Commerce Lesson

Note For
SS2 First Term
29 minutes read

Commerce ELesson SS2 –

SCHEME OF WORK FOR SS2 COMMERCE FIRST TERM

WEEK TOPIC
S S
 1. Revision/Public Enterprises.

2. Meaning, formation and management of public enterprises.

3. Sources of capital, reasons for govt. ownership of public

enterprises, Advantages and disadvantages.

4. Limited Companies.

5. Meaning, Types, Private, Public

6. Formation legal requirement (a) memorandum of association

(b) article of association.

7. Limited Companies (cont’d)

8. Source of Capital

9. Shares (b) Stocks (c) Debentures (d) Retained Profits (e) Loan
and Over- draft (f) Trade Credit (g) Leasing, factoring.
Advantages and disadvantages.

10.Cooperative societies – Definition, history, characteristics,

Types of cooperative societies, advent

11.ages and disadvantages, problems of cooperative societies,

similarities and differences between cooperative society and
company.

12.Commodity Exchange

13.Meaning, Tradable, types: Agricultural produce, solid

minerals, oil and gas, etc.

14.Requirement for trading: trading system, ware housing,

clearing system, standardizing methods

Agricultural production, Agricultural product.

Benefits of commodity exchange, encourage exploration of solid

minerals, foreign exchange earing, improved agricultural output
and quality.

Constraints to commodity trading, inadequate supply, poor

storage, bad weather, middlemen, ethical issues, inadequate
knowledge of the workings on commodity exchange.
Differentiate between commodities and stock items traded
intangible, tangible etc. method of pricing.
 Buying and selling (Documents) procedures of buying and
selling, essential documents:- letter of enquiry, invoice, credit
note, debit notes, receipts, quotation, catalogue, etc.

Terms of Trade:

Trade discount, cash discount, quality discount, carriage forward

prompt delivery, carriage paid etc. Trade abbreviations: C.O.D,
C.I.F, F.O.B, F.O.T, and E and O.E.

Terms of Trade

cont’d. Exams.

Exams.

PUBLIC ENTERPRISES

Meaning: These are special organization set up by the government

Through the act of parliament, managed and controlled by the

government to perform essential services to the citizens of the county.

OR

Public enterprises/corporation are businesses owned and run by the

government in the public interest.

OR

Public corporation, also known as public enterprises or statutory

corporation may be defined as a large scale business organization
set up, owned and financed by the government of a country mainly
to provide services to the members of the public.

FORMATION

Public corporation are government enterprises that have commercial

functions, which are normally established at the federal level, by an
act of parliament which specifically creates the corporations.

The act states the objectives and aims of the corporation specifies its
powers and how it is to be run and managed.

FORMS OF PUBLIC ENTERPRISES

 1. PUBLIC UTILITIES: These are government parastatals that
provide essential services to the citizens at subsidized cost. This
will ensure balance between social and economic objectives e.g.
water corporation.

2. POLITICAL BOARD: These are autonomous establishment which

execute the policies of the government within a specific area.
Example is schools management board.

3. COMMERCIAL ENTERPRISES: These are government owned

bodies set up to create competitive environment and make
profit from their operation. They are autonomous in structure
and operation e.g. NITEL.

SOURCES OF CAPITAL

1. GOVERNMENT GRANTS: This is the major source of capital

to public enterprises. They receive budgetary allocation from
the government.

2. LOAN FROM BANKS: public corporations can obtain loan from

financial institutions to expand their operation.

3. INTEREST ON FIXED DEPOSIT: Another source is the

interest received from deposit with banks.

4. INTERNAALLY GENERATED REVENUE: Public enterprises

also generate revenue internally, for example Lagos state
university teaching hospital generate a lot of money from
patients.

5. DONATION AND GIFT: They can also receive donation

and gift from friendly countries or international institutions.

REASONS FOR GOVERNMENT

OWNERSHIP OF PUPLIC

ENTERPRISES
1. ESSENTIAL SERVICES: Public enterprises provide services
which are vital to the citizens and which should be provided
without the motive of profit for the overall good of the masses.

2. AVOIDING WASTE AND DUPLICATION: It should be more

economical run water and electricity undertakings as states
monopolies because laying alternate pipes and power lines
across the roads and in people’s houses would be wasteful.

3. CAPITAL REQUIREMENTS: The capital needed to establish

most of the public utilities is so huge that it cannot easily be
afforded by private persons.

4. GOOD INFRASTRUCTURAL BASE: A good network of roads

and railways, powers, communications, etc. will lay a solid
foundation for rapid economic development and progress in the
country.

5. EVEN DEVELOPMENT: The policy of government is to

encourage even development and bring about equitable
distribution of the country’s wealth. To achieve these objective
the key industries and organizations should be in the hands of
the government.

6. SOCIAL SERVICES: If education and health matters are left in

the hands of the government, it will be possible to establish
more schools and hospitals and run them for the benefit of the
rich and poor alike.

7. SOCIAL SECURITY: Privatization of the commanding heights of

the economy amounts to mortgaging the country to private
individuals who will then wield so much economic power that
the country becomes a mere pawn in the hands of profit seeking
businessman. A ready example today is that if the Dangote
Group sneezes, the whole country shakes.

8. NATIONAL SECURITY: For reasons of national security, the

government might decide that management and control of
certain industries and organizations should be in its hands. For
instance, the Army and police are under the country of the
federal government.

9. MUTUAL RESPONSIBILITY: Government expects citizens to

pay tax as responsible citizen. The citizens on their part expect
the government to fund public utilizes with the tax they pay,
privatizing public utilizes they removes the basis for
demanding tax from citizens.
REASONS FOR PUBLIC ENTERPRISES
 1. Provision of essential and infrastructural facilities.

2. For security and strategic reasons.

3. Limitation of foreign control of the economy.

4. Safeguard economy and political interest.

5. Large capital requirement.

6. Generation if revenue.

7. Control of monopoly power.

8. Avoidance of wasteful duplication of resources.

9. To stabilize price.

10.Economic development.

11.Employment opportunities.

12.Increase in the standard of living.

ADVANTAGES OF PUBLIC ENTERPRISES

 1. LEGAL ENTITIES: Public enterprises are separate legal entities
distinct from the owners. They can sue and be sued in their
names and can enter into contract on their own.

2. REVENUE GENERATION: The government generates a lot

of revenue from its participation in public enterprises.
Government can receive income from dividend rates and
fees.

3. PERPETUAL EXISTENCE: There is continuity in public

enterprises. Death or retirement of any member cannot bring
the organization to an end.

4. PROVISION OF SOCIAL AMENITIES: They provide the public

with social amenities at a reduced cost. Basic infrastructure
facilities that are essential for economic development such as
road and electricity are provided by public enterprises.

5. LARGE CAPITAL FOR EXPANSION: The government because

of its large financial resources provides large capital. This will
funds available for large-scale investment.

6. PREVENTION OF WASTEFUL DUPLICATION OF SERVICES:

For instance, if two supply of pipe borne water is in the hands of
individuals, there will be a lot of dams and pipes.

7. ECONOMIES OF LARGE-SCALE PRODUCTION:

Combination of greater resources may help in securing
economies of large scale production.

8. PREVENTION OF EXPLOITATION OF CONSUMERS: Public

enterprises help to control price and ensure stability. This will
prevent the exploitation of the consumers by private
businessmen. Most social and essential services are provided
at subsidized rate to the public.

9. ACCOUNTABLE TO THE PUBLIC: Another major advantage

is their accountability to the general public through the
submission of annual reports and statements of accounts to
the National Assembly.

10.PROVISION OF EMPLOYMENT OPPORTUNITIES: To

regulate the economy of a nation and ensure full employment
of its citizens. Many public corporations provide employment
for the people. The federal government is the largest
employer of labour in Nigeria.

DISADVANTAGES OF PUBLIC ENTERPRISES

 1. No privacy.

2. Delay in decision-making process.

3. High cost of production.

4. Corruption and embezzlement.

5. Danger of government interference.

6. Inefficiency.

7. Inadequacy of funds.

8. Lack of competition.

9. Not profit oriented.

ASSIGNMENT

State the reasons for government ownership of public enterprises

LIMITED LIABILITY COMPANIES ( WEEK 2&3)

Acompany is an artificial person which is recognized in law as a

separate legal entity. It is also referred to as joint stock Company
that makes profit by producing or selling goods and services. It can
only act though its organs like the board of directors and
shareholders.

NOTE: A company is an artificial entity recognized in law as having

personality in the sense that it may be a party to the legal
relationship. Examples are Zenith bank plc. Nigeria breweries plc and
Flour mill plc.

KINDS OF COMPANIES

The following are the three kinds of companies:

 1. COMPANIES LIMITED BY GUARANTEES: These are companies
having the liability of its members limited by the memorandum
of association to the amount they undertake to contribute to the
assets of the company to meet its liability at the time of winding
up.

2. UNLIMITED COMPANIES: These are companies having to limit to

liability of members in the event of liquidation members will be
liable to the full amount of liability e.g oil prospecting
companies in the event of liquidation, members properties to be
sold to offset its liabilities.

3. COMPANY LIABILITIES BY SHARES: These are companies having

the liabilities of members limited by the memorandum of
association to the amount of unpaid on their shares at the time
of winding up.

CHARACTERISTICS OF A LIMITED LIABILITY COMPANY

(a).LEGAL PERSONALITY: A limited liability company has all the

attribute of a person. The fundamental attribute of cooperate
personality is that the company is a legal entity distinct from its
members. It can sue and be sued.

(b).LIMITED LIABILITY: The liability of members is limited to the

amount of shares held in the company.

Read Also

Lesson Note Physics

on Lesson
Commerce Notes SS1
SS1 First First Term
Term

(c). PERPETUAL SUCCESSION: The company can exist for a long

period. The death of a member will not affect the existence of the
company once registered become an entity different from the
owner.

(d).SEPARATION OF OWNERSHIP FROM MANAGEMENT: Here the

ownership
is separated from the management. The management of a
registered company is the responsibility of the board of directors,
shareholders cannot interfere.

(e).REGISTRATION WITH THE CORPORATE AFFAIRS COMMISSION: A

company must follow some special formalities before registration with the
corporate affairs commission.
(f). PUBLICATION OF ANNUAL ACCOUNT: The financial statements
should be prepared, audited and published in the dailies annually.

(g).ACCESS TO CAPITAL INVESTMENT: It is very easy for a company

to raise more capital by means of subscription for members of the
public.

(h).RETAINED EARNINGS: A limited liability company can plough

back part of its profit and the rest will be distributed as divide end.

TYPES OF LIMITED LIABILTY COMPANY

A company limited by shares may be:

1. Private limited liability Company.

2. Public limited liability Company.

1. PRIVATE LIMITED LIABILIES COMPANY: A private company is

formed by an association of specific number of people. It is
defined by section 22 of CAMA 1990 as a company, which by its
Articles limits the number of its members to fifty and restricts
the right to transfer its shares. Example is Adebowale Electrical
Limited.

FEATURES OF PRIVATE COMPANY

1. It must be stated in its memorandum to be a private company.

2. Restricts the transfers of its shares.

3. Two to fifty people are required to set it up.

4. It prohibits any invitation to the public to subscribe to its shares.

5. Appointment of directors may be done in a simple way.

6. Its shares are not quoted on the stock exchange market.

7. PUBLIC LIMITED LIABILITY COMPANY: This is any other company

that does not qualify under the private company. Sections of
CAMA defined it ‘as a company which allows the public to
subscribe to its shares and whose shares are transferable.
Examples are Total Plc and UBA Plc.

FEATURES OF A PUBLIC COMPANY

 1. The word “public” must be stated in the memorandum.

2. Does not restrict the right to transfer its shares.

3. It must be formed by at least seven people but no limit to

number of shareholders.

4. It can place invitation to the public to subscribe for any

shares of the company.

5. It must publish its annual accounts.

6. Its shares are quoted on the stock

market. 7.

FORMATION AND REGISTRATION PROCEDURES

There is more formality attached to the formation and operation of a

company than to other business units. In turning a company, the
promoters will follow the companies and Allied Matters Decree of
1990.

CONDITIONS FOR INCORPORATION OF LIMITED

LIABILITY COMPANY UNDER CAMA 1990

PROMOTER: This is a person who carries out the necessary

preliminary work in the formation of a company.

PREPARATIONS OF MEMORANDUM OF ASSOCIATION

Memorandum of Association is the constitution of a company, which

governs the relationship of a company with the outside world. It
contains the regulations of the company in connection with its
dealing with the outside world.

CONTENTS OF MEMORANDUM OF ASSOCIATION

 1. NAME OF THE COMPANY: The name of the company will be
stated and followed by the word ‘limited’ or ‘ltd’.

2. THE OBJECTS OF THE COMPANY: It will set out the object of

the company. The reason for the formation and the kind of
business to be embarked upon should be stated.

3. LIMITED LIABILITY: It will be expressly stated that the

liability of numbers will be limited to the amount
invested.

4. AMOUNT OF AUTHORIZED CAPITAL: The memorandum will

state the total value of nominal capital which the company is
registered.

5. STATUS OF THE COMPANY: It will state the states of the

company whether a private or public.

6. REGISTERED OFFICE: The registered office of the company

should be stated i.e, the head office address.

PREPARATION OF ARTICLES OF ASSOCIATION

This is a document, which prescribes the rules and regulations

governing the internal working of the company. It contains the
internal rules for conducting the business of the company. It may be
altered with the agreement of majority shareholders.

CONTENTS OF ARTICLES OF ASSOCIATION

1. Right of shareholders.

2. Remuneration of auditors.

3. Conduct of general meeting.

4. Names and powers of directors.

5. Appointment of directors.

6. Transfer and forfeiture of shares.

7. Auditing of accounts.

8. Payment of dividends.

SOURCES OF FINANCE
 1. Bank overdraft.

2. Commercial paper.

3. Trade credits.

4. Factory.

5. Bill discounting.

6. Bank Loan.

7. Hire purchase.

8. Venture capital.

9. Equipment leasing.

10.Issues of debenture stocks.

11.Retained earnings.

12.Fresh issue of shares.

DISADVANTAGE OF LIMITED LIABILITY COMPANY

1. Lack of privacy in financial reporting.

2. Slow decision-making process.

3. Separation of ownership from management.

4. Subject to many legal restriction.

5. High taxation.

F. Requirement of too much documentation.

G. Conflict of interest between shareholder and directors.

H. High cost of preliminary expenses.

I. Inflexibility in business operation.

KEY

TERMS CERTIFICATE OF

INCORPORATION

This is a document by the register of companies after all necessary

documents have been drawn and submitted. This gives the company
legal existence once a company is incorporated, it has legal status
that is it has become a person in the eyes of the law and is distinct
form its shareholders. The company is said to have separate legal
personality.
CERTIFICATE OF TRADING

This is a certificate given to a company to commence trading after it

has been issued with the certificate of incorporation public liability
companies can only commence operation after it has received the
certificate of trading. Private companies can commence operation
immediately it is issued with the certificate of incorporation.

ASSIGNMENT

1. State the content of article of association

2. Differentiate between certificate of incorporation and

certificate of trading

Commerce ELesson SS2 –

Edudelight.com CO-OPERATIVE

SOCIETY (WEEK4) DEFINITIONS.

1. A cooperative society is any group found by individuals with

common interest who contribute money in form of capital to
promote the business interest of members.

2. A cooperative society is a form of voluntary self-help business

organization in which individuals, sole proprietors, traders or
producers unite to foster their good and individual business
interest.

FEATURES OF CO-OPERATIVE SOCIETY

A cooperative society have the following characteristics:

 1. Democracy each member has only vote regardless of
contribution made to the society.

2. Profit distribution is based on patronage. Any surplus is

distributed among members according to the purchase made.
i.e amount of goods purchased.

3. Private ownership: It is owned by private individuals, that is,

it is not owned by the government.

4. Promotion of member’s interest: It is set up by the people with

common interest in order to promote their business interest and
for the provision of other welfare benefits.

5. Open and voluntary membership: Any person can be a

member thus membership is open to everybody who is
interested in becoming a member. There is no restriction of
membership.

6. Perpetual existence: A cooperative society is similar to a

limited liability company, as it can exist in perpetuity.

7. Registered under cooperative law: Most cooperative

societies are registered under the cooperative law.

8. Limited liability: The liability of members is limited to the

amount contributed to the society.

9. Control and managed by the committee: A committee is set

up by the members to manage and control the affairs of the
society.

TYPES OF COOPERATIVE SOCIETY

1. Retail cooperative society: This is established and managed by a
voluntary group of retailers in order to make goods readily are
valuable to members at reduced price. The members pool their
resources together in order to purchase in back and then sell the
goods at reduced price to members.

2. Producers cooperative society: This is an association of

producers of similar goods who have come together to promote
the production, marketing and sales of their product. They enjoy
large scale buying of raw materials and equipment at reduced
price. Members are taught new techniques of production they
combine the factors of production to produce goods at reduced
prices.

3. Wholesalers’ cooperative society: This is made up of wholesalers

who pool their resources together to purchase goods in large
quantities to the retailers, wholesalers cooperative society buys
in bulk at reasonable price from the manufacturers.

4. Consumer Cooperative society: This is formed by consumers

who pool their resources together to enable them buy goods
directly from the producer at cheaper price. This form of
corporative society deals mostly in consumer goods.

5. Credit and thrift society: This is a society in which members

make contribution to a fund and out of which they apply for
loan. The interest changed on the loan is usually very low.it
save the problem of getting loan from the bank at higher
interest rate.

6. Multipurpose cooperative society: This is a cooperative

movement, which combines all the function of all
societies. They engage in different form of ventures that
members consider profitable and is of interest to the society and
members.it engage in any business that a cooperative can do
without changing its law. This ensure greater profitability to the
society.

ADVANTAGES OF COOPERATIVE SOCIETY

 1. Profit is exempted from tax.

2. Operation on democratic basis.

3. Provision of loan facilities to members.

4. Educating members.

5. Range scale production.

6. Low cost advertising.

7. Encourage joint marketing of products.

8. Encouragement of savings habit.

9. Collective use of factors of production.

10.Pooling of resources for invest.

DISADVATAGES OF COOPERATIVE SOCIETY

1. Misappropriation of fund.

2. Inefficient management.

3. Low returns on investment.

4. Problems in loan recovery.

5. Insufficient capital.

6. High level of illiteracy.

7. Unnecessary government interference

GENERAL PROBLEMS FACING COOPERATIVE SOCIETIES

1. There is stiff competition from low-cost traders.

2. In the rural areas especially, bad roads and inefficient transport

services, or at times the lack of it, make consumer cooperative
shops inaccessible to many members.

3. Retail cooperatives thrive better among Industrial population

with high purchasing power but this limited in Nigeria.

4. Long-scale retail trading needs considerable capital and

financing to be successful but capital is short supply in Nigeria.

5. Members do have financial problems and not every

member is in a position to get a loan through the society.

6. Due to crop failure or an act of good, the harvest may be too

poor for the farmer to repay loans and compensate for effort.

7. Owing to the nature of their business, procedure or farmers.

Cooperative society attract mostly illustrates and school
drop-out.

Diversification makes specialization difficult especially for

amateur people. They become a jack of all trades and master of
more.

Members can use their loans for purpose other than those for
which they were obtained.

Loan are hard to refund, especially if the project for which the
loan was taken fail to yield returns.

SIMILARITIES BETWEEN COOPERATIVE SOCIETY AND

COMPANY

1. Legal Entity: Both have separate legal personality distinct

from their members

2. Limited Liability: The liability of members is limited to the

amount of money contributed by members and shareholders.

3. Registration: Both are registered before commencement of

operations. A company will be registered under company and
Allied Matters and a cooperative society under cooperative law.

4. Annual general meeting: They normally hold annual general

meeting to discuss about the organization and to present the
financial statements.

5. Preparation of financial statements: Both are mandated to

prepare financial statements and submit to the relevant
government agencies.

6. Distribution of dividends: All members are entitled to dividends.

DIFFERENCES BETWEEN CO-OPERATIVE SOCIETY AND COMPANY

SOCIET COMPANY
Y

The primary aim is to cater for The primary aim is to maximize

profit.
member’s welfare.

Profit of cooperative is not

Profit is subject to income tax.
subject to income tax.

Sharing of profit is based on Profit sharing is based on

patronage. share- holding.

Members contribute capital of Source of finance is from

society. share capital.

It is registered under It is registered under company

cooperative laws. and Allied matters.

There is payment of There is no payment of

registration fees by members. registration fees by members.

It is controlled and managed by Management is by the board of

elected committee. directors.

ASSIGNMENT

1.Explain the advantages of cooperative society

2.Explain any three types of

cooperative society COMMODITY

EXCHANGE

DEFINITION

1. Commodity can be defined as food or other agricultural

products such as wheat or cocoa and natural resources such as
oil, or gas and metal such as gold or silver. It can also be
standardized goods which are traded in bulk and whose units
are interchangeable. They are mostly output of the primary
sector that is, agricultural and mining. Commodities are traded
in an exchange called commodity exchange.
TYPES OF TRADABLE COMMODITIES
 1. Agricultural produce: These include cash and food crops. The
following are some of the commodities traded on the
exchange.

2. Soya beans

3. Millet

4. Sorghum

5. Maize

6. Cowpea

7. Groundnut

8. Palm produce

9. Coffee.

10.Cocoa

11.Ginger

12.Cotton

13.Sugar

14.Cattle

15.Oil and gas: These include crude oil, natural gas, propane,
gasoline, purified, terepthalic, acid, and heating oil.

16.Financial Instrument: These are currencies, bonds, and other

tradable instrument like swap.

17.Solid Minerals: Precious metals are also traded on the

exchange. These commodities include gold, copper, platinum,
silver, lead, zinc, tin, aluminum, and nickel.

COMMODITY EXCHANGE (WEEK5,6&7)

This is a formal market where regulated and standardized raw

materials or primary commodities are bought and sold. It is an
organized market where ownership titles to commodities are traded
by its members through physical or virtual means. Simply put, it is a
self regulatory organization which provides physical facilities for
trading commodities, options and future according to rules and
regulation governing the market.

Commodities exchange resembles the stock exchange market but the

kind of product traded differs. It includes both spot market and forward
market.

REQUIREMENT FOR TRADING

 1. Grading System: There should be a system which provides
grading and official certification of the quality, size and weight
of commodity. This system is based on standard developed for
each product. Grading product provides means of measuring the
level of quality and value for commodities. There should be
enforceable and trade friendly weight and grading.

2. Clearing System: A clearing and settlement system that ensures

payment to sellers as well as minimizes over exposure of
counter parties is essential. This ensures that payment is
guaranteed when deliveries are made. Financial institutions are
members of the clearing system.

3. Warehousing System: Warehousing is the act of keeping

goods in the warehouse until delivery.

4. Standardization: Commodity standardization provides

means of measuring quality of products. It provides a basis
for domestic and international trade and promotes efficiency
in marketing and procurement. It has to do with ensuring
that all similar commodities have same features and
acceptable level of quantity.

5. Information requirement: Another basic requirement is

provision of reliable and timely market information on prices
supply and demand, import and export.

METHODS OF TRADING

The method may be by open outcry or electronics.

1. Open Outcry: This is also referred to as the manual system. The

method of communication among the participants is through
shouting and using of hand signals to transfer information about
buying and selling orders on the floor (called pit). Here, trade is
conducted verbally with all offers and trades done out loud so
that competitors on both sides of the market can follow what is
happening. Simply put bidding and offer are made through
outcry to the hearing of everybody on the floor.

2. Electronics System: This is trading in commodities through

the use of computer networks. The networks transmit data
and information on offers and trade.

TYPES OF COMMODITY MARKET

 1. Spot: This is the buying and selling of commodities for
settlement (payment and delivery) on the spot date. The
settlement price is called spot price. Here transactions are
conducted on cash and carry basis. The participants buy and
sell commodity at agreed current price ad delivery takes place
immediately.

2. Future: This is a contract to buy and sell commodity on a future

date at a price decided when the contract is made. It is a
standardize contract between two parties to buy and sell a
specified commodity of standardized quantity for a price agreed
upon today while delivery and payment accrued at a specified
future date. It is to protect against future change in price of
commodities. On the said date, the buyer pays the specified
sum regardless of whether the real price has fallen or risen. It is
used to reduce risk.

3. Option: This is a contract giving the holder the right but not the
obligation to trade in a commodity on some future date at a pre-
agreed price. It gives the holder the right to sell or buy a certain
commodity at a set price at a specified date.

4. Forward: This is a non-standardized contract between two

parties to sell and buy at a specified future time at a price
agreed upon today. Here, price is agreed for commodity to be
delivered at a future date. It is used for hedging and to reduce
risk.

BENEFITS OF COMMODITY EXCHANGE

 1. Investment mobilization: The establishment of exchange
market will ensure a link between production process and
demand and with direct participation of financial institutions
and investment this can help to mobilize fund for production
in order to meet demand.

2. Increase in agricultural production: High demand for

agricultural commodities can encourage increase in
agricultural output and quality.

3. Adequate returns and income: This market helps to guarantee

returns on investment. A prudent investor can take advantage of
the potential in investing in commodities.

4. Basis for risk management: It affords the participants to hedge

against the expected price fluctuation of their commodities.
Investors can balance their portfolio in such a way as to reduce
risk instrument like future and option are useful for hedging.

5. Stabilization on agricultural product pricing: It reduces price

volatility and its attendant effect to the barest minimum. It is a
forum for facilitating efficient pricing.

6. Encourage exploration of solid minerals: It encourages

investment in the exploration of solid minerals like gold, silver
and aluminum. Once investors are sure of adequate returns
then they will invest in commodities.

7. Foreign exchange earning: A well organized and efficient

commodity market will attract foreign investment. This will
increase the earning capacity of the participants. The farmer’s
export price and incomes are also increased.

8. Improvement in collection and dissemination of market

information: Exchange trading improves collection and
dissemination of market information to all players. Prices on the
exchange are set through transparent process. There is tree flow
of information among contracting parties.

9. Guaranteed delivery: The guarantee of delivery by the

exchange reduces the risk of non-performance of trade
contracts by the participants.

10.Means of exchange of commodities: The system is a means

by which sellers and buyers are bought together to transact
commodities.

11.Access to finance: There is increase availability of inventory

finance. This will enable exporters to stockpile goods thereby
assuring regular supply and delivery of commodities.
 12.Provides transparency in transactions: It represents a
transparent and reliable means by which lenders can liquidate
collaterized commodities in the event of default by the owner.

CONSTRAINTS FACING COMMODITY EXCHANGE

1. Inadequate supply.

2. Poor storage.

3. Lack of formal quality/grading standards.

4. Bad weather.

5. Middlemen.

6. Inadequate knowledge of commodity exchange.

7. Price volatilities.

DIFFERENCES BETWEEN COMMODITY AND STOCK

S/N COMMODITY STOCK

Ownership of raw
1 Ownership of company.
unprocessed goods.

2 They are tangible items. They are intangible items.

3 They are not entitled to They are entitled to dividend.

dividend.

They are non-

4 They are financial instruments.
financial
instruments.

Trading is simply on
5 Trading is on price fluctuation. performance of the company
and prevailing conditions in the
market.

Most commodities are not

They are bought and held
6 bought or held in a portfolio
in a portfolio.
because some are
perishable.

Commerce ELesson SS2 – Edudelight.com

BUYING AND SELLING DOCUMENTS (WEEK8,9)

Documents used in buying and selling of goods.

When business transactions occur, certain documents are drawn up

and passed from one person to another. These documents are used
to effect transactions between buyers and sellers. The documents are
explained below;

1. TRADE JOURNAL:This is a publication devoted to a particular

branch of retail and wholesale trade. It contains articles on
matters of interest to those in the trade.

USES OF TRADE JOURNAL

1. It contains information on matters of interest to those in the trade.

2. It shows information about price and other matters.

LETTER OF INQUIRY: This is a document sent by the buyer to the

supply to find out about the availability of goods, the prices,
terms of payment and delivery. Letter of enquiry is considered
as the first step to be taken by the prospective buyer. It is a
request to the supply to provide information about the product.

LETTER OF ENQUIRY

Alex Bookshop,

No. 6, Baale

Street, Ajegunle,

10th of August, 2007

Ambra

Bookshop Iyana

Ipaja, Lagos.

Dear Ma,

We require 500 pieces of Sharp Calculating Machines urgently.

Please send to us quotation for the above items stating the terms of
trade.
Yours faithfully,
Manager.

QUOTATIONS: A quotation is a statement of the current price

and terms of trade of a product or service. Usually a quotation is
an answer to an inquiry and therefore, it is applicable to that
specific transaction only.

CONTENTS OF QUOTATION

1. The current price of the goods to be sold.

2. Discounts available.

3. Costs and date of delivery.

4. Terms of payment.

USES OF QUOTATION

1. It is used as a reply to an enquiry.

2. Shows the current price.

3. It shows the terms of trade.

A QUOTATION

Ambro Bookshop

No. 3212 Iyana Ipaja, Lagos.

20th August, 2007

Alex Bookshop,

Baale, Ajegunle.

S/N Description Qty Unit Price Price

1. Sharp Calculating Machine 500 50 25,000

Delivery – Within 21 days

Terms – 5% cash
discount 2½%
Within 30 days

Trade discount 10% from order.

CATALOGUES AND PRICE LIST: A catalogue is a document used

for pictorial representation of goods available for sale. It
contains the photographs, features and price of goods. The
booklet enables a prospective buyer to study the samples.

PRICE LIST: This sent by the seller to the buyer to give information
about the current prices of goods.

USES OF CATALOGUES AND PRICE LIST

1. Catalogues can be used as a reply to an enquiry.

2. Provides information about the picture or photograph of goods.

3. They give the current price of products.

4. Price lists can be used by retailers to wholesalers.

5. Catalogues help to advertise the products.

6. They assist the customers to make choices.

7. ORDER: This is a document which states the quantity of goods

required and all necessary details about the package of the
goods. An order will be placed when the buyer is satisfied about
the conditions attached to the transactions. The seller can
supply it or the buyer can use his printed order form. When it is
accepted, a legal contract exists between the buyer and the
seller.

CONTENTS OF AN ORDER

1. Addresses of both parties to the transactions.

2. Quantity of goods needed.

3. Description of goods.

4. Price of each item.

USES OF AN ORDER

1. It is used to make a purchase.

2. Shows the quantity of goods to be purchased.

3. Acceptance signifies beginning of a contract.

AN ORDER

Alex Bookshop

No. 6, Baale

Street, Ajegunle.

25th August, 2007.

Ambra

Bookshop, Iyana

Ipaja.

Please supply the following,

Quantity Description Unit Price Total

500 Sharp Calculating Machine 50 25,000

INVOICE: This is sent by the seller to the buyer showing the full
details of goods sold such as quantity, description, price,
discount and the total amount to be paid. It shows a
comprehensive summary of a transaction, it is issued along with
the goods.

CONTENTS OF AN INVOICE

1. Name of the seller.

2. Address of the seller.

3. Customer order number.

4. Description of goods bought.

5. The actual amount.

6. The price of the goods.

7. Discount given.

8. Quantity of goods purchased.

9. Abbreviation E & OE (Error & Omission) Excepted.

USES OF AN INVOICE

1. Shows details of goods sold.

2. It serves as a receipt.

3. Used to prepare purchases and sales journal.

4. Evidence of credit sales.

5. Shows time of delivery and payment.

AN INVOICE

Ambra Bookshop

Iyana Ipaja

29th August, 2007.

Sold to Alex Bookshop

Baale, Ajegunle.

S/N Description Qty Unit Price Total

1 Sharp Calculating Machine 500 50 25,000

Terms 2% cash discount within 21 days.

5% Trade discount within 1½%

month. Net 2 months

E & OE

TERMS UNDER
INVOICE
 1. E & OE: Error and Omission Excepted. This means that the
supplier has the right to make necessary corrections, if it is
discovered later that there are errors, mistakes or omission, in
the invoice.

2. Net 3 Months: This simply means that there will be no discount

after three months. The buyer would pay the total amount after
three months.

3. 5% Trade Discount: This implies that 5% trade discount would be

given to the customer when buys in large quantity. It is the
reduction of the catalogue price to induce customers to buy
more goods because he will pay less.

4. 2% Cash Discount: This means that a 2% cash discount would

be allowed on settlement of account if buyers pay cash within
a specified period. It reduces the amount to be paid.

PROFORMA INVOICE

This is a commercial document, which serves as a polite request for

payment when a supplier is not willing to allow his customer credit
and it is also used when goods are sent on approval. It is like the
ordinary invoice except the expression “proforma” will be written
across it.

USES OF PROFORMA INVOICE

1. It is used when goods are sent on approval.

2. Serves as quotation.

3. It is a reply to a letter of enquiry.

4. Polite way of refusing credit.

5. Gives the agent the idea of the price at which to sell the goods.

6. As a polite request for payment before goods are delivered.

DIFFERENCE BETWEEN INVOICE AND PROFORMA INVOICE

S/N INVOICE PROFORMA INVOICE

It is sent with
a. It can be sent without the goods.
the goods.

Used as evidence of Used when the seller does not want to

b.
credit sale. sell on credit.

Used when the buyer needs information

c. Used to confirm
sale. the seller on terms of sale.

ADVICE NOTE.

This is a document sent to buyer to inform him that the goods

ordered have been dispatched. It is basically to give information that
the goods are on their way to the customer so that he can receive
them. It is normally sent ahead of the goods.

USES OF ADVICE NOTE.

1. To inform the buyer about the dispatch of the goods.

2. To show the mode of transport used.

3. To show the likely time of arrival.

4. To inform the buyer about the quantity and the type of goods to
expect.

DELIVERY NOTE: This is a document sent by the seller to the buyer

for signature when goods are delivered to him and it will serve as
evidence that delivery has been made.

Delivery note is used when goods are transported by the seller’s means
of transportation. It will show details of all the goods being delivered so
that the goods when finally arrived can be checked against goods listed
on the delivery note.

USES OF DELIVERY NOTE.

 1. Evidence of delivery.

2. To confirm arrival of goods.

3. It is used when goods are transported by the seller’s

means of transportation.

DELIVERY NOTE

Ambra

Bookshop, Iyana

Ipaja.

Date……………..

Alex Bookshop,

Baale, Ajegunle.

Please receive your order.

S/N Description Qty

Sharp Calculating Machines. Received the goods in good

1. 500
condition.

Receive
d by
………………………………..

Signature &

Stamp Issued
by
………………………………..

Signature & Stamp

CONSIGNMENT NOTE
This is a document made out by sender of goods, handed over to the
carrier and countersigned by the consignee on delivery as proof that
delivery has been. When goods are transported by an independent
carrier a consignment note is to be delivered. It shows details of
goods sent.

USES OF CONSIGNMENT NOTE

1. It is used when the seller engages an independent transporter.

2. It shows details of goods sent.

3. It states whether freight has been paid or not.

4. Evidence of delivery when daily signed by consignee.

DEBIT NOTE

This is a document sent by the seller to the buyer to correct an

under change in his account or when goods are not changed on
invoice.

USES OF DEBIT NOTE

1. To correct an under-change of invoice.

2. Used to correct omission in the invoice.

3. Used when some items dispatched has not been recorded in the
original invoice.

4. It informs the buyer that his account has been debited.

5. Used as a supplementary invoice.

CREDIT NOTE

This is a document issued by one party to a transaction to the other

to inform him that his account has been credited with the amount
arising as a result of inadvertent over-change or goods charged have
been returned. It is usually printed in red.

USES OF CREDIT NOTE

 1. To inform the buyer that his account has been debited.

2. To correct an over-charge.

3. Used when goods returned have been charged.

4. Sent when the seller has decided to give allowance to the buyer.

5. Used to show overpayment by the buyer.

CREDIT NOTE

Alaba

Enterprise,

Agege.

1st Jan. 2006.

Garvick

Bookshop Ojora

Ajegunle Lagos.

DATE PARTICULARS AMOUNT

29th December, 10 Pieces of Casio Calculating 15,000

2005 Machine

Less 10% discount 1,500

RECEIPT

This is an acknowledgement of receipt of money from the buyer by

the seller. It is a document which confirms that payment has been
made.

CONTENTS OF RECEIPT

1. Name of the buyer.

2. Quantity of goods bought.

3. Total amount paid in words and figures.

4. Signature of the sellers and buyers.

USES OF RECEIPT
 1. Bonifide title to ownership of property.

2. Confirmation of payment.

3. Used in auditing processes.

4. Sources of information for cash book.

5. States the total amount received.

6. Shows date in which payment is made.

RECEIPT

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF

NIGERIA OFFICIAL RECEIPT

Date: Ms:

Name:

Amount in words:

Purpose:

Cash/Cheque:

Cashier’s signature:

Serial No: ICAN RB01

STATEMENT OF ACCOUNTS: This is a document showing the state of

one person’s account with another. It summarizes recent invoices,
payments and shows the amount owed at the end of the period to
which the statement applies. The seller regularly sends it to the
buyer showing detail transactions between them and the amount
paid and the outstanding one.

USES OF STATEMENT OF ACCOUNTS

 1. It shows charges commission and interest passed to a
customer’s account.

2. It shows the terms of payment for amount due.

3. It shows the unpaid balance.

4. It shows the amount of purchase made.

5. It enables a customer to have a thorough check of what

he has purchased.

6. It gives the customer an idea as to his financial standing at

a given period.

Statement of accounts for the month of

July. System Bookshop,

Baale, Ajegunle.

10th July 2006.

Olayemi

Enterprise

Iyana Ipaja

Lagos.

Date Details Debits Credit Balance

# # #

July 1 Bal. b/f 10,000

July 3 Rulers 1, 000 11,000

July 4 Big notes 2,000 13,000

July 6 Cash 6,000 7,000

July 10 Cash 500 6,500

 Accountant.

ASSIGNMENT

1. Differentiate between commodity and stock

2. State the benefit of commodity

exchange TERMS OF TRADE (WEEK10)

SPECIAL TRADE TERMS AND MEANS OF PAYMENT TERMS OF

QUOTING PRICE.
 1. CIF (Cost, Insurance and Freight): A price quoted CIF simply
means that it includes the cost of goods insurance, carriage to
the port of destination but exclude delivery from the dock to
the purchaser’s premises. The importer is responsible for other
charges.

2. FOB (Free on Board): It simply means the cost of goods and the
expenses incurred for putting goods on board a ship are
included. That is all the expenses incurred until the goods have
been placed on a ship are borne by the seller while the buyer is
responsible for the cost of unloading the goods.

3. FOR (Free on rail): This price quotation is used when rail

transport is used. It means that the seller bears all the charges
including leading the goods on rail. The buyer has to pay
subsequent charges.

4. FREE Dock: This is an exporter’s price quotation, which includes

the cost of the goods but transport charges only is for the docks
from which the goods are to be shipped.

5. C.F (Cost and Freight): “Cost and freight” means that the price
quoted covers carriage of the goods to the importer’s
destination but excludes payment for insurance.

6. F.A.S. (Free Alongside Ship): This means that the price quoted
includes all charges involved in conveying the goods to the
ship but does not include cost of loading the goods onto the
ship.

7. Free On Quay (F.O.Q): This means that the price quoted

includes all charges and expenses involved in delivering the
goods to the quay. The buyer takes responsibility for loading
onto the ship.

8. FRANCO: “Franco” means that the price quoted covers all

charges involved in carrying the goods up to the
warehouse of the importer.

9. Ex-Ship: “Ex-Ship” is a term of sale which indicates that the

seller is the one who bears the cost of carriage until the goods
have been properly unloaded from the ship at the port of
destination.

10.Carriage Forward: A price which is quoted “Carriage Forward”

represents only the cost of the goods to which the cost of
transportation will be added at a later date. This applies in a
situation when the seller cannot estimate the cost of transport,
but he will nevertheless deliver the goods to the destination of
the buyer and add transport later.
 11.Cash On Delivery (C.O.D): “Cash on delivery” means that the
buyer may not be allowed to take possession of the goods
until he has made payment for them. This term of sale is used
in order to sustain the seller’s right to repossess the goods
even if the goods are in the possession of the buyer or his
agent.

DISCOUNT: This can be defined as an amount of money that is taken

off the price of a product in order to encourage bulk purchases and
immediate payment.

REASONS FOR GRANTING DISCOUNTS

1. To encourage bulk purchases.

2. Helps to avoid the risk of bad debts.

3. To encourage prompt payment.

4. Discount attracts customers.

5. It avoids tying down of capital.

6. To provide for the retailer’s profit.

TYPES OF DISCOUNT

1. Trade Discount: This is an allowance given by the manufacturer

or wholesalers to retailers in form of deduction from catalogue
price of goods supplied to cover the retailer’s margin.

Feature of Trade Discount

1. Allowed for quantity purchases.

2. Appears in the day book alone.

3. Allowance off the invoice price.

4. It must be deducted before cash discount.

Cash Discount: This is a percentage allowance for prompt payment of

an account or for payment within a specified period of time.

Features of Cash Discount.

 1. It is conditional.

2. Appears in the accounting records.

3. It ensures prompt payment.

4. It is deducted after trade discount has been deducted.

Quantity Discount: This type of is discount given to buyers who

purchase goods in large quantity in a single delivery. Most
quantity discount arrangements apply to either single order or
single delivery. Quantity discount are deductions from the list
price by a seller to encourage customers to buy in large quantity
or to make most of their demand from him.

Features of quantity discount.

1. It is given to buyers who buy in large quantity.

2. It applies to a single order.

3. It is an additional way of reducing price.

4. It is based on the size of the purchases.

Seasonal Discount: It is a discount given to customer who places

an order during the slack season. This discount may be offered
to stimulate sales at special times of the year e.g off-peak
period.

Features of Seasonal Discount

1. It is offered at special time of the year.

2. It is offered to stimulate sales.

Items of Payment.

1. Prompt cash.

2. Cash on delivery.

3. Cash with order.

4. Spot cash.

5. Monthly account.

Means of Payment.
 1. Cheque.

1. Bank drafts.

1. Standing order.

1. Credit transfer.

1. Credit cards

1. Direct debits.

Post Office System Of Payment

1. Postage Stamps: This is used in paying small amount on

items being bought such as in sending for samples. It is a
means by which small sum can be sent by post.

2. Postal Order: This is another means of payment. It is not a

negotiable instrument. There are different denominations. It is
useful for the transmission of small sums of money by post. It
can be cashed at the post if it is not crossed. The commission
charged is called poundage.

3. Money Order: This is a means of payment provided by the post

office for people wishing to transmit sums of money to obtain
money order, it is necessary to complete a form at a post office
giving particulars of the sender and the payee. It is useful when
the sender had no current account.

4. Telegraphic Money Order: A means by which a sum of money

can be sent from one place to another without wasting time.
Here, the issuing officer sends a telegram to the payee’s post
office, the payee having to give proof of his identity before
being paid.

5. Postal Giro: This is a means of making monetary transfers

provided by the post-office as an alternative to postal order or
money order. Accounts will be opened with the post office. Debts
between accounts holders can be settled by transfers from one
account to another and no interest is paid.

ASSIGNMENT

1. State the reason for granting discount

2. Explain the type of discount

Commerce ELesson SS2 –

Edudelight.com
/** * Clever Webserver ads * */ */