WAEC Commerce 2000 Past Questions & Answers

Commerce is the correct answer because it is the broad activity that covers both trade and aids to trade. Trade is the buying and selling of goods, while aids to trade are the services like banking, transport, and insurance that make trade easier. Therefore, commerce is the complete package of all these activities.

Common mistake: Students might mistakenly choose Wholesaling or Advertising because they are examples of trade and aids to trade respectively, but the question asks for the term that defines both together.

A sole proprietor is a business owned by one person and is not a separate legal entity like a limited company. Debentures are a type of long-term loan that only limited liability companies can issue to the public to raise capital. Therefore, a sole proprietor cannot use debentures as a source of finance, making it the correct answer. The other options are all valid financing methods available to a sole proprietor.

Common mistake: Students might mistakenly choose 'Leasing of equipment' because it doesn't involve receiving cash directly, but leasing is a form of finance as it allows the business to use an expensive asset without paying the full price upfront.

A nominal partner is a person who only lends their name to the partnership firm, often because they have a good reputation. They do not invest capital or take part in the daily management of the business. However, they are still liable to outsiders for the debts of the firm because they are presented to the public as a partner.

Common mistake: Students may confuse this with a 'limited partner' because they also do not take part in management, but a limited partner contributes capital while a nominal partner only lends their name.

A private company is a type of business that is owned by a small group of people, such as family or friends. A key legal rule for this type of company is that it cannot sell its shares to the general public on the stock exchange. Therefore, the right to transfer shares is restricted, and any sale of shares must be approved by the other owners or directors.

Common mistake: Students often confuse private companies with public companies, which are the ones that float their shares on the stock exchange market as stated in option B.

A vertical merger, or vertical combination, is when two or more firms that operate at different stages of production within the same industry join together. For example, a flour mill (production stage) joining with a bakery (distribution/retail stage) is a vertical merger. This allows the combined firm to control more of its supply chain.

Common mistake: Students often confuse this with a horizontal merger, which is the joining of firms at the same stage of production, like two competing banks merging.

Capital employed is the total amount of money invested in a business to carry out its operations and generate profit. It is calculated by adding the value of the fixed assets (like buildings and machinery) to the value of the current assets (like cash and stock). Therefore, the total value of fixed and current assets represents the capital employed in the business.

Common mistake: Students often mistakenly choose 'working capital', but this is calculated by subtracting current liabilities from current assets, not by adding fixed and current assets together.

The standard formula for calculating Gross Profit is Sales less the Cost of Goods Sold (COGS). The formula for COGS is Opening Stock + Purchases - Closing Stock. When we rearrange this, the formula becomes Gross Profit = (Sales + Closing Stock) - (Opening Stock + Purchases). By comparing this correct formula to the one in the question, we can see that 'P' directly corresponds to Sales.

Common mistake: Students may get confused by the rearranged formula and incorrectly associate 'P' with Purchases or 'Purchases returns', not realizing that in this format, 'P' represents Sales, which is added to the closing stock.

The standard formula for calculating the cost of goods available for sale is Opening Stock plus Purchases. In the given equation, Gross Profit is found by subtracting the cost side (Opening stock + G) from the revenue side (Closing stock + P). Therefore, 'G' represents Purchases, which is the cost of goods bought for resale during the period.

Common mistake: Students often mistakenly choose 'Sales' because they get confused by the rearranged formula, forgetting that Purchases (a cost) is always added to Opening Stock.

Cumulative preference shares have a special feature where any unpaid dividends accumulate over time. This means if the company cannot pay the dividend in a particular year, the amount owed is carried forward and must be paid in a future year before any dividends are given to ordinary shareholders. Therefore, the statement that unpaid dividends are carried forward is the correct definition.

Common mistake: Students might mistakenly choose option C, confusing cumulative preference shares with participating preference shares, which are the ones that can receive an extra share of profits.

A debenture is a type of long-term loan given to a company. When a debenture is described as 'mortgaged', it means the loan is secured with some of the company's assets, like land or buildings. This means if the company fails to pay back the loan, the people who lent the money (debenture holders) can sell those assets to recover their funds.

Common mistake: Students may confuse the security of a debenture with its repayment terms, leading them to incorrectly choose 'redeemable' or 'irredeemable'.