assessed, as in the case of bad management
of the business, change of fashion, floods, earthquake etc such risks therefore, can not be
insured as they might be unpredictable and likely the compensation involved may be too
great for the insurance company to offer cover

© (i) Employers’ Liability Insurance

- it covers the business against the claims arising from the accidents to employees
death or injury whilst at work/duty

(ii) Consequential Loss

- it covers loss of profits as a result of an insured risk. For example, if the premises are
damaged by fire and the unusable may still have to be met

2 Mr. Tehira wishes to insure his business premises valued at K15 000 000 against the risk of fire. An insurance
company quotes an annual premium of K40 000
(a) Explain how the pooling of risks enables Mr. Tehira to obtain the fire cover for a relatively small annual
premium.
(b) How might the insurance broker assist Mr. Tehira?
© Explain why most types of insurance contract (policy) are contracts of indemnity.

(a) Pooling of risk

- it is the basis of insurance which enables the fortunate ones to help the unfortunate few
- a policy holder pays a premium into the pool from which compensation is paid to those who claim
- the pool must be sufficient to cover compensation, administration cost and leave some profit
for the insurance company
- there is likely to be a separate pool for each type of the risk
- some companies like Konkola copper Mine run their own risks, that is, use self insurance
- because there are many who wish to insure against fire, many premium are contributed but
there are few claimants, that is the risk is low

Revision questions in commerce emiti2010

 Page 66 of 80

(b) The insurance Broker

- he acts as a link between the insurance company or underwriters and Mr. Tehila as Mr. Tehila can
not approach the underwriters directly giving information on the policy fo the number of companies
- advises Mr. Tehila on the best policy and premium until full amount of the policy is covered
- he may deal with claims and particular problems affecting Mr. Tehila
- arranges insurance cover/administration/clerical work
- he collects the premium and paid on premium

© Reasons why most insurance contracts are contracts of indemnity

- In the event of a loss a policy holder requires compensation from the insurance company
- indemnity requires that the policy holder is placed in the same financial position as before. -
- S/he is not allowed to make profit out of a loss as s/he may cause the risk to occur
- the policy holder is subjected to subrogation and contribution
- indemnity does not apply to life assurance or personal accidents insurance and new for old.

3 Mr. Shalom wishes to insure a motor vehicle and completes an insurance proposal form
(a) Why is an insurance proposal form important to:
(i) Mr. Shalom
(ii) the insurance company
(b) What factors the insurance company consider before deciding on the amount of the premium to be paid?
© Why is the principle of insurable interest important in contracts of insurance?

(a) The Insurance Proposal form:

- is important to Mr. Shalom because it is his application or request for insurance giving the
insurance company full details of the insurance required, that is, third party comprehensive
and relevant details about himself
- it is important to the insurance company because the information allows the company to
assess the risk and decide whether or not to accept the risk and fix the amount of premium
- in any case, it forms the basic of the contract

(b) Factors considered before deciding the amount of premium

- experience on the number of motor claims or accidents involving this type of vehicle and the
driver based on the statistics of their possession and past records and the number of people
wishing to insure against this type of the risk
- other factors to be considered includes the type and value of the car, the age of the driver,
past driving records, type of the use of the car, type of insurance cover required and the
place of operation

© Insurable Interest
This means that the insured must stand to lose financially should the property for example, a car be damaged
or destroyed, that is the person must own the property
Therefore, the insured may obtain cover for his or her own property but not for example, his/her
neighbour’s property other wise the insured might seek to cause the risk to occur. In addition, if
the insured was not in a position to lose financially, then s/he could not be indemnified

4 Mr. Elshaddai insures his premises against the risk of fire with the Goldman insurance Company. The premises are
currently valued at K20 000 000.
(a) What are the benefits of insuring his premises against the risk of fire?
(b) Explain the importance of the principle of utmost good faith in such an insurance contract.
© Explain the principle of indemnity. If fire occurred, how would the principle of indemnity apply to Mr.
Elshaddai if he insured his property only for K16 000 000 and the cost of repairs amount to K14 000 000.

(a) Benefits of insurance are

reduce the risk of loss and obtain indemnity/compensation if fire occurs by pooling risks with others and thus being
protected by paying a relatively small premium which will enable him to rebuild his
premises in the event of fire without insurance the risk might be too great to bear for an individual

(b) Persons seeking insurance cover must complete the insurance proposal form in utmost good faith by telling
the truth without leaving out any material facts relating to the contract for the insurance company to be able to
assess the risks whether to accept risk or not and determine the premiums also insurance company must act
in utmost good faith by stating material facts relating to the contract void/if utmost good faith not followed by
both parties

Revision questions in commerce emiti2010

 Page 67 of 80

© Principle of indemnity states that the insured must be restored to former financial position
without making a profit out of the loss
indemnity does not applied to life or personal accident or new for old insurance and is limited to
the sum insured or market value
contribution if insured with more than one insurance company, insurance companies contribute
proportionate amounts to make up the loss subrogation the insured is fully indemnified for
the loss, the damaged or recovered property becomes the property of the insurance company
16 000 000 x K14 000 000 = K11 200 000
200 000
average clause applied
Mr Elshaddai is his own insurer for the difference

5 In connection with insurance, explain the following statements:

a. an insurance proposal is the basis for the insurance policy;
b. insurance gives a company financial protection;
c. insurable interest must exist for an insurance risk to be accepted;
d. losses caused by bad management are a non-insurable risk;
e. Lloyd’s of London is a leading insurance market;
(a) proposal form is the application form/request for insurance cover
which gives details of the risk
and details of the applicant
(on the basis of the insurance proposal)
the insurance company decided whether or not to accept the risk
and sets the premium
and finally issues the insurance policy
stating the terms of the insurance

(b) a company is given compensation/indemnity in the event of a loss

so this helps the company overcome the difficulty
example fire, theft, accident
mention of consequential loss
a company will be indemnified (given the value of the loss)
but may not make a profit from a loss
a company will therefore have confidence to proceed in business

© the person requesting insurance must own

or suffer financial loss
for the risk to be accepted
example of insurable interest own loss, car live stock
if there is no insurable interest a person may profit from a loss
or cause the loss to occur/example setting fire to buildings or stealing

(d) losses from bad management are non insurable because it is impossible to assess the risk
it is difficult to judge what is bad management and what is not
the business may be managed badly in order to claim
no past record/statistics are available
so no premium can be calculated
and no policy offered
another example of a non insurable risk or comparison with an insurable risk change of fashion or acts of God

(e) Lloyd’s of London is an international/world market

for marine insurance
and most other risks (or examples) flight aviation, life
and with a reputation for meeting claims
underwriters offer insurance cover
when approached by brokers

6 (a) Insurance demands both honesty on the part of those involved and fair compensation for the insured.
State and explain the principles which seek to achieved these ends, giving appropriate examples.
Utmost good faith
- principle of insurance
- it states that all parties(the proposer and the insurance company) should disclose the relevant and accurate facts relat-
ing to the risk being covered
- the proposer must answer all the questions on the proposal form truthfully
- it helps to assess the risk and decide whether to accept it or not
- and determines a fair premium
- failure to disclose the relevant and correct facts may lead to the contract being declared null and void

Revision questions in commerce emiti2010

 Page 68 of 80

Principle of indemnity
- states that the insured must be restored to former financial position
- without making a profit out of the loss
- indemnity does not applied to life or personal accident or new for old insurance and is limited to the sum insured
or market value
- contribution if insured with more than one insurance company, insurance companies contribute proportionate
amounts to make up the loss
- subrogation applies if the insured is fully indemnified for the loss, the damaged or recovered
- property becomes the property of the insurance company
- average clause applied if the insured under insured or over insured
- the insured is his own insurer for the difference

Insurable Interest
- This means that the insured must stand to lose financially should the property
- for example, should a car be damaged or destroyed,
- that is the person must own the property
- Therefore, the insured may obtain cover for his or her own property
- but not for example, his/her neighbour’s property
- other wise the insured might seek to cause the risk to occur.
- In addition, if the insured was not in a position to lose financially, then s/he could not be indemnified

(b) Write brief notes on the following:

(i) An Insurance policy
- this is a document which sets out terms and conditions of insurance
- it covers the precise risks
- the period of cover and
- exceptions such as life assurance/suicide
- it stipulates the amount of premiums to be paid

(ii) An underwriter
- he is a principal who accepts insurance risks or cover a risk such as marine insurance
- he receive insurance premiums from the clients
- they usually operate in syndicate
- they need enough resources
- if the risk occurs , they pay out compensation from their own pockets
- they are remunerated by profits

(iii) Utmost good faith

- principle of insurance
- it states that all parties(should disclose the relevant and accurate facts relating to the risk being covered
- it helps to assess the risk and decide whether to accept it or not and determines a fair premium
- failure to disclose the relevant and correct facts may lead to the contract being declared null and void

(iv) Non-insurable risks

- these are risks that can not be assessed/calculated from the past events or records
- hence thir probability of occuring not known and therefore the insurance company can not accept then, eg. Change of
fashion
- or the risk may be too great for the insurance company
- the insurance company may not make profit

(v) Insurable interest

- principle of insuance
- it states that one must suffer financial loss should the risk occur
- therefore one can not insure another person’s property
- this makes people not to gamble in insurance
- if allowed people would deliberately cause the loss to occur/risk so as to make profits or gain

7 (a) Explain why Mr. Masimpe a trader, is able to insure against the risk of fire and the risk of loss of profit as
a result of fire, but is not able to insure against loss of profit due to bad management.
- for the risk to be insured it must be capable of being assessed/calculated from the past records of the event occuring
and a number of people wishing to be insured estimated
- thus a fair premium may be fixed which will cover most of the claims and earn profit for the insurance company
- in the case of fire, there are such records and therefore insurable
- it is also possible to assess the loss of profit incurred
- but in the case of management which is the case of individual ability, the risk can not be assessed and therefore it can
not be insured
- as the business might cause the loss deliberately

Revision questions in commerce emiti2010

 Page 69 of 80

(b) On 1 January 2004 Mr. Masimpe’s stock was valued at K300 000 and paid a fire insurance premium to
cover that amount. Later fire completely destroyed his stock. State with reasons how much Mr. Masimpe
will receive from the insurance company if the cost of replacing his stock is K220 000,
- Mr Masimpe will receive K220 000
- Because he is indemnified/restored to his former financial position he was before the loss occerred
- He can not receive more than the amount of the loss/he can not make profit out of the loss
© Mr. Masimpe wishes to insure the adjoining business premises which are owned by Mr. Kubeja, because he
belives that inflammable goods are stored there. Why is he not able to do so?
- he can not insure the adjoining business premises because he has no insurable interest in the premise
- he would not lose if the adjoining premises are burnt down/he would not require indemnity
- an he might deliberately cause the risk to occur in order for him to make profit

8 (a) Describe the steps to be taken in affecting an insurance policy.

Steps to be taken in affecting an insurance cover.
- approach an insurance broker/company
- obtain a proposal form/estimate
- fill in the details in utmost faith
- other wise the contract may be declared null and void
- the insurance broker or company assesses the risk and calculates the correct premium
- the proposer pays the premium and the cover note issued
- the policy is issued after a period of time
- which contains all terms and conditions of the contract

(b) In connection with marine insurance, write brief notes on the following;
(i) Hull Insurance
- covers ship hull and machinery
- against damage due to fire, collision and storm
- against damage of other ships
- the policy can either be for a particular journey – known as voyage policy
- or for a period of time – known as time policy

(ii) Freight Insurance

- covers the amount charged for the transportation of the cargo
- it is refundable if the goods are undelivered
- it is paid by the shipping firm/supplier

(iii) Cargo Insurance

- covers goods being carried by ship
- the cover may be for a single consignment
- or may be for several consignment
- it may be an open/floating policy

9 Insurance is the system of protection against all kinds of insurance risks based on the principle of “pooling of
risks”.
(a) Explain the term “pooling of risks”.
- people with a common risk pay into a common fund an amount known as premium
- from which the disadvantaged(the unfortunate few) are paid from
- the burden is made lighter than it would have been
- for a small amount of premium, the insured is able to be paid the insured amount, for example, the property worth
K25m migh be insured for K750 000

(b) Insurance requires “indemnity .“ Explain the term” indeminity”

- to restore the insured to his former financial position
- without making profit out of the loss
- with an exception of life assurance/loss of limb/personal accidents
- the insured should not over insure or under insure
- the corollaries of subrogation and contribution should apply

© List insurance risks that a Company may insure.

- fire
- theft/burglary
- public liability
- accidents
- employer’s liability
- product liability
- motor car insurance
- consequential loss/business interruption

Revision questions in commerce emiti2010

 Page 70 of 80

(d) How might an insurance Broker help a company to obtain insurance?

- by linking the company with the clients/buyers
- by advicing the client and seek the best possible policy
- by approaching and getting quotations from the insurance companies on behalf of the clients such as the proposal
form
- by arranging a policy of the company of the client’s choice
- may prepare paper work/clerical work on behalf of the company
- by collecting and forwarding premiums/makes claims on behalf of the clients

(e) Mr. Kabootu has built up a large business making and selling wooden furniture. He has never taken out insur-
ance cover.
(i) why has he been unwise not to take out insurance and why should he consider his
position?
- if the loss occurs he might receive no compensation
- he may end up going out of business
- his business is too large and therefore the loss could be large also
- it will give him confidence to continue in business as claims against him may be large
- for example public liability
- required to insure by law for sole risks, such as employer’s liability/third part

(ii) Why should he consider the principle of insurable interest and indemnity before deciding
what to insure?
- because he can not insure anything that he does not own
- or for which he will not suffer financial loss
- he would therefore not be allowed to take any insurance cover because he might be
tempted to cause the the loss to occur if he has no insurable interest

(iii) why might he better be adviced to go to an insurance broker to arrange insurance cover rather than go
direct to an insurance company?
- the broker is independent and so he would not be biased
- he may have special requirements
- may get better over all service
- it may be cheaper
- he may serve time
- he will obtain wider choice of insurance companies
- and see different kinds of insurance covers

10 (a) Explain the ways in which insurance assists industry and commerce.
- it provides compenstion in return for premium
- allows for pooling of risks
- reduces the risk of financial loss/compensation
- it provides for cover against a variety of risks
- it gives confidence to continue/conduct business/protection against any loss
- it is a major institutional investor/purchasing shares in companies and so providing capital
- the profit paid to life assurance policy holders may be used for investment in industries

(b) Explain with examples, the differences between insurable and non-insurable risks
Insurable risks
- these are risk that can be insured
- because the probability of the risk can be calculated from the past records
- and so the premium can be fixed, examples are fire, theft, accidents and motor insurance
Non Insurable Risks
- are risks that can not be assessed because the probability of the risk happening can not be calculated
- They have no past records and so a fair premium can not be fixed
- as in the case of bad management of the business, change of fashion, floods, earthquake etc
- such risks therefore, can not be insured as they might be unpredictable
- and likely the compensation involved may be too great for the insurance company to offer cover

© Why does an insurance company require a person seeking insurance to complete a proposal form?
- proposal form is the application form/request for insurance cover
- which gives all the details needed to assess the risk
- and details of the applicant(on the basis of the insurance proposal)
- the insurance company decided whether or not to accept the risk
- and sets the premium and finally issues the insurance policy stating the terms of the insurance
- it must be filled in utmost good faith
- if the proposal form is filled incorrectly the policy may be declared null and void.

Revision questions in commerce emiti2010

 Page 71 of 80

BANKING and FINANCE

1 Mr. S. J. Patel wishes to get a loan or an overdraft from the bank.

(a) Briefly explain to him the differences between the loan and overdraft.
(b) State the main factors the Bank Manager will take into account before granting the loan or overdraft to Mr.
Patel.
(c) State four other services offered by the Commercial Banks to holders of a current account.
(a) Loan
a fixed sum credited to a customer’s current account
a separate loan account is opened where regular repayments are made
fixed rate of interest payable on outstanding amount or on full amount
long term liability/borrowing
security is always needed
taken for capital projects
e.g purchase of a motor vehicle, house
can be given to non bank customers
OVERDRAFT
Customer’s current account is allowed to go into debit (overdrawn)
arranged with the Bank Manager than the balance on the account up to an agreed limit
interest charged on the daily balance i.e. on the outstanding balance
short term basis of financing the business
taken for day to day business expenses e.g. purchase of stock, payment of salaries etc.
deposits reduce the overdraft

(b) Factors to be considered by Bank Manager before granting a loan or overdraft

amount needed
customers turn over with the bank
integrity/credit worthiness to repay the loan/overdraft
collateral security available for the bank to recover loan/ overdraft in case of default
purpose of loan or overdraft
period of repayment
government guidelines

© Other Services offered by commercial banks

night safe facilities
buy and sells shares and stocks
financial advice
discounting bills of Exchange
Automatic Tellers, Machine
Traveller’s cheques, credit card, cheque card, standing orders,
credit transfer, direct debit etc…

2 (a) State three reasons why a firm may need additional finance.
(b) Name four factors the firm would take into account before choosing a method of financing its business.
© How might trade credit be used as a source of finance for the firm?

(a) Reasons why affirm may need addition finance

to expand to meet unexpected bills
to replace equipment to survive a crisis
to take over another business o meet increased costs

(b) Factors that a firm must take into account before choosing the method of financing the business
interest rates charged collateral/security required
amount needed purpose
repayment time other commitments
availability what had been used before

© How trade credit may be used as a source of finance for the firm
- purchase the goods and sell the goods before payment is due at an INCREASED price
pay for the goods from the sale revenue

(d) (i) bank loan eg formal method of borrowing, fixed interest rates,
often for one purpose/security required payable over a long period of time
(ii) bank overdraft eg linked to current account, variable interest rates
to meet shortfall, paid on daily overdrawn figure of working
capital, short period of repayment

Revision questions in commerce emiti2010

 Page 72 of 80

(iii) mortgage eg linked to property purchase long term

(iv) finance of foreign trade eg discounting bills of exchange
documentary credits eg quasi-negotiable
A different approach might be discussion of help with forming a business eg advice offered, business plan and its contents

3 In each of the following circumstances

State the most appropriate method off financing the transaction and give full reasons for your choice.
(a) A small retailer requires finance to purchase additional stock. She hopes to repay the amount borrowed
within three months.
(b) Mr. Brick is logical builder who wishes to purchase a new cement mixer. He plans to pay for the cement
mixer over a period of two years.
(c) An expanding public limited company seeks long term (permanent) finance to purchase additional premises
and equipment.

a) i) The most appropriate method of financing the purchase of additional stocks is by

overdraft.
ii) The reasons for the choice of an overdraft include:
- the retailer will have a current account for her to obtain an overdraft.
- The overdraft is easy to arrange.
- The overdraft is the most appropriate method of financing the purchase of additional stock.
- The overdraft is a short term lending and therefore suitable for repayment within three months.
- Interest on overdraft is charged on daily balance.
- As stock is sold and paid for, the overdraft is gradually paid off.

b) (i) The purchases of a new cement mixer can be financed by either a loan or by Hire Purchase
Loan
- The reason is obtained for a specific purpose e.g. for purchase of a new cement mixer
- A loan is fairly easily arranged.
- A loan is available for a period of two years or more.
- A loan can be arranged with any bank offering lowest interest rates
- A fixed rate of interest is charged on a bank loan.
- The use of a cement mixer will help Mr. Brick to pay for the loan.
- A formal loan agreement is made with the lender.

OR
Hire Purchase
The reasons for choice of hire purchase as the most appropriate method of purchasing a new cement mixer are.

- Hire purchase is fairly easy to arrange.

- Hire purchase is suitable for purchasing durable goods such as cement mixer etc.
- Hire purchase repayments are made in instalments.
- The buyer can use the cement mixer to help meet hire purchase payment by charging money on people using
the cement mixer.
- Hire purchase is available for two years period and therefore the buyer is able to pay for the cement mixer
over a period of two years.
- Interest is included in the hire purchase instalments.
- Hire purchase repayments are spread over a period of time.
- The buyer is protected by Hire purchase laws.

c) i) The purchase of additional premises and equipment by an expending Public limited

company can be financed by either share issue or by Debentures.

ii) Share issue/RIGHT ISSUE

The reason for the choice of share issue include:
- Share issue can attract capital from many potential investors.
- No interest is paid on capital raised.
- The large sum of money required for the purchase of additional premises and equipment can be easily raised
by sale of shares to public.
- There is not repayment of capital once a person has bought shares.
- Shareholders can pay for shares in instalments.
- Share issue can be used to raise more money only if the company has not exceeded its
authorised capital.
- The sale of shares of a public limited company is easily organised through stock ex changes.

Revision questions in commerce emiti2010

 Page 73 of 80

OR
Debentures
The reasons for the choice of debentures are:
- Debentures are loans to a company and they are repaid on fixed dates.
- Fixed interest is paid on debentures on fixed dates
- Fixed interest is paid to debenture holders whether the company makes profit or not.
- Debentures are quoted on stock exchanges.
- Loans are fairly easy to arrange.
4 a) State three reasons why a firm may need additional finance.
b) Name four factors the firm would take into account before choosing a method of
financing its business
c) How might trade credit be used as a source of finance for the firm?
d) Explain how a commercial bank might assist a firm to finance its business.

a) A firm may need additional finance for the following reasons:

- To expand the business
- To replace equipment.
- When there is need to take over another business
- When there are unexpected bills to pay.
- Additional finance may be needed to survive a crises.
- Additional fiancé may be needed to meet increased costs.

b) The factors the firm would take into account before choosing a method of financing its business are:
- The interest rates charged on each method of financing
- The amount of finance (loan) needed.
- The repayment period of the loan
- The availability of finance i.e. whether money to lend out is available or not.
- The collateral security required .
- The purpose of the loan
- Other financial commitments the firm has.

c) Trade credit might be used as a source of finance for the firm by:
- by allowing the firm to purchase goods without immediate payment for them.
- by allowing the firm to sell goods at increased price before payment.
- by allowing the firm to pay for goods from the sales revenue.

d) A commercial bank manager might assist a firm to finance its business by:
i) bank loan
ii) bank overdraft
iii) mortgage
iv) Bills of exchange e.g. discounting bills of exchange.
v) Documentary credit e.g. quasi-negotiable

(d) State the rights of a customer in Banking

- the right to secrecy of his/her bank account details
- the right to be provided with the Bank Statement within reasonable time
- the bank to honour customer payment instructions provided customer’s instructions are properly drawn
especially cheque payment
- the right to have money and cheques deposited
- the right to be paid money on demand during banking hours
- the right to be informed of forgery of signature immediately it is detected
- the right to be given reasonable notice of closure of the bank account
- the right to have safe, secure and reliable banking and payment system
- the right not to be discriminated on the basis of race, religion, age, pregnancy, marital status, disabilities,
sex/gender and HIV/AIDS etc
- the right to be informed of any changes in interest rates and banking services
- the right to be provided with services that meet required banking standards
- the right to be given information on banking services in plain language
- the right to be assisted in choosing services that fit individual customer needs

5 (a) (i) How does Direct Debit Operate?

- with the agreement of the debtor, the creditor is authorised to initiate payment
- the creditor informs the debtor’s bank of the amount owed
- which is transferred to the creditor’s account
- payment can vary in amounts and may be on varying dates fixed by the creditor
- it is more suitable for payments that are likely to increase or decrease after a certain period of time
such as annual subscriptions to clubs, magazines and proffessional bodies

Revision questions in commerce emiti2010

 Page 74 of 80

(ii)
For what reasons may the creditor ask the debtor to make payments by direct debit?
- the creditor may ensure payments on due dates selected by them
- the debtor may not have been prompt in paying
- to reduce paper work
- to reducetime in paying into the bank
- it is safer and more certain than posting
- to avoid bad debts
(iii) Distinguish between Direct Debit and Standing Order.
STANDING ORDER DIRECT DEBIT
- it is used to make payments of fixed sum - it is used to make varying payment at irregu-
at regular intervals lar intervals
- the debtor initiates payment - the creditor initiates payment
- payments are made on fixed dates - payments are made on varying dates
- suitable for making monthly payments wanted by the creditor
such as Hire Purchase intalments and - suitable for making payments that are made after
rental bills a long interval such as annual club subsciptions and in-
surance premium

(b) Explain the advantages and disadvantages of cheques as a means of payment in business.
Advantages of a cheque as a means of payment
 It is easy to post
 It is generally accepted
 It can be made out for any amount
 It is safer than cash
 Payment can be stopped at any time
 It is a legal evidence of payment
Disadvantages of a cheque as a means of payment
 may be difficult to use for larger amount
 it is not suitable for small amounts such as petty cash items
 not everyone may accept a cheque as payment

(c) (i) Show the ways of crossing a cheque

(i) (ii) (iii) (iv) (v)

(ii) Explain the effect of each

(i) must be paid into the bank account
(ii) must be paid into the bank named on the crossings
(iii) can not be transferred to another person/paid into the bank account of the person named on
the cheque
(iv) can not be made out for more than the amount written in the crossings
(v) the new owner has no better to the cheque than the previous owner

(d) What are the differences between special crossing and general crossing
General Crossings
- has two parallel lines across it face
- has no name of the bank in between the crossing
- can be deposited at any bank

Special Crossing
- has two parallel lines across its face
- has the name of the bank in between the crossing
- must only be deposited in the account at the named Bank or branch

(e) Give the reasons in which a bank might refuse to honour a cheque.
 If the drawer has Insufficient fundsin his/her account to cover the amount on the cheque/lack of funds
 If the cheque is stale
 If payment has been stopped
 If is a post dated cheque

Revision questions in commerce emiti2010

 Page 75 of 80

 If the amount in word and figures differs

 If the signature is unrecognisable
 Death/lunacy of the drawer

(f) Describe using the diagram if you wish, how a cheque is cleared.
GENERAL/UPCOUNTRY CHEQUE CLEARING
- the cheque is paid into the bank account
- sorted to different banks
- then sent to the Head Office or Clearing House
- banks exchange cheques at the clearing house
- the amounts to and from various banks are totalled
- inter bank indebtness is offset/settled at the central bank by moving amounts from one bank account to
another
- cheques are then sent to the branch on which they were drawn
- the process is computerised
- internal clearing may take place for cheques within one bank
The above can also be explained diagramatically as follows:

Pays a cheque to
DRAWER PAYEE

Deposits
Banks with cheque sent the cheque
back to
DRAWER BANK PAYEE’S BANK
BRANCH BRANCH

sent bak to sent to

DRAWER’S BANK
PAYEE’S BANK
HEAD OFFICE
HEAD OFFICE

Sent to Sent to

CLEARING
HOUSE

- offsetting takes place

- banks have accounts with the Central Bank and any debt
between banks is settled by the transfer of funds between the
two account at the Central Bank
- the process is computerised
- internal clearing may take place for cheques within one bank

(g) What is the work of the Bankers’ Clearing House?

FUNCTIONS OF THE BANKERS’ CLEARING HOUSE
- to arrang physical transmittion of cheques between customers of different banks
- to arrange for the offsetting of interbak indebtness and clerical work where necessary
- to ensure speedy transmission or clearing of cheques as all other methods may prove to be cumber-
some,

6 (a) State and explain two ways in which a credit card differs from a cheque card.
Credit Card
- no cheques are needed when making payment
- interest is charged by the credit card company if no balance
- commission is paid to registered suppliers
- can obtain credit and not cash

Revision questions in commerce emiti2010

 Page 76 of 80

Cheque Card
- can obtain cash from the branch
- no interest is charged
- no commission is payable
- payments are always by cheque backed by the cheque card

(b) With the aid of the diagram, show the main features which appear on the face of a completed crossed cheque
Drawee
Payee Date on which
the cheque is drawn

BARCLAYS BANK (Z) LTD

(Registered Commercial Bank)
Mazabuka Branch Date 31st May 2005

Pay Eclipse Zulu or order

The sum of Ten Million Kwacha only

K10 000 000

Signature Crankshaft Banda

Amount in words Amount in figures Signature of the Drawer

© Discuss briefly the functions of Commercial Banks.

- they provide finance either in form of a loan or an overdraft
- They facilitates payments and receipts in both home and foreign trade
- through cheques, Direct Debit, credit Transfer, Standing order (Bankers’ order). Documentary credits, electronic
transfer and discounting bills of exchange
- They provide foreign currency to businessmen whenever required
- They give business financial advice on a variety of business matters
- such as taxation and investment opportunities, overseas trade information and insurance.
- They provide safe custodian facilities, that is looking after customers money and other valuable items such as jew-
ellery, title deeds and certificates.
- They act as executors or trustees of “wills”
- They provide cheque guarantee cards
- They may also buy and sell shares on behalf of their clients
- They provide other services such as Night Safe facilities, Automatic Teller Machine(ATM), and Travellers Cheques

7 (a) List four features of a bank credit card and explain its importance to the business traveller
FEATUES OF A BANK CREDIT CARD AND ITS IMPORTANCE
- safe; security feature can only be read by the computer
- easy to carry; it is not bulk
- safer than carrying cash; if lost it can be traced and payment can be stopped, if reported early
- faster means of payment; facilitates easy payment of bills since there is a direct transfer into the bank
account

Revision questions in commerce emiti2010

 Page 77 of 80

(b) Customers for the Businessman pay for the services either by cheque or credit card. What are the
advantages and disadvantages of each method of payment?
Advantages of a cheque
- it is easy to carry arround
- can be paid out for any amount
- it is acceptable with a guarantee card
- can easily be posted

Disadvantages of a cheque
- may not be accepted for large amounts
- not everyone has a bank account
- it is not a legal tender

Advantages of a credit card

- can postpone payment
- it can be used for large amounts
- it can be used abroad
- it is a profitable way of using surplus cash
- the shop keeper enjoys increased sales

Disadvantages of a credit card

- interest is charged if payment is postponed
- it has a credit limit
- fraud
- not all business accept credit cards
- it involves a lot of paper work
- the customer may be tempted to over spend

© In what circumstances might a traveller prefer to pay a bill:

(i) by cash rather than by cheque
- when the amount involved is small
- when the creditor does not accept personal cheques
- it is an easy form of payment
- cash is legal tender, that is, it is accepted by everyone
- when the creditor has no bank account

(ii) by travellers’ cheque rather than by cash?

- it is safer to carry – if lost it can be reported
- it is easy to carry – not as bulk as cash
- when travelling to another country
- it is easily acceptable

8 Descibe the following:

(a) Bankers’ Draft
 This is an equivalent of the bank’s own cheque
 It is ddrawn by the bank on itself or drawn in the name of the bank
 It is usually used as a means of payment where the person offering payment is not known personally to his/her
creditor
 It is very useful particularly when paying large sums of money
 The bank guarantees payment for this cheque, hence it can not be dishonoured.
(b) Money Order
 It is a means of payment through the post office
 The sender fills in the application for money order form stating the person s/he wishes to pay, the amount and the
post office of payment
 The payee is given a slip to notify him/her the amount to be paid
 The payee must produce documentary proof of identity before the money is paid to him/her
 Documents of proof may include, National Registration Card, Passport, Drivers’ licence or residencial permit
 It is a quick means of payment especially where telegraphic transfer is used
 A telegraphic money order is usually sent by fax to the post office of payment.
(c) Postal Orders
 Post office documents issued instead of cash
 Means of sending small amounts of money through the post
 The sender is issued with a blank postal order form usually in fixed denominations
 S/he may fill in the post office of payment and the payee’s name
 A small fee called ‘poundage’ is usually charged for the service
 They may also be made out without naming the post office, in this case they must be crossed so that the payee
deposits it into his/her bank account

Revision questions in commerce emiti2010

 Page 78 of 80

9 Describe and explain the purpose of the following

(a) Traveller’s cheque
- it is issued by the bank to the customers who have paid for them
- used for payment abroad where personal cheques would not be accepted
- it can be used to obtain foreign currency
- it is usually signed on purchase and again on use
- may be in own currency or in various denomination or in another currency

(b) Describe the main functions that the Central Bank (eg. Bank of Zambia) provides.
FUNCTIONS OF THE CENTRAL BANK
 It is the government’s bank where all governmnent’s accounts are kept just like any other individual at the
commercial bank.
 It is the bankers bank, that is, all commercial banks are required to open accounts with the central bank
for inter bank transactions/settling interbank indebtness or it acts as a bankers clearing house
 It is the lenders of the last resort, that is where baks go to borrow money when they have liquidity prob-
lems
 Bank and government policy, it regulates the minimum lending rates. If the banks wants to encourage
savings, the minimum lending rates will be increased to attract savers, but reduce it to encourage borrow-
ing.
 Note issue and coins and keeping the foreign currency, that is , it is responsible for printing, minting, stor-
ing and circulations of all notes and coins.
 Supervision of all exchange rates to avoid artificial increases
 Supervision of the banking systems in the country such as the IMF and World Bank. The central bank
supervisescommercial banks and other financial institutions in the country
 The give bank licences and give strict guidelines to financial institutions
 Servicing the national debts, i.e, the payment of the local debts and foreigndebts/loans of the government
and financial institution such as to the IMF and the world bank.
 It is the lenders of the last resort

© Write brief notes on the following:-

(i) Buiding Societies
 They maintain share accounts for their clients
 They provide long term loans-mortgage
 They buy stocks and shares on behalf of their clients
 They provide estates and insurance services
 It also offers savings accounts and may provide overdrafts to their clients
 They may give cheque guarantee cards
 They may take deposits from the private sector.

(ii) National Savings and Credit Bank

 They offer the following accounts, ordinary savings account, fixed depodit account and investment
accounts.
 They offer money transfer services
 Customers can withdraw money from any branch because accounts are centrally (computerised)
kept
 They may offer loans to their clients
 They offer advances to their customers who are salaried

10 (a) State three reasons why a firm may need additional finance.
b) Name four factors the firm would take into account before choosing a method of
financing its business
c) How might trade credit be used as a source of finance for the firm?
d) Explain how a commercial bank might assist a firm to finance its business.

a) A firm may need additional finance for the following reasons:

- To expand the business
- To replace equipment.
- When there is need to take over another business
- When there are unexpected bills to pay.
- Additional finance may be needed to survive a crises.
- Additional fiancé may be needed to meet increased costs.

Revision questions in commerce emiti2010

 Page 79 of 80

b) The factors the firm would take into account before choosing a method of financing its
business are:
- The interest rates charged on each method of financing
- The amount of finance (loan) needed.
- The repayment period of the loan
- The availability of finance i.e. whether money to lend out is available or not.
- The collateral security required.
- The purpose of the loan
- Other financial commitments the firm has.

c) Trade credit might be used as a source of finance for the firm by:
- by allowing the firm to purchase goods without immediate payment for them.
- by allowing the firm to sell goods at increased price before payment.
- by allowing the firm to pay for goods from the sales revenue.

(i) bank loan

- a fixed sum credited to a customer’s current account
- a separate loan account is opened where regular repayments are made
- fixed rate of interest payable on outstanding amount or on full amount
- can be medium/long term
- security needed
- taken for capital projects such as purchase of a motor vehicle or building a house

(ii) OVERDRAFT
- Customer’s current account is allowed to go into debit (overdrawn)
- arranged with the Bank Manager than the balance on the account up to an agreed limit
- interest charged on the daily balance i.e. on the outstanding balance
- short term basis of financing the business
- taken for day to day business expenses e.g. purchase of stock, payment of salaries etc.
- deposits reduce the overdraft
(iii) mortgage linked to property purchase long term
(iv) finance of foreign trade through discounting bills of exchange
(v) documentary credits quasi-negotiable

Q There are various services which a bank offers its customers which vary from each other. Explain the following terms.
(a) Bank Giro credit
 The term covers cheques and credit transfer service
 Method used for direct debiting
 Enables the payee to claim amounts due to him/her from the customer or others
 The 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 customer
 All the accounts are held centrally
 Money can be cheaply and efficiently be transferred from one account to another
 Or deposited from outside the system or paid outside the system

(b) Point of Sales Service

 Method provided by some banks for some customers to for goods and service using ATM cards/VISA cards
 They are used in shops where Pos terminals are installed
 The terminal have computer programmed machine used to obtain authority to pay for each transaction
 The cashier passes the card through POS terminals to obtain authority to deduct money from the
customer’s account
 Issues a receipt b y the machine, which instructs the bank to debit the customer’s account by the invoice
amount
 Monet is electronically transferred from the customer’s account to the trader’s account

© Cash Dispenser
 It is also known as automatic teller machine
 Money can be withdrawn or deposited by the account holder
 It is situated outside the bank buildings
 Money can be obtained 24 hours a day
 The customer is provided with a coded plastic cash card (ATM card)
 And the secret Personal Identification Number (PIN)
 May issue a mini statement

Revision questions in commerce emiti2010

 Page 80 of 80

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.
 Service credit such as telephone, electricity and television
 Hire Purchase/sales or purchase credit to pay for large consumer durable goods such as
freezers, cars and furniture
 Credit cards such as bank cards like Barclays card, VISA or master card
 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.
 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 goods thing in life
 Consumers now regard as necessities what used to be thought of as luxuries
 Credit is no longer just for the wealthy
 It is available to nearly everyone
 The coming into Zambia of business houses that sell durable goods and offer consumer credit
such as micro consumer, Finance institutions such as Bayport and microfin

© What are the advantages to the consumer of using consumer credit?

 Improve the standard of living
 It is convenient to use
 Credit customers may get better service than cash customers
 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 enables people to get cash on demand
 It helps people plan their budgets
 Consumers can take advantage of today’s prices that may look expensive a year from now

Revision questions in commerce emiti2010