1ST TERM SS2 COMMERCE SCHEME OF WORK AND NOTE

FIRST TERM E-LEARNING NOTE

SUBJECT: COMMERCE CLASS: SS 2

SCHEME OF WORK

WEEK TOPIC

1 Credit – Credit Sales and Deferred Payment.

2 Credit – Hire Purchase, Leases, Mortgages etc.

3. Purchase and Sale of goods – Main documents used.

4. Purchase and Sale of goods – Terms of Trade, Terms of Payment, Common Abbreviations.

5. Means of Payment

6-7 Consumer Protection

8-10 Limited Liability Companies

11 Revision

12 Examination

WEEK ONE

TOPIC: CREDIT

CONTENT

• Definition of Credit
• Basis for Credit
• Credit Sales
• Deferred Payment

  CREDIT
  

Credit is any arrangement made with a shop, bank, trader, business organization etc. that makes it possible for money, goods or services to be obtained and payment deferred to a future date/time.

BASIS FOR CREDIT

1. Personal integrity of the customer
2. Level of income of the customer
3. Nature and reliability of the customer’s job or business
4. Personal financial commitment of the customer
5. Sources of credit repayment

TYPES OF CREDIT

1. CREDIT SALES:

This simply means the transfer of goods and services from a seller to a buyer without any payment being made immediately. The buyer takes possession of the goods with a promise to pay at a future date. Payment by the buyer could be made installmentally or all at once.

Advantages of Credit Sales to the Seller

1. Increase in sales or turnover
2. Increase in profit i.e. the seller makes more profit
3. The seller sells at a higher price
4. It reduces the risk of holding stock e.g. risk of fire, theft, obsolescence
5. It quickens the disposal of perishable and timed goods.

Disadvantages of Credit Sales to the Seller

1. The seller has more of his capital tied up in debts
2. There is risk of bad debts since not all the money owed by customers can be recovered
3. Risk of inflation/devaluation in value of money
4. The seller incurs additional expense owing to the volume of paperwork involved in keeping records and sending reminders to slow payers
5. The seller requires a bigger capital to be able to stay in business

Advantages of Credit Sales to the Buyer

1. The buyer enjoys the use of the goods before he has paid for them.
2. The buyer is free to dispose of the goods as he pleases (i.e. sell it) since he is the owner of the goods even though he may not have paid all the installments due.
3. If the buyer defaults in his payment, the seller cannot repossess the goods.
4. At times, it is a solution to necessity for people who are in short of ready cash.

Disadvantages of Credit Sales to the Buyer

1. The buyer pays more than he would have paid in cash purchase
2. There is temptation for the buyer to over purchase i.e. to buy goods beyond his means
3. The buyer has less opportunity to bargain or negotiate for better conditions of sale
4. It reduces the scope of choice of the buyers since not all sellers sell on credit.
5. The buyer may be given inferior or sub-standard products since he is not paying cash immediately

EVALUATION QUESTIONS

1. Explain three reasons why a trader may sell his goods on credit
2. State four advantages of credit sale to the seller

1. DEFERRED PAYMENT:

This is a type of credit arrangement whereby the buyer becomes the owner of the goods by paying an initial deposit with a promise to pay the balance instalmentally

FEATURES OF DEFERRED PAYMENT

1. Initial deposit
2. Installment payment
3. Ownership (title to the goods) is transferred to the buyer immediately the initial deposit is paid.
4. It is an arrangement suitable for both consumables and durable goods.
5. If the buyer defaults in the payment of his installment, the seller cannot repossess the goods, but can only sue the buyer in order to recover his remaining amounts.
6. Cash discounts may be given by the seller to encourage the buyer to pay promptly.
7. The seller may or may not charge interest on the balance remaining unpaid by the buyer after the initial deposit is made.
8. The goods are regarded as having been sold immediately the buyer pays the initial deposit. Therefore, the buyer can dispose off the goods as he likes i.e. he can sell it or pledge it as security for a bank loan.

N.B. Advantages/Disadvantages of Deferred Payment to Sellers and Buyers are the same as for Credit
Sales

EVALUATION QUESTIONS

1. State four features of deferred payment
2. List four disadvantages of deferred payment to the buyer.

GENERAL EVALUATION/REVISION QUESTIONS

1. State five reasons why a trader may be reluctant to sell goods on credit to his customers
2. List five differences between credit sale and deferred payment
3. State five ways in which a bonded warehouse may be useful in international trade
4. State and explain the importance of any five ancillary services to trade
5. Describe five measures each which a government may take to (a) restrict imports

(b) promote exports

READING ASSIGNMENT

Essential Commerce for SSS by O.A. Longe Page 120 – 127

WEEKEND ASSIGNMENT

1. If a customer is allowed N1000 overdraft and he receives a bank statement showing an overdraft of N100. This means that he (a) cannot draw more cheques (b) is owed N100 by the bank (c) owes the bank at least N900 (d) owes the bank N100 only
2. The granting of permission to pay at a future date for something of value received now is called (a) overdraft (b) loan (c) credit (d) installment payment
3. What is not an instrument of credit (a) bill of exchange (b) cheques (c) money order (d) source documents
4. A bank overdraft can only be granted to the holder of a (a) current account (b) deposit account (c) savings account (d) fixed deposit account
5. Short – term loan to expand a business is provided by (a) building societies (b) central bank (c) commercial bank (d) mortgage bank

THEORY

1. What is credit?
2. State three advantages of credit sales to the buyer

WEEK TWO

TOPIC: CREDIT

CONTENT

• Hire Purchase
• Mortgages
• Leases/rentals
• Loans and overdrafts
• Credit Instruments

Hire Purchase

This is a credit arrangement whereby the seller allows the buyer to take possessions of goods on hire basis after making an initial deposit to be followed by a number of specified regular installments at the end of which he becomes the owner of the goods involved. Even though the buyer (i. e the hirer) obtains immediate possession of the goods by paying the initial deposit demanded by the seller, the goods will continue to be on hire and the buyer does not become the owner until he has paid the final installments

A hire purchase agreement is suitable for durable goods such as Motor Vehicles, Furniture, Refrigerators, electronics, washing machines, machinery etc. since these have a resale value in case the hirer (buyer) fails to pay the installments.

If the hirer (the buyer) defaults in payment of any of the installments the seller may reposses the goods. The buyer (hirer) has no power to sell or pledge the goods without the consent of the owner (seller) during the time the goods are on hire.

The hire purchase agreement may be financed under any of the following arrangements.

1. Private arrangement – by the buyer (hirer) himself .i.e. the agreement is only between the seller and the buyer

2. Multilateral arrangement – here the agreement is between the seller, a finance company, the buyer (hirer) and the guarantor of the buyer

Features of Hire Purchase

i. Initial deposit

ii. Installment payments

iii. It involves durable goods

iv. The goods are on hire

v. Ownership of the goods remains with the seller; the buyer will not become the owner of the goods until he pays the final installment

vi. The seller usually charges interest on the amount yet to be paid by the buyer therefore the Hire purchase price is always more than the cash price

vii. If the buyer (hirer) default in paying any of the installment the seller will reposes the goods

viii. The buyer (hirer) cannot sell, destroy, damage, exchange or pledge the goods as security for a loan until he pays the final installment

ix. Bad dept is rare due to

 a. Repossession

 b. Insurance of the goods by the seller

x. Cash discount is not given to the buyer

EFFECTS OF HIRE PURCHASE ON THE SELLER

a. Quick turnover (Sales)

b. It ties down the seller’s capital

c. The seller makes more profit

d. The seller runs the risk of accumulating damaged goods

e. It involves additional record keeping .i.e. book-keeping

f. Changes in the law or government regulation on hire purchase may affect the seller’s operations

EFFECTS OF HIRE PURCHASE ON THE BUYER

a. He is encouraged to save

b. He enjoys the use of goods not fully paid for

c. He can terminate the contract (i.e. hire purchase agreement) and return the goods

d. He could lose both the money paid and the goods if he defaults

e He cannot sell or transfer the goods during the period of payment

ADVANTAGES OF HIRE PURCHASE TO THE SELLER

i. It increases his turnover (or Sales)

ii. It increases his profits as he sells at higher prices i.e. he earns high interest rates

iii. It enables the seller to dispose off expensive durable goods quickly

iv. The seller increases his selling price

v. Bad debt cannot occur as the seller can reposes the goods if the buyer defaults

DISADVANTAGES OF HIRE PURCHASE TO THE SELLER

i. It ties down a lot of the seller’s capital

ii. The seller requires large capital to be able to operate well

iii. It involves additional cost in respect of record – keeping and collection of installments

iv. The seller runs risk of accumulating damaged second-hand products

v. The seller may find it difficult to resell repossessed goods.

EVALUATION QUESTIONS

1. State eight features of Hire Purchase

2. State five disadvantages of Hire Purchases to the Seller

3. State five effects of Hire Purchase on the buyer

ADVANTAGES OF HIRE PURCHASE TO THE BUYER

1. He enjoys the use of the goods before he has paid for them

2. He is encouraged to save in order to pay the installments

3. He can at any time terminate hiring and return the goods

4. The seller renders more after – sales services in respect of the goods

5. He can obtain expensive goods when he could not have afford otherwise

DISADVANTAGES OF HIRE PURCHASE TO THE BUYER

1. Goods are more expensive under hire purchase compared to cash purchase

2. Buyers may be tempted to buy more than he can afford and thus accumulate great debt

3. The buyer may lose the goods and all the installments of the goods

4. The buyer cannot sell or transfer the goods until he has paid fully for it.

5. It reduces scope of choice of the buyer since not all sellers on hire purchase

MORTGAGES: This is a special type of credit system whereby a mortgage bank, building society, savings and loans company gives a loan to an individual or business for the purpose of building a house or purchasing a piece of land. The loan borrower (the mortgagor) uses the land or building he has built or purchases with the loan as a security with the bank or building society (the mortgagee). Mortgages are repaid installmentally and are usually long-time in nature.

LEASES/RENTALS: Under lease arrangement a party (lessee) is allowed to make use of an item while making regular payments (rentals) to the owner (lessor). There are two types of lease.

a. Finance Lease: Here the ownership of the asset will be transferred to the lessee after the expiration of the lease agreement.

b. Operating Lease: The asset remains the property of the lessor after the expiration of the lease agreement.

Rental and lease are similar except the rentals are for a very short time while leases are for a long time.

LOAN AND OVERDRAFT: Loans may be obtained from banks or finance houses to set up new business or expand existing ones.

However, overdrafts are usually granted by banks to current account operators to meet immediate commitment. The bank will charge interest on loans and overdrafts granted to their customers.

CREDIT INSTRUMENT

These are written documents through which credit is granted or through which repayments are made on account of credit transactions. They include

1. Bill of exchange

2. Money order

3. Bank drafts

4. Cheques

5. Promissory Notes

6. Credit Cards

7. Letter of Credit

8. Debentures

9. Bonds

10. I. O. U

EVALUATION QUESTION

1. State seven differences between Hire Purchase and Deferred Payment

2. Explain the following types of credit

 (a) Mortgage (b) Loan and overdraft

3. Messrs Ola and Musa are both traders:

Ola trades on cash basis only while Musa allows credit. Give four reasons each whay Ola insists on cash payment and Musa allows credit Sales.

GENERAL EVALUATION/REVISION QUESTIONS

1. State five effects of hire purchase on the seller
2. List five advantages of hire purchase to the seller
3. Explain seven factors that should be considered in siting a small retail shop
4. State and explain five problems likely to be faced by a businessman who wants to sell his goods overseas
5. What five benefits does Nigeria derive from engaging in international trade

READING ASSIGNMENT

1. Essential Commerce SSS by O. A. Longe Page 120 – 127

2. Comprehensive commerce for SSS by J. U. Anyaeli Page 182 – 189

WEEKEND ASSIGNMENT

1. Which of the following is not suitable for hire purchase (a) Textile (b) Furniture (c) Refrigerators (d) Printing Machine

2. What is defined as an arrangement to pay an initial deposit for an object and then pay the balance in regular installments while having the use of the object (a) Conditional Sales (b) Credit Sales (c) Hire Purchase (d) Leasing

3. Credit in business transaction is a (a) Means of saving money (b) Rebate for large purchases (c) Form of Loan (d) Prepayment by customers

4. Which of the following is not true of hire purchase (a) Buyer pays more than the normal price of goods (b) Seller can reposes the goods if buyer defaults (c) Seller makes high turnover on each item sold (d) Buyer becomes the owner of the goods as he takes possession

5. A contract of sale where ownership passes to the buyer on the payment of the first installment is known as (a) Hire Purchase (b) Lease (c) Cash on delivery (d) Credit Sale

THEORY

1. List three goods that can be sold on hire purchase

2. State two advantages of Hire Purchase to the seller

WEEK THREE

TOPIC: PURCHASE AND SALE OF GOODS – MAIN DOCUMENT USED

CONTENT

• Steps involved in purchase and sale of goods under home trade
• Documents exchanged between buyers and sellers – their features and uses

NOTES

Trade between the wholesalers and the retailers has a number of vital stages involving the use of some important documents. All commercial transactions are recorded by the issue of an appropriate document and copies are kept as evidence of the transaction.

The major stages involved and the documents used in home trade (i.e. trade between wholesalers and retailers) are:

STEP 1: TRADE JOURNALS: These are publications which serve as sources of information to the buyer. It usually specializes on a particular product. There are trade journals that also feature general wholesale trading.

STEP 2: INQUIRY: (or ENQUIRY): A retailer may write a letter of inquiry to the wholesaler to ask for particulars of the goods required, price list of goods required, details of payment, credit terms, delivery terms etc.

An inquiry can also be made by telephone or by personal contact.

STEP 3: QUOTATION/PRICE LIST/CATALOGUE: Following receipt of the inquiry, the wholesaler sends a quotation or price list or a catalogue by the retailer. Either of these contains names of goods available, prices, terms of payment and mode of delivery.

QUOTATION /PRICE LIST

Diligent Merchants Enterprises

15 Motorway Plaza, Ikeja

Tel: 4719253 Quotation N0: 3150

Date: 25/03/2014

To:

Wisdom & Peace Stores Ltd

22 Bayero Avenue

Kano.

Items Price/Carton

Lux Soap N2,500

Peak Milk N6,800

Lipton Tea N1,500

Close-up Toothpaste N3,400

Order over N250,000; carr. Pd.

Terms: Trade discount 10%

Cash discount: 5% 7days: 3% 15 days: Net 1 month

E/&O.E.

STEP 4: ORDER: After receiving the quotation or price list or catalogue, the retailer then places his order for the goods required. The order contains descriptions of goods required and would be accompanied by either cash or a request for credit facility. If the retailer is requesting for credit facility for the first time, he usually refer to business firms he has had previously dealing with to act as his referees.

STEP 5: DELIVERY: When the wholesaler receives the order he finally delivers the goods required to the retailer. Delivery could be on a cash-on-delivery (C.O.D) basis by which payment is made when the goods are delivered. It could also be on a credit basis in which cash payment for the goods is postponed till a later date agreed on by both the wholesaler and the retailer.

REVIEW QUESTIONS

1. Explain the difference between the following terms of payment (a) C.W.O (b) C.O.D

   2. List and explain the first five documents exchanged between traders engaged in home trade.

1. DELIVERY (or DESPATCH) NOTE: This is a document which usually accompanies the delivery of goods. It provides the consignee (i.e. the receiver of the goods) with a list of items in that particular consignment but does not include prices. Its purpose is for the buyer to check, confirm the goods, sign and hand its duplicate back to the lorry driver as proof of delivery in good conditions (i.e. proof that the goods were not damaged). It is mainly used when goods are carried by the wholesalers own means of transport and it is sent with the goods.

1. CONSIGNMENT NOTE: This is used when goods are sent through and independent carrier. The carrier supplies the consignment note and gets it signed to show that he delivered the goods. It contains details of the goods carried and states who is responsible for the freight.
   1. Purpose: A consignment note serves the following purposes.
      1. It serves as a declaration of the goods to be carried by the railway or other carriers
      2. It serves as a contract (agreement) between the consignor and the carrier for carriage of the goods by the carrier
      3. It serves as a receipt for goods delivered

b. Contents: A consignment note contains the following details

• Date of dispatch of the consignment
• Senders (i.e. consignors) name and address
• Destination to which the goods are consigned
• Consignees (i.e. receivers) name and address
• Number of packages in the consignment
• Description of the goods being consigned
• The party to pay the carriage charge (i.e. freight)
• The conditions under which the carrier accepts to carry the goods. This is usually printed at the back of the consignment note
• Whether the goods are carried at the owners’ risk or at the carriers’ risk

1. ADVICE NOTE: This is sent by postage or fax the day the goods are dispatched to inform the buyer in advance that the goods are on the way and what goods to expect. It informs the buyer of the date on which the listed goods were dispatched and of the means of transport employed. It also informs the buyer what steps to take if the goods fail to arrive within a reasonable time.

2. INVOICE: This is a document sent by the seller to the buyer. It describes the goods, state the price, gives the quantity and indicate the terms of payment. It is not a request for payment. It helps the buyer to fix his selling price.

Diligent Merchant Enterprises

15 Motorway plaza, Ikeja

Tel: 4715253 No: 1029

Date 15/04/2006

Your order No: 2467

INVOICE

To:

Wisdom & Peace Stores Ltd

22 Banjero Avenue, Kano

Ref: Quotation No: 3150

Terms = 5% 7 days, 3 to 15days = Net + month

E. & O.E.

REVIEW QUESTIONS

1. State three contents of a consignment note

2. List any three features of an invoice

GENERAL EVALUATION/REVISION QUESTIONS

1 Explain three ways by which banks grant credit to customers

2 List seven factors to be considered in choosing a channel of distribution for goods

1. State five reasons why road transport would be preferred to rail transport
2. State five uses of the consignment note in home trade

5 State three differences between an invoce and a price list

READING ASSIGNMENT

1. Essential Commerce for SSS by O.A. Longe Page 135-140
2. Comprehensive Commerce for SSS by J.U. Anyaele Page 260-277

WEEKEND ASSIGNMENT

1. __________ is a letter sent to the suppliers requesting details of goods offered for sale (a) invoice (b) letter of enquiry (c) purchase order (d) quotation
2. Which of the following offers goods for sale (a) receipt (b) invoice (c) payment order (d) price list
3. When goods arrive at their destination, the consignee takes possession by signing the (a) ship manifest (b) pro forma invoice (c) delivery note (d) advice note
4. On which of the following terms of sale does the buyer pay immediately and provide his own transport (a) cash and carry (b) cash on delivery (c) cash with order (d) credit sale
5. Which of the following documents shows a summary of a complete sale which the supplier send to the buyer (a) delivery note (b) invoice (c) quotation (d) credit note

THEORY

1. State two differences between a delivery note and a consignment note
2. List three information that could be found on a quotation or price list

WEEK FOUR

TOPIC: PURCHASE AND SALE OF GOODS – MAIN DOCUMENTS USED

CONTENT

• Documents exchanged between buyers and sellers – their features and uses
• Common trade terms
• Terms of payment
• Common abbreviations

NOTES

5. PRO FORMA INVOICE: This is a document sent by a supplier to a prospective buyer informing him what he is likely to pay if he buys the goods concerned. The Pro forma invoice is similar to an invoice except that the words PRO FORMA is written across its face. It is sent mainly to inform the prospective buyer/customer about the prices of goods. It is not a document of indebtedness.

CIRCUMSTANCES IN WHICH A PRO FORMA INVOICE IS USED

1. The seller uses it as a polite way of refusing the buyer credit when it is asked for. It is used when the wholesaler does not wish to sell on credit
2. When goods are sent to an agent who will organize their sales
3. It is used when goods are sent on inspection either for the customer to accept or return the goods to the seller within an agreed period
4. It is used to reject an order that is too small
5. It is used when repairs and servicing are carried out for which no charge is made
6. It is sent when a quotation is asked for by the customer
7. It serves as a reply to a letter of enquiry because it shows the prices of goods
8. It can be used as a basic for the calculation of duty by the customs authority

   6. CREDIT NOTE: This is a document, usually printed in red, sent by the seller to inform the buyer that the sum specified in the credit note has been credited to his account thereby reducing the amount charged on the invoice.

   Credit note is used to correct errors discovered in the invoice which overcharge the buyer.

REASONS FOR ISSUING A CREDIT NOTE

A credit note is sent when:

1. An overcharge has been made i.e. a credit note is issued to correct the overcharge
2. When the buyer returns goods for some reasons e.g. not as ordered or if goods are damaged
3. Packing cases or empties or returnable e.g. bottles, crates, cartons cylinders – already charged for are returned to the seller
4. Gift vouchers are presented by the buyer
5. Invoices are sent in error – a credit note is used in this case to cancel the wrong invoice

   7. DEBIT NOTE: This is a document sent by the seller to inform the buyer that the sum specified in the debit note has been debited to his account as a result of an error discovered in the invoice sent earlier which undercharged him.

   The debit note informs the buyer that he owes more than the sum stated on the invoice sent earlier. The extra sum of money the buyer owes is stated in the debit note.

REASONS FOR ISSUING A DEBIT NOTE

A debit may be sent when:

1. Goods are undercharged i.e. a debit note is issued to correct the undercharge
2. Omissions are made on the invoice i.e. goods sent to the buyer are not charge on the invoice
3. The buyer fails to return returnable packing cases or empties not charged for in the invoice
4. If the invoice is inadequately priced
5. When goods dispatched are more than the ones invoiced

The debit note therefore serves as an additional (or a supplementary) invoice since it is used to increase the amount charged on the invoice sent earlier.

8. STATEMENT OF ACCOUNT/STATEMENT: This is a document sent out by a supplier (seller) to each customer at the end of each month or at some regular intervals showing:

1. The opening balance i.e. balance brought forward – bal. b/f
2. The closing balance – balance outstanding at the end of the period – bal c/f
3. The dates and amount of the invoices rendered during the current period
4. The payments received from the retailer during the period i.e. cash, cheques etc
5. Particulars of any other credits i.e. the amounts of credit notes issued in favour of the retailer during the period
6. The amounts of debit notes issued against the retailer during the period

   9a. PAYMENTS: The buyer can pay for the good he bought in cash or with other means of

   payment e.g. cheques, bank drafts, postal order, money order, credit transfer etc.

   9b. RECEIPT: This is a document issued by the seller to acknowledge payment made by the buyer

USES OF THE RECEIPT

1. It shows evidence of payment
2. It is used for auditing purposes
3. It is a tittle of ownership (i.e. proof of ownership of property)

10. STATUS INQUIRY/REFERENCE LETTERS

When the buyer requests for credit especially in the first instance he usually supplies the names of businesses of firms with whom he has previous dealings as referees.

The seller can ascertain the buyers financial position, business experience and integrity by referring to the bankers of the buyer. This is known as carrying out a status inquiry.

A reference letter can also be written to firms provided as referees for the same purpose.

REVIEW QUESTIONS

1. State four instances in which a pro-forma invoice is used.
2. What is the difference between a statement and an invoice
3. List and explain the first five document used in home trade

TRADE TERMS

These are the various terms used in commerce (i.e. buying and selling of goods). The common trade terms are:

1. DISCOUNT: Discount is the reduction in the price of goods given by a seller to a buyer to encourage bulk purchase and prompt payment. A discount decreases the amount someone pays when buying goods.

TYPES OF DISCOUNT

1. Cash Discount: This is an allowance given to a customer to encourage payment for goods and services within a stipulated period of time. It is conditional in that the customer must pay promptly to enjoy the cash discount.
2. Trade Discount: This is the reduction in the catalogue price of goods made by a seller in order to encourage customers to make bulk purchases or to provide for the retailers profit margin. It is usually based on a percentage of the total price of goods invoiced.
3. Quantity Discount: This is offered by the supplier to the retailers as an inducement to buy large quantities of goods in a single order. The objective of the supplier on this case is to reduce his operational costs e.g. transportation cost.
4. Seasonal Discount/Special Discount: This is a price reduction given by a producer or seller to buyers for special reasons such as end-of-season discounts, clearance sales, introduction of new products etc.

TERMS OF PAYMENT: The transactions between the seller and the buyer could be on cash basis or credit basis. Cash transactions could be on the following basis:

1. Cash on Delivery (COD)
2. Cash with Order (CWO)
3. Spot Cash: This is a condition where sellers and buyers are in physical contact and the buyer must pay cash for the goods bought from where (i.e. the spot) he takes over the goods.
4. Prompt Cash: The buyer is requested in the case to pay for the goods within two or three days after which period he must have checked the goods and examined the invoice.
5. Net Cash: This refers to the amount payable after all deductions and allowance have been made. It could also mean the amount payable when no deduction (i.e. discounts) are allowed.

COMMON ABBREVIATIONS

The common abbreviations found on the document listed earlier include

1. E. & O. E. Errors and Omissions Excepted:- This is usually placed at the foot (bottom) of invoices, price list/ catalogue/quotations. It indicates that the details stated in the invoice or price list are not final and conclusive and that the seller reserves the right to correct any error or omission on the invoice or price list.
2. V.A.T. (Value Added Tax):- This is charged on all sales and added as a percentage to the total amount shown on each invoice.
3. Carr. Pd. (Carriage Paid):- This means that the goods are delivered free of charge to the buyer the seller bearing all expenses of transit and all risks up to the time of delivery at the prescribed destination.
4. Carr. Fwd (Carriage Forward):- This implies that the buyer pays for the cost of transporting the goods.
5. F.O.R. Kano:- This means “free on Rail up to Kano” i.e. the seller pays for the transportation of the goods by rail up to Kano from where the buyer bears all other freights if any.
6. P.P.:- i.e. “per pro”, meaning “for and on behalf of” used when the document is being signed by someone other than the designated officer.
7. Estimate/Tender:- This is a detailed estimate of a contract or construction work submitted in response to an advertisement.

REVIEW QUESTIONS

1. State five reasons why a trader usually grant discounts to his customers.
2. State three differences between Cash Discount and Trade Discount
3. Explain the terms (a) C.W.O. (b) E.& O.E.

GENERAL EVALUATION/REVISION QUESTIONS

1 State the difference between an ordinary invoice and a pro forma invoice

2 Explain the following terms used in connection with an invoice (a) 5% trade discount

(b) net 3 months (c) E. & O. E. (d) carriage forward (e) 15% cash discount

3 State three characteristics of tramp vessels and two characteristics of ocean liners

4 Describe five different activities engaged in by people in commercial occupations

5 List five benefits of each of the following (a) branding (b) after sales services (c) self

service (d) vending machine

READING ASSIGNMENT

1. Essential Commerce for SSS by O.A. Longe, Page 135 – 146
2. Comprehensive Commerce for SSS by J.U. Anyaele, Page 260-277

WEEKEND ASSIGNMENT

1. The document which gives complete information about the goods sold is the (a) delivery note (b) invoice (c) order form (d) quotation
2. The document sent by the suppliers of goods to a prospective buyer informing him of what to pay if he buys the goods is (a) credit note (b) debit note (c) invoice (d) pro forma invoice
3. A buyer made an underpayment of N7,000 which document would be used by the seller in order to correct the error (a) an invoice (b) a credit note (c) debit note (d) receipt
4. Which of the following does a seller send in reply to a letter of inquiry (a) advice note (b) credit note (c) quotation (d) delivery note
5. A receipt is a/an (a) list of goods received (b) list of goods to be supplied (c) acknowledge of money received (d) order for the goods to be purchased

THEORY

1. State three instances where the seller could issue a credit note to the buyer
2. State three uses of the receipt

WEEK FIVE

TOPIC: MEANS OF PAYMENT

CONTENT

• Factors determining the method of payment
• Classifications of means of payment.

Means of payment refer to the various instruments and processes available for the settlement of business transactions or financial indebtedness.

FACTORS DETERMINING THE METHOD OF PAYMENT

1. The total amount of money involved
2. The cost of the means of payment
3. The urgency of payment
4. The date when payment is due
5. The type of account kept by the debtor
6. The wishes and preferences of the creditor
7. The custom or practices of the particular trade
8. The safety consideration inherent in the proposed settlement
9. The distance between the payer and receiver

CLASSIFICATION OF MEANS OF PAYMENT

The various means of payment for settling business or financial transactions in Home Trade can be classified as:

(1) Legal Tender

(2) Payment through bank

(3) Means of Payment provided by the post office

(4) Means of payment provided by Businessmen

1. Legal Tender: These are means of payment provided by the state. They are available in several denominations of bank notes and coins e.g. N1000, N 500, N 100, 50k, N 1 etc.

2. Payment through the Bank: The means of payment under this category include
   1. Cheque: this is an instruction to a bank requesting it to pay a stated some of money to a named payee who presents the cheque for payment.
   2. Standing order: This is an instruction by an account holder to the bank to pay a fixed amount of money on his behalf at regular intervals to a named person or organization.
   3. Bank Draft: This is a cheque drawn or issued by a bank and also drawn on a bank. It guarantees payment and is therefore preferred by the creditor to a personal cheque issued by the debtor himself.
   4. Direct Debit: This is a method in which the payee (creditor) claims the payment. It is used where the amount involved varies or where payment is made at varying intervals. It is the creditor that makes a demand for payment by sending invoices direct to the debtors bank for settlement.
   5. Credit Transfer (Bank Giro): This operates by the debtor’s bank paying directly into the bank account of the creditor. The debtor would have supplied the name, account number, address of the bank of the creditor to his own bank.

C. Means of payment provided by the Post Office:

i. Postage stamps: These are used in paying for small items or to settle debts of small amounts of money. The stamps so collected can be re-used in sending mails.

ii. Postal Orders: This is used for the transfer of small sums of money. It has the following features:

1. Issued by the Post Office
2. Issued in various denominations
3. Valid for six months from the date of issue
4. It is not negotiable i.e. the payee cannot transfer it to another person
5. A commission called POUNDAGE is charged by the Post Office according to the amount involved
6. It is not a legal tender
7. It may be crossed in which case it must be paid into a bank account
8. It may be redeemed (cashed) at a named Post Office or paid into a bank account

EVALUATION QUESTIONS

1. Classify means of payment under the following headings

(a) Legal tender (b) Banking system (c) Post office

2. What are the advantages of making payment by standing order

iii. Money orders: These are issued for paying larger amount of money than postal order

i. It is not negotiable

1. It may be crossed – in which case it must be paid into a bank account
2. Higher commission (poundage) are charged compared to Postal orders
3. It is valid for six months from date of issue

iv. Telegraphic Money Orders: These are used when speed is needed. An order for payment is telegraphed to the appropriate Post Office for payment to the specified payee.

v. Post Office Giro: The post office also keeps accounts e.g. savings accounts for customers. Debts can be settled by transfers from one account to another through giro cheques or transfer orders.

D. Means of Payment provided by Businessmen:

i. Bill of Exchange: This is a bill drawn by the creditor (the seller of the goods) on the debtor (the buyer) whereby the debtor is instructed to pay a sum of money within a period of time, say three months. The bill must be accepted by the debtor.

 ii. Promissory Note: This is a note issued by debtors which is only a promise to pay the stated amount at a certain time. It does not require acceptance.

 iii. IOU (I Owe You): This is an acknowledgement of a debt owed to the holder by the person who has signed it. It does not need to show the due date for payment

EVALUATION QUESTIONS

1. Differentiate between the following

1. Money Order and Postal Order
2. Bill of Exchange and Promissory Note
3. Direct Debit and Credit Transfer

2. Outline four essential features of a bill of exchange.

GENERAL EVALUATION/REVISION QUESTIONS

• State five reasons why countries restrict foreign trade

1. Explain six functions of wholesalers to manufacturers
2. List ten facilities a good seaport should have
3. State five features of each of the following means of payment (a) cheque (b) postal order
4. Explain five factors to be considered in choosing a means of payment for the settlement of debt

   READING ASSIGNMENT
   

5. Essential Commerce for SSS by O.A. Longe Page 146 – 149
6. Comprehensive Commerce for SSS by J.U. Anyaele Page 279 – 285

WEEKEND ASSIGNMENT

1. Which of the following is charged by NIPOST on postal order

(a) Interest (b) Tax (c) Premium (d) Poundage

2. The Naira is a legal tender because it is

(a) generally acceptable (b) homogenous

(c) portable (d) backed by law

3. Which of the following requires acceptance by the debtor to make it valuable

 (a) postal order (b) cheque (c) bill of exchange (d) promissory note

4. One of the means of making payment through the NIPOST is the

(a) cheque (b) money order (c) standing order (d) promissory note

5. A cheque that is drawn in the name of a bank instead of the account holders name is called

(a) bank statement (b) bill of exchange

(c) crossed cheque (d) bank draft

THEORY

1. State three factors determining the choice of means of payment.

2. Outline three essential features of Postal order.

WEEK SIX

CONSUMER PROTECTION

CONTENT

1. Consumerism/ consumer protection

2. Reason for consumer protection

3. Methods of consumer protection

4. Consumer protection by legislation

A consumer is an individual who make the final use of goods and services provided by a firm.

Consumerism refers to organized efforts or actions of consumers or individuals to protect themselves against the unfair practices of businessmen.

Consumer protection is a process whereby the government or its agents and also private organizations try by various ways such as legislation, standards, price control etc to ensure that consumers derive maximum satisfaction from commodities they purchase and to reduce their exploitation by manufacturers, wholesalers and retailers.

NEED/REASONS FOR CONSUMER PROTECTION

1. To ensure that consumers derive maximum satisfaction from commodities they purchase.

2. To reduce exploitation of the consumer by the manufacturers and middlemen

3. To protect consumers from misleading claims and false advertisements.

4. To protect consumers against the adverse effects of consuming harmful and dangerous goods e.g. drugs, foods etc.

5. To ensure that producers adhere to standard quality of goods and to prevent consumers from consuming substandard and inferior goods

6. To prevent consumers from being cheated by the use of false, incorrect and deceptive weights and measures.

7. To stamp out profiteering and exploitation of consumers by businessmen fixing artificial and arbitrary high prices.

8. To ensure regular supply of essential goods and services

9. To assist consumers in making right choices

METHODS OF CONSUMER PROTECTION

or

WAYS BY WHICH CONSUMERS CAN BE PROTECTED

1. By legislations

2. Through government agencies/organizations

3. By independent organizations

A. By Legislations: Many laws have been enacted by the government to protect consumers against unsatisfactory goods and unfair practices by producers and sellers.

The following are some of such laws:

1. Sale of Goods Act 1893

2. Food and Drugs Act 1974

3. Hire Purchase Act 1975

4. Trade Description Act 1968

5. Misrepresentation Act 1968

6. Consumer Credit Act 1974

7. Price control Act 1970/Price Control Edicts

8. Supply of Goods (Implied Items) Act 1973

9. Fair Trading Act 1973

10. Weights and Measures Act 1963

11. Usury Laws

12. Rent Tribunal Act

EVALUATION QUESTIONS

1. What is Consumerism?

2. Give five reasons why consumers need protection

1. Sale of Goods Act 1893: This law protects the consumer from buying defective goods and goods that do not conform with the description and sample advertised. It makes it possible for the cash price to be reclaimed by the buyer if goods are found to be faulty

2. Food and Drugs Act 1974: This law protects the consumer from buying goods (Foods, Drinks, Drugs) not fit for human consumption

3. Hire Purchase Act 1975: This law is designed to protect the consumer who buys goods on hire purchase basis from being cheated or exploited by the seller

4. Trade Description Act 1968: This law safeguards consumers against

a. False claims about description of goods with regard to quantity, size, composition method place and date of manufacture, strength, behaviour and fitness

b. False comparison between the price currently being charged and the price charged previously

5. Misrepresentation Act 1968: This law protects the consumer from

misleading advertisement, sales handbills, posters etc

6. Consumer Credit Act 1974: This law protect consumers from being exploited in hire purchase deferred payment and other credit transactions.

7. Price Control Act (Decree): This law pegs the selling prices of some goods. It is aimed at checking arbitrary increase by manufacturers and middlemen. It also protects the consumer from paying very high or exorbitant prices for certain products.

8. Supply of Goods (Implied Items) Acts 1973: This Acts puts an end to misleading guarantees. By the law, this responsibility for the condition of goods rests on the retailer. The buyer can therefore look for immediate redress if the goods are unsatisfactory or develop early faults. The law also protect the consumer against failure to honour guarantee and warranties/satisfaction.

9. Fair Trading Act 1973: This law protects the consumer against unfair business practices by helping consumers to know their rights through the publication of leaflets, sanctioning (punishing) traders who commit offences or ignore their obligations to customers

10. Weights and Measures Act: This law requires that

a. Suppliers of goods should state the weight or volume of their items

b. There should be no shortages in both weight and measure of goods sold as claimed by the producer

c. The seller (producer should inform the buyer of the unit of measures used i.e. whether it is the metric system (e.g. gm) or the imperial system (e. g. pounds)

11. Usury Laws: This law tends to peg the rate of interest that may be charged on loans and advances. For example there is a limit on the interest rate that banks can charge on overdrafts or loans given to their customers

EVALUATION QUESTIONS

1. List five legislations aimed at consumer protection

2. State three provisions of each of the following Acts

 a. Food and Drugs Act (1974)

 b. Hire Purchase Act (1975)

GENERAL EVALUATION/REVISION QUESTIONS

1 State five features of a partnership business

2 List five uses of land as a factor of production

1. Explain five means by which consumers can be protected
2. State three provisions of the Weight and Measures Act

5 Explain five benefits that would be derived and five losses that would be suffered

when a sole trader admits other partners

READING ASSIGNMENT

Essential Commerce for SSS by O. A. Longe Page 127 – 131

WEEKEND ASSIGNMENT

1. Which of the laws of consumer protection fixes the rate of interest that may be charged on loans (a) Food and Drugs Act (b) Price Control Decree (c) Usury Law (d) Sale of Goods Act

2. Which of the following protects consumers from being mislead by unclear advertisement (a) Food and Drugs Act (B) Trade Description Act (c) Price Control Act (d) Weights and Measures Act

3. Which is the law that protects consumers (a) Companies Act (b) Partnership Deed (c) Rent Tribunals (d) Sale of Goods Act

4. Which is not a legislation aimed at protecting the consumer (a) Food and Drugs Act (b) Consumer Association Act (c) Hire Purchase Act (d) Sale of Goods Act

5. Which of the following makes it an offence for a trader to make untrue statements about his goods (a) Consumerism (b) Consumer Credit (c) Trade Description Act (d) Price Control Act

THEORY

1. State three means by which consumers can be protected

2. State five laws aimed at protecting consumers

WEEK SEVEN

TOPIC: CONSUMER PROTECTION

CONTENT

• Organs of consumer protection
• Government agencies
• Independent organizations
• Rights of the consumers
• Consumer Associations

  GOVERNMENT AGENCIES/ORGANS
  

  This comprises agencies that protect and educate consumers. They include:

  1. Standard Organization of Nigeria (SON): This is an agency set up by the Federal Government to ensure that goods produced at home or imported goods meet certain standards in terms of quality, safety, reliability etc.

  2. National Agency for food and Drugs Administration and Control (NAFDAC): This agency was also set up by the Federal Government to ensure that foods and drugs meet safety hygiene requirements.

  3. Price Control Boards: These boards were established by the government to control the prices of goods. They ensure that certain goods are sold at government controlled prices (PPMB)
  

  4. Rent Tribunals: These are set up by some state government to regulate the rents charged by landlords; prevent unnecessary exploitation of the tenants and to settle disputes regarding to rent between landlords and their tenants.

  5. Environmental Protection Agencies e.g. FEPA; LASEPA, KAI etc: These are government task force on environmental sanitation and they regulate the supply of water, refuse disposal, industrial wastes, issues etc.

INDEPENDENT ORGANIZATIONS:

There are a number of private independent organizations (non government organizations) which seek to protect consumers. These organizations therefore complement government efforts in this regard. They include:

 1. Trade Associations

 2. Manufacturers/Producers Associations

 3. Consumers Associations

 4. The Mass Media

 5. Educational Institutions

 6. Consumer Co-operative Societies

 7. Pressure groups

EVALUATION

1. Mention four government agencies whose activities are related to consumer protection.

2. Give five examples of independent organizations involved with consumer protection.

RIGHTS OF THE CONSUMER

The consumer has the right to:

a. Buy the right quality of goods

b. Inspect the goods before buying

c. Insists on getting values for money spent

d. Choose the good he like

e. Insist on correct measures

f. Insist on correct balances (change) whenever he pays for goods

g. Be informed

h. Be heard

i. Safety of goods bought

j. Seek redress to correct any injustice

k. Healthy environment

CONSUMER ASSOCIATIONS

These are non-profit associations formed by consumers to protect their rights and interests. Examples are Tenants

Associations, Retails Co-operative Societies etc.

AIMS AND OBJECTIVES OF CONSUMER ASSOCIATIONS

1. To act as a check against exploitation of consumers

2. To educate consumers about their rights

3. To check arbitrary increases in prices of goods

4. To promote and protect the interest of consumers

5. To pressurize the producers to produce high quality goods and services

6. To ensure regular supply of goods

FUNCTIONS OF CONSUMER ASSOCIATIONS

1. They advise the consumer on the best brands of goods to buy

2. They are involved in setting standards of products and services that are acceptable to consumers

3. They act as pressure groups to influence government policies/company policies

4. They organize tests to prove the quality of different goods available in the market

5. They protect the interest of their members

EVALUATION QUESTIONS

1. List three right of the consumer

2. What is a consumer association

GENERAL EVALUATION/REVISION QUESTIONS

1 Explain five functions of the Customs Authority.

2 List and explain six new trends in retailing.

3 Expain four advantages and three disadvantages of air transportation.

4 State five functions of consumer associations.

5 Explain five factors affecting the choice of transport of frozen products.

READING ASSIGNMENT

Essential Commerce by O. A . Longe Page 127 – 135

WEEKEND ASSIGNMENT

1. Which of the following is not the right of the consumer according to the Consumer Education and Protection Council. The right to (a) Be informed (b) Choose (c) Healthy environment (d) Save money on food and drugs

2. The greatest weapon of the buyer against the activities of false advertisers is (a) Consumer education (b) Manufacturer’s education (c) Marketing education (d) Producer’s education

3. The body charged with the responsibility of monitoring the quality of goods supplied is the (a) Consumer’s association (b) Manufacturer’s association (c) Ministry of Health (d) Nigerian Standards Organization

4. Standard Organization Act and Factory Ships and Offices Act are meant to give protection to (a) Wholesalers and retailers (b) Manufacturers only (c) Consumers and employees (d) Employees only

5. Which is the law that protects consumers? (a) Manufacturers’ Association (b) Partnership Deed (c) Rent Tribunal (d) Sale of Goods Act

THEORY

1. List two objectives of forming consumers’ associations.

2. List three rights of the consumer

WEEK EIGHT

TOPIC: LIMITED LIABILITY COMPANIES

CONTENT

• Definition, Meaning, Types etc.
• Features of Limited Liability Companies
• Types of Limited Liability Companies
• Formation Formalities, Documentation and Definition of Terms
• Advantages and Disadvantages of Limited Liability Companies
• Sources of Finance/Capital

JOINT STOCK COMPANY

A company is an association of individuals who agreed to and jointly pool their capital together in order to established and own a business ventures distinct from their owners.

A company is therefore a business organization which has legal existence that is distinct from those of its owners. It is referred to as a legal entity or an artificial person because it has the rights and duties of an individual e.g. payment of taxes, ability to own and sell property; ability to sue and be sued.

A company may have limited or unlimited liability.

TYPES OF COMPANIES

1. Unlimited Liability Companies: Owners of those types of companies have unlimited liabilities.

2. Companies Limited by Guarantee: The liability of shareholders of this companies is limited to the amount they have promised to contribute in case the company runs into debt (or is wind up/liquidated).

3. Companies Limited by Shares (i.e. Limited Liability Companies): The liability of the shareholders of these companies is limited to their shareholding in the business.

FEATURES OF LIMITED LIABILITY COMPANY

1. Separate Legal Entity: Limited Liability Companies have a distinct personality from that of the members (Shareholders)

2. Perpetual Succession: The Company enjoys continuous existence i.e. the death of its shareholders will not affect the existence of the company.

3. Limited Liability: The liability of a shareholder of a limited liability company is limited to the fully paid up value of the shares he holds; so that if the company is in debts and cannot pay or meet the demands of its creditors, the shareholder con lose only the money used in buying the shares. i.e. his personal property cannot be sold to pay off the debts.

4. Ownership is Separate From Management: The company is owned is owned by the shareholders while management of the company is in the hand of board of directors appointed by the shareholders.

5. Formation Formalities: A limited Liability company must be registered (incorporated) under the Companies and Allied Matters Act (1990)

6. Preparation of Annual Accounts: A Limited liability company is required by law to keep certain prescribed books of account. The accounts must be audited annually

7. Specific Line of Business: A limited liability company is authorized by law to carry on only those business that are specified in the objects clause of its Memorandum of Association

TYPES OF LIMITED LIABILITY COMPANIES

1. Private Limited Company (Private Company or close company)

2. Public Limited Company (Public Company)

Features and Comparison of Public and Private Limited Companies

FORMATION OF A COMPANY

A Company is usually formed by promoters who carry out the preliminaries leading to the formation of a company. The promoters are those that conceive the business ideas, initiate the company, draft the documents which are required to be filled with the Corporate Affairs Commission (CAC).

The documents to be presented to the Corporate Affairs Commission includes:

1. Memorandum of Association: This is the document that governs a company’s relation with the outside world i.e. it contains matters of interest to outsiders who may wish to deal with the company. The Memorandum of Association defines the powers of the Company. The Memorandum of Association contains the following clauses

a. The name of the company which must end with the word “Limited” or “Plc”

b. The address of the registered office (Head Office) of the Company

c. The objects of the company i.e. particulars of the types of business to be undertaken by the company

d. A declaration that the liability of the members is limited

e. The amount of the authorized capital and the number of shares into which it is divided

f. The names of the founder members and the number of shares taken up by each of them

2. Articles of Association: This is a document by which a company’s relations with its members as a body are governed. It contains the regulations which governs the organization and internal management of the company’s affairs; and in it, the duties, right and power of the members are stated. The contents of Articles of Association are

 a. The method of issue of Capital

 b. Method of holding general meetings of shareholders

 c. The voting rights of shareholders

d. The election, remuneration, qualification, rights, obligations, power as well as the removal of directors.

e. The issue, transfer and forfeiture of shares

f. The arrangement for the sharing of profits and the payment of dividends

g. The arrangement for auditing the accounts i.e. the appointment, remuneration and i.e. the appointment, remuneration and removal of auditors; the method of audit

h. The borrowing powers of the company

i. The borrowing powers of the directors

j. The method of dealing with any alteration in the amount of capital

k. Winding up procedures etc.

3. Statutory Declaration: This is a statement of declaration that the promoters of the company have fulfilled all necessary requirements for the formation of the company.

REVIEW QUESTIONS

1. List six contents of the Memorandum of Association of a limited liability company.

2. Distinguish between partnership and private limited companies under the following headings.

 (a) Ownership (b) Formation (c) Distribution of profits (d) Liability (e) Continuity of existence

OTHER DOCUMENTS/TERM RELATED TO LIMITED LIABILITY COMPANIES

A. The Prospectus: A prospectus is the document by which a public limited company invites member of the public to subscribe for its shares or debentures. CAMA (1990) defines a prospectus as “any notice, circular, advertisement which invites the public for subscription or purchase of shares of a company

Contents: The prospectus must contain certain information such as

i. The name of the company and its registration number

ii. The share capital of the company – i.e. the Authorized share capital or Normal share Capital

iii. The names and address of the directors bankers, solicitors, auditors, brokers and secretary

iv. The amount of the capital offered for subscription

v. The date of opening the list

vi. The closing date for application to the offer

vii. The nature of capital offered for subscription

viii. The amount payable on application and allotment of each share

ix. Minimum number of shares to be subscribed for

x. The purpose for which the issue of capital is required e.g. to provide further capital for expansion of the business etc.

B. UNDERWRITING: This is the process whereby some persons, banks, insurance companies or other financial institutions agrees to take the whole or portions of shares a company has offered to the public in the event that such shares were not taken up (i.e. not bought by the public

Having compiled with the registration formalities and after being satisfied with these conditions the CAC issues a “Certificate of Incorporation” to confer legal existence on the company. It also issues a “Certificate of Trading” in case of a public limited company to enable the company commence business

1. CERTIFICATE OF INCORPORATION: This is the certificate issued by the Registrar of Companies to signify that a business unit has been incorporated.

2. CERTIFICATE OF TRADING: This is a certificate issued to a public company by the Registrar of Companies to enable the company commence business activities

ADVANTAGES OF LIMITED LIABILITY COMPANIES

i. It is a legal entity

ii. It has perpetual succession i.e. there is continuity

iii. Shareholders have limited liability

iv. Economies of large scale production is possible

v. Shares are transferable

vi. Wider scope to mobilize large capital

vii. Ownership is separate from management

viii. Democracy is inherent in its management

ix. There is specialization in management

x. The risks of the business are spread over a large number of shareholders

DISADVANTAGES OF LIMITED LIABILITY COMPANIES

i. Restriction in the transfer of shares (for a private company)

ii. Lack of privacy

iii. Delay in decision making/slow decision making process

iv. Difficult and costly formation process

v. Lack of personal contact or relationship between owners and customers/workers

vi. Non flexibility of operations because of restrictions imposed by the objects clause

vii. Much capital is needed

viii. Conflict of interest between shareholders and management

SOURCE OF FINANCE (CAPITAL) FOR A LIMITED LIABILITY COMPANY

1. Issue of shares

2. Issue of debentures

3. Retained profits or ploughed – back profits

4. Bank loans and overdrafts

5. Trade credits (i.e. credit purchases)

6. Equipment leasing

7. Hire purchase

8. Debt Factoring

9. Sale of Assets

10. Government sources e.g Tax holidays, rebates, subsidies

11. Institutional Sources

EVALUATION QUESTIONS

1. State four advantages and four disadvantages of converting a business into a public limited company

2. State eight sources of finance available to a public limited company.

GENERAL EVALUATION/REVISION QUESTIONS

1 State six features of a limited liability company

2 List seven differences between a private limited company and a public limited company

3 Expain five measures a country could take to solve its balance of payments problems

4 State five functions of an entrepreneur

5 List five advantages and four disadvantages of automatic vending

READING ASSIGNMENT

Essential Commerce for SSS by O. A. Longe Page 149 – 166

WEEKEND ASSIGNMENT

1. Which of the following is a characteristic of a public limited company? (a) The dividends is shared equally (b) Shares are not dealt with in the stock exchange (c) The liabilities are not limited

(d) There is no limit to the number of members

2. A private company’s ability to raise capital is limited because (a) Its borrowing powers are limited (b) Membership does not exceed fifty (c) Shares cannot be made public (d) Of limited collateral security

3. A business becomes a separate legal entity after it has (a) Started operations (b) Been insured (c) Been incorporated (d) Been accepted by the public

4. A pubic limited company is owned by (a) Board of Directors (b) Debentures holders (c) General public (d) Shareholders

5. The shareholders of a company receives __________ as returns on their investment (a) Profit (b) Interest (c) Dividends (d) Commissions

THEORY

1. State (a) two advantages and (b) two disadvantages of trading as a partnership compared with a private limited company

2. Give five reasons why the limited liability company is growing in popularly as a form of business organization in your country

WEEK NINE

TOPIC: LIMITED LIABILITY COMPANIES

CONTENT

• Shares – Definition classes; features

• How shares are sold or issued
• Methods of listing shares at the stock Exchange
• Rights of shareholders

  SHARES
  

A share is a fixed unit of capital invested in a business by the members of a company. It represents the individual portion of the company’s capital owned by the shareholders.

Shares represent ownership since by buying shares, the buyer becomes one of the owners of the company concerned and is entitled to share in the profits of the company. Such reward from profit to the shareholder is called “Dividend”.

CLASSES OF SHARES

Shares may be divided into the following classes

a. Preference shares

b. Ordinary Shares

c. Deferred or founders shares

I. PREFERENCE SHARES

Features:

i. They have fixed rate of dividend

ii. Owners receive dividend first before all other classes of shares

iii. The holders are also entitled to return of capital first at winding up

iv. Holders have no voting rights

TYPES OF PREFERENCE SHARES

1. CUMULATIVE PREFERENCE SHARES: If preference shares are cumulative, it means dividends which are not paid in any year is carried forward and must be paid in any subsequent years before any dividend are paid on the ordinary or deferred shares

Features

i. Fixed rate of dividends

ii. They have priority in the share of dividends over all other classes of shares

iii. They receive arrears of dividends not paid before other classes of shares get dividends

2. NON CUMULATIVE PREFERENCE SHARES: The dividends on this class of shares does not accumulate from one year to another. If the company fails to pay dividends in a particular year, there is no right to payment of the arrears in later years i.e. the unpaid dividends will not be carried forward.

N.B In the absence of clear indications to the contrary, however, preference shares are presumed to be cumulative

3. PARTICIPATING PREFERENCE SHARES: These are preference shares the holders of which have right to share with ordinary shareholders in the surplus profits after both the preference and ordinary shareholders have received their dividends.

Features

i. Fixed rate of dividends

ii. They received their dividends first before the ordinary shares

iii. They are entitled to participate in further dividends after all other classes of shares have received specified percentage of the profits

4. Redeemable Preference Shares: These have prior claims before all other preference shares. They have the disadvantage to the shareholder of being bought back by the company after some time. This type of shares are issued to finance particular projects to be repaid when the project is completed. The companies use their profits or out of proceeds of further issue of shares to buy back these shares. The redemption of this type of shares is not regarded as amounting to reduction of Capital.

B. Ordinary Shares

Features:

i. This type of shares are also known as “equities” as they rank equally

ii. Holders are the risk bearers and also the real owners of limited liability companies

iii. They receive dividends only after other fixed rate shareholders have been paid

iv. Holders of ordinary shares can vote and be voted for at general meetings.

v. Ordinary shares are not redeemable

vi. They have no fixed rate of dividend – i.e. rate of dividend for ordinary shareholders fluctuates

vii. Ordinary shareholders rank last for payment on winding up the company

EVALUATION

1. Explain what is meant by offer for subscription as it relates to company’s shares

2. State three differences between ordinary shares and preference shares

C. DEFERRED OR FOUNDERS SHARES

Features:

i. They are usually issued to the founders or promoters of the company.

ii. They are no longer common in public limited companies.

iii. Holders have right to the remainder of the profit after preference shares and ordinary shares have received a stated amount.

iv. They are often issued as a part payment to the owners of a company that have been bought up

v. They carry special voting rights.

N.B. All terms/rights attached to each class/sub-class of shares are usually specified in the Articles of Association.

HOW SHARES ARE SOLD OR ISSUED

1. Shares issued at Par: This means that persons applying for the shares are asked to pay the exact face or nominal value of the shares e.g. N1 ordinary shares issued at N1

2. Shares Issued at a Premium: This means that persons applying for the shares are asked to pay more than the nominal or face value e.g. N1 ordinary shares issued at N1:40

3. Shares Issued at a Discount: This means that persons applying for the shares are asked to pay less than their nominal or face value e.g. N1 ordinary shares issued at N0.70

OTHER TERMS ASSOCIATED WITH SHARES

a. Bonus Shares: These are shares issued free of charge to existing shareholders in proportion to their present holdings made possible by revaluation of assets or out of profits.

b. Rights Issue: This is an offer of fresh shares made to existing shareholders on favourable terms as a means of raising additional capital. It involves the shareholders making fresh payments to the company

RAISING OF CAPITAL

The methods by which a Public Limited issue it shares (i.e. get its shares listed on the stock Exchange are

1. Offer for Subscription: by the company selling shares to the general public

2. By offer for Sale: In this method, an issuing house will buy the shares in block from the company and subsequently offer them for sale to the public

3. By Placing: Here the shares of the company are placed with institutional investors e.g. insurance companies, pension funds etc.

4. By Introduction: If a private limited company attract the minimum required number of shareholders and also satisfy other listing conditions, it shares may be listed direct on the Stock Exchange if the company makes an application to that effect.

RIGHTS OF SHAREHOLDERS

i. Right to vote at meetings

ii. Right to dividends – subject to declaration of dividends by the directors

iii. Right to receive notice of General Meetings

iv. Right to appoint proxy to represent him at meetings of shareholders

v. Right to participate in the distribution of assets in the events of winding up.

REVIEW QUESTIONS

1. What is “right issue” How does it differ from “bonus issue”

2. List four rights of shareholders of a limited liability company.

GENERA44L EVALUATION/REVISION QUESTIONS

1 Outline five contents of the memorandum of association

2 State five differences between ordinary shares and preference shares

3 Give five reasons why a manufacturer may brand his products

4 State five advantages of packaging

5 Explain six facilities that a retail shop should have to encourage self service

READING ASSIGNMENT

Essential Commerce for SSS by O. A. Longe Page 149 – 166

WEEKEND ASSIGNMENT

1. Which of the following can quote its shares on the Stock Exchange (a) Limited Partnership (b) Sole Proprietorship (c) Public Limited company (d) Co-operate Society

2. Shares which give their holders priority over other shareholders in dividend payment are (a) Deferred shares (b) Preference Shares (c) Equities (d) Rights issue

3. The Power of attorney that transfer to a third party the shareholder’s right to vote is called (a) Rights issue (b) Proxy (c) Bond (d) Warranty.

4. hares are said to be sold at a discount when they are sold (a) Above par (b) At par (c) Below par (d) To the public

5. Which of the following is often referred to as an artificial person in law (a) Sole Proprietorship (b) Partnership (c) Public Limited Company (d) Co-operative Society

THEORY

1. State four ways by which the shares of a company can be listed on the Stock Exchange

2. State three rights of the Shareholders

WEEK TEN

TOPIC: LIMITED LIABILITY COMPANIES

CONTENT

1. Classes of Capital of a company.

 2. Debentures – Features, Types etc.

 3. Liquidation of Companies.

THE CAPITAL OF A COMPANY

The capital of a company falls into the different categories which are discussed below.

1. Nominal or Authorized Capital: This is the maximum amount of capital which a company is authorized to raise as stated in its Memorandum of Association. It is also refer to as Nominal Capital or Registered Capital

2. Issued capital: This is that part of the authorized capital that has been issued to shareholders for subscriptions. It may be the same or less than the authorized capital.

3. Called-up capital: This is the part of the issued capital that shareholders have been required to pay up to date. E.g. A company which has issued shares of =N=150,000 out of the nominal capital of =N= 200,000 may require shareholders to pay =N= 0.60 for the time being out of the =N=1 due on each share. In this case, the called-up capital will be =N=90,000 and the remaining =N=60,000 will be the uncalled capital

4. Paid up capital: This is the part of the called up capital which shareholders have actually paid for. It refers to the sum actually received in cash by the company when it called on the shareholders to pay E.g. out of the =N=90,000 called up, what was actually paid up by (or received from) shareholders might be =N=87,000.

5. Uncalled capital: This is the total amount that has not been called up on the issued capital. It refers to the balance between the called up capital and the issued capital. This may be called on later when more capital is required.

6. Call in arrears: this is the difference between the called up capital and the paid up capital. It represents part of the called-up capital which is yet to be paid by the shareholders after the call for payment has been made.

7. Calls paid in Advance: This is the money received in advance of calls i.e. the sum the company receives before calls are made for payment.

DEBENTURES

These are loans from members of the public to limited liability company. A debenture is also the certificate issued by the company to an individual showing that the company is owing the holder. It normally contains provisions as to payment of interest and repayment of principal (i.e. the original amount taken as loan).

Debentures-holders receive their interest whether the company makes profit or loss. Debentures may be issued at par, at a premium or at a discount.

TYPES OF DEBENTURES

1. Simple or Naked Debentures: These are unsecured debentures i.e. no security is given by the company for the money borrowed.

2. Mortgage Debentures: These are debentures that carry fixed charge upon specific assets of the company e.g. Land & Building, Machinery e.t.c. The company assets serve as security for the debenture. This type of debenture is also called Fixed Debentures.

3. Floating charge Debentures: This are debentures carrying of floating charge on some or all of the assets the company, The company has the right to deal with the assets (e.g. sell the assets ) until some defaults occurs (e.g. inability of the company to pay interest or repay the principal) when the charge becomes a fixed charge.

4. Redeemable Debentures: These are debentures which are repayable at a date which has been fixed in the future. The company agrees to redeem the debentures on or before the fixed date.

5. Irredeemable Debentures: These debentures are not repayable except the company defaults in payment of interest or on liquidation (winding-up) of the company.

DIFFERENCE BETWEEN DEBENTURES AND SHARES

EVALUATION

1. Write short notes on the following terms:

 (a) Authorized Capital

(b) Issued Capital

 (c) Called-Up Capital

2. Give five differences between the debentures and shares of a limited liability company.

LIQUIDATION/ WINDING UP

Liquidation is the process of bringing the existence of a company to an end. A liquidator is a person appointed either by a court or shareholders to handle the winding up process of company. The power of a liquidator supercedes that of company’s directors.

A company may be dissolved/liquidated through any of the following methods:

1. Voluntary liquidation: (by resolution of its shareholders) members can wind up the company if the purpose for which it was established has been accomplished or if the company continues to operate at a loss.

2. Voluntary winding up by members (subject to the court supervision) this obtains if some shareholders petition the court to supervise the winding up.

3. Creditor Voluntary liquidation: creditors can apply to the court and thereafter wind up the company.

4. Compulsory winding up/ involuntary liquidation: as a result of court order or by the Corporate Affairs Commission.

REASONS WHY A COMPANY MAY BE WOUND UP

1. If the company is unable to pay its debts i.e. if the company becomes insolvent

1. If the numbers of members (shareholders) fall below the required number e.g. 7 for a public limited company.
2. If the company could not raise enough capital for its operations.
3. If the company fails to file (submit) the required statutory reports e.g. annual accounts.
4. If the company fails to hold the statutory meetings e.g. a public limited company is expected to hold an Annual General Meeting at least once in a year.
5. If the number of directors fall below the statutory minimum.
6. If the company does not commence business within one year of its being incorporated or if it suspends business for one year.
7. The name of a company can be struck out by the Registrar of Companies from the register if he is directed to do so e.g. by a government order.

REVIEW QUESTIONS

1. Who is a liquidator?

2. Give seven reasons why a limited liability company may be liquidated.

GENERAL EVALUATION/REVISION QUESTIONS

1 Explain seven factors that encourage the elimination of middlemen from the channel of distribution

2 State five reasons why retail shops adopt self service

1. State six contents of a bill of lading

   4 List seven reasons why small scale businesses may fail

   5 State six essential features of a bill of exchange

   READING ASSIGNMENT
   

   Essential Commerce for SSS by O. A. Longe Page 149 – 166

   WEEKEND ASSIGNMENT
   

   1. A Public Limited company can borrow from the public to increase its capital by…..

   (a) debentures (b) mortgage (c) shares (d) stocks

   Use the following information to answer question 2 to 4

   XYZ PLC issued ordinary shares of 50k at 60k each and sold 1800 shares

   2. The nominal value of the company’s ordinary shares is ______ per share (A)10k (B)50k (C)60k (D) 110k

   3. The total amount realized from the shares sold was (A) =N=180 (B)=N=900 (C) 1080 (D) =N=1980

   4. The company’s shares were sold (A) at discount (B) at par value (C) at premium (D) ex-dividend.

   5. Debentures which have claims over specific assets of the company are __________ debentures (A) naked (B) simple (C) floating (D) fixed

   THEORY
   

   1. What is a debenture?
   2. List three features of debentures.