Commerce Lesson Note for SS1 Third Term

Lesson note on Commerce SS1 –Edudelight.com

THIRD TERM SCHEME OF WORK FOR SS1

COMMERCE

WEEKS	TOPICS
1	Revision of last term’s work
2	Warehousing
3	Buying and selling
4	Terms of Trade
5	Business organisation – Sole Proprietorship
6	Partnership
7	Kinds of partners and rights of partner
8	Commodity Exchange
9	Requirement for Trading
10	Problems of commodity exchange
11	Revision
12	Examination

WEEK ONE: REVISION FOR LAST TERM’S WORK

WEEK TWO

TOPIC: WAREHOUSING

WAREHOUSING: Is the storage of goods until they are needed. It is an important aspect of commerce which concern all activities that help in storing goods until they are demanded in order to ensure regular supply of goods.

WAREHOUSE: Is a store house or place where goods are stored or kept until they are needed. It helps products to be made available to the customers at the right place and time.

TYPES OF WAREHOUSE

1. State warehouse
2. Manufacturing warehouse
3. Bonded warehouse
4. Public warehouse

STATE WAREHOUSE: Is a government owned warehouse where seized goods are kept until they are sold. It is the store where smuggled goods seized by the customs authorities are kept. Contra band goods kept there are auctioned to the public after sometimes.

FEATURES OF STATE WAREHOUSE

1. The government owns it
2. Smuggled or contra band goods are kept in it
3. Goods kept are auctioned to the member of the public.

MANUFACTURING WAREHOUSE: this is owned and equipped by the manufacturer/producer at the factory or depot in order to store his product until they are sold. This enables the producers to products ahead of demand.

FEATURES OF MANUFACTURE WAREHOUSE

1. It is owned by the producer
2. It is located at the factory or depot
3. It is designed and equipped by the producer

WHOLESALER WAREHOUSE

It is owned and managed by the wholesaler for storing wide range of products purchased from various producers. It is located near the sales pants to ensure regular supply of goods to the retailer.

FEATURES OF WHOLESALER WAREHOUSE

1. It is owned and managed by a wholesaler
2. It is constructed to suit wholesaler line of business
3. It is located near sales centres.

BONDED WAREHOUSE

This is a warehouse where government keeps goods owners have not paid their required duties. It is located beside the port and approved by the customs for the temporary storage of durable goods, the goods which duties have not been paid. Goods imported into a country are kept there until duties are paid on them.

Bonded warehouse is under the supervision of the custom authority.

FEATURES OF BONDED WAREHOUSE

1. It is under the control of custom authorities
2. It is located at the port
3. Goods stored are referred to as bonded goods
4. Duties have not been paid on goods are kept there
5. A warrant will be issued to release the goods.

PUBLIC WAREHOUSE

Is owned and managed by individuals firms who do not make use of their warehouse but rent is out to others for keeping their goods, such warehouses are found near docks, railway stations, airport, seaports etc.

FEATURES OF PUBLIC WAREHOUSE

1. It is privately owned by individuals or firms
2. It can be rented out to others
3. It is located near airports, seaports, railway stations etc.

IMPORTANCE OF WAREHOUSE

1. SOURCE OF REVENUE: Warehouse generates a lot of revenue to both individual and government by renting them out to others e.g. public warehouse.

2. PROVISION OF STORAGE FACILITIES: Warehouse provides storage facilities to producers to keep goods produced ahead of demand.

3. PRICE STABILIZATION: Goods warehouse and supplied the market on demand reduce price fluctuation.

4. CREATE PLACE UTLITIY: Warehousing ensures establishment of a logistic system of storing. Goods are taken to the consumed at the right place and time.

5. PROVISION OF EMPLOYMENT OPPORTUNITIES: Warehousing is a source of employment to many people. It provide job opportunities for different people such as security personnel, clerks, store attendants driver etc.

6. Warehousing provides protection and security for goods

7. It reduces the rate of smuggling

ASSIGNMENT

1. Define warehousing
2. List and explain 2 types of warehouse.
3. List and explain 5 importance of warehouse

Lesson note on Commerce SS1 –Edudelight.com

WEEK THREE

TOPIC: BUYING AND SELLING

In business transaction, certain documents are used to effect transaction between the suppliers and buyers. The documents are:

• Trade journal
• Letter of enquiry
• Quotation
• Order
• Cataloques and price list
• Invoice
• Delivery note
• Advice note
• Preforma invoice
• Debit note
• Credit note
• Consignment note
• Receipt
• Statement of Account etc.

1. TRADE JOURNAL: Are publicator/media that carry business news/information which can be inform of newspaper, magazine etc. They carry information on movement or raw materials prices, production technique, terms of sale and delivery etc.

Both old and new retailers gather the necessary information about stock and things of interest e.g. stock exchange journal, agricultural journal etc.

2. LETTER OF ENQUIRY: Is a document sent by the buyer after gathering information from track journal. The buyer sent the letter of the supplier find out about the available goods, prices terms of payment etc. it is the first step to take by prospect true buyer. The letter must be brief and precise.

Letter of enquiry       

                                                                                                Marvic Nig. Ltd

                                                                                                5, Peace Avenue,

                                                                                                Ajah, Lagos

                                                                                                27^th of April, 2015

Solotech Enterprise

Allen Avenue, Lagos.

Dear Sir,

We require 500 water tanks urgently please, send to us quotation for the above items stating the terms of trade.

Yours faithfully,

Manager.

3. QUOTATION: Is the supplier’s reply to the letter of enquiry which states the price, terms of payment, delivery, dates and any discount.

Quotation is a statement of price given to a buyer when he asks his supplier for quotation.

                     Marvic Nig. Ltd

                     Peace Avenue, Ajah

S/N	Description	Quantity	Unit price	Amount
	500 water tanks Delivery – within 21 days Terms – 5% cash discount 2½ Trade discount Signature of seller ————————–	500	50	25,000

4. ORDER: Is a document which states the quantity of goods and all necessary details about the package of the goods. The order is 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 unaccepted a legal contract exist between two parties.

                                                                                                Marvic Nig. Ltd

Solotech

Please supply the following

Quantity	Description	Unit price	Total
500	Water tanks	50	25,000

5. ADVICE NOTE: Is a document sent to buyer/retailer to inform him/her that the goods ordered for have been dispatched to that the goods are on the way.

The note is usually sent ahead of the goods and it is unnecessary when the supplier sends the invoice immediately the goods are dispatched.

6. PRE-FORMA INVOICE: Is a document that serve as a polite request for payment. When a supplier is not willing to allow his/her customer credit  and it also used when goods are sent on approval. It looks like the ordinary invoice but it has pro-forma written on it.

7. DEBIT NOTE: Is sent by the seller to the buyer to correct an undercharge in his/her account. It is also known as supplementary invoice used to correct error of under payment made by a retailer to inform the buyer that his account has been debited.

8. INVOICE: Is a document sent by the seller to the buyer slowing a comprehensive summary of a transaction.

Invoice shows the full details of goods sold such as quantity price description and total amount of goods purchased.

9. CREDIT NOTE: This is issued by the seller to inform the buyer that his/her account has been credited or over changed. The credit note is also used when goods sold have been returned as a result of defence or substandard. Credit note is usually printed in red.

10. CONSIGNMENT NOTE: It is issued when goods are sent through independent carries and counter signed by consigue on delivery has been made.

11. DELIVERY NOTE: Is a document sent by a seller to the buyer for signing when goods are delivered to the buyer. It serves as evidence that delivery has been made.

It is also used when goods are transported by the seller’s means of transport to show that goods are delivered so as to check against goods listed on the note.

12. CATALOGUE AND PRICE LIST: It contains the prices of good. It shows the currentprices of good manufactured in a firm.

13. RECEIPT: Is an acknowledgement that payment has been made on a particular product/goods. it is evidence or legal proof of payment made up to the seller by the buyer. Receipt is issued after payment has been made.

14. STATEMENT OF ACCOUNT: It is issued by the seller to the buyer to show to summarised financial business transaction between the two parties.

It shows how the amount of the buyer appears in the book of the seller. It is sent periodically to a debtor to show how much he/she owes i.e. serves as a reminder.

ASSIGNMENT

List and explain 7 documents used by buyers and sellers

WEEK FOUR

TOPIC: TERMS OF TRADE

Terms of trade are terms used in buying, selling and transportation of goods from imputer(s) supplier to the retailers/buyer.

The terms used in trade are:

1. CF (COST AND FREIGHT): This is the price quoted that include, cost of the good and freight charges. The seller bears the freight charges while the byer take care of goods and insurance.

2. CIF (COST, INSURANCE AND FREIGHT): It means the cost of goods insurance and carriage to the port are borned by the import.

3. FOB (FREE ON BOARD): The cost of goods and the expenses incurred are include and borne by the seller while the buyer bears the cost of unloading the goods.

4. FOR (FREE ON RAIL): It is used on rail transport the seller bear all the charges including loading and the buyer pays other charges.

5. LOW: Is a price quotation which means imputer buying on low terms will pay carriage, freight, insurance between the two ports and the cost of delivery.

6. EX-WAREHOUSE: This means the quoted prices does not include delivery so the buyer bears the delivery charges.

7. CARRIAGE PAID: The seller bears all the expenses of delivery i.e. goods delivered free to the buyer.

8. CARRIAGE FORWARD: It is price quotation for goods burned by the buyer i.e. the buyer pays for the carriage.

9. DISCOUNT: It’s the amount of money taken offer reduction of the price of a product in order to encourage bulk purchase and prompt payment.

TYPES OF DISCOUNT

1. TRADE DISCOUNT: Is allowance or reduction given by the supplier (manufacturers or wholesalers) to retailer from prices of goods for buying in large quantity. Trade discount is debited before cash discount.

2. CASH DISCOUNT: Is percentage allowance given to buyers for immediate payment or for payment within a specified period.

3. QUANTITY DISCOUNT: Is a deduction granted to buyer who purchases goods in large quantity in a single delivery or make most of their demand from the seller.

4. SEASONAL DISCOUNT: It is given to buyer who places order during the slack season in order to stimulate sales at special time of the year.

TERMS OF PAYMENT

• Prompt cash – prompt cash is made when goods are to be paid for within a short time usually less than a week.
• Cash on delivery (C.O.D) – is the services of the post office to assist mail order business. The payment and collection made through the post office. Buyer pays before the goods are delivered.
• Cash with order (C.W.O) – payment is made when the order is sent to the seller the buyer send the money when order is sent
• Sport cash – goods delivered and paid for immediately after i.e. the buyer pays immediately he receives the goods.

ASSIGNMENT

1. Define terms of trade
2. Write short note on the following:

CF (COST AND FREIGHT

CIF (COST, INSURANCE AND FREIGHT

 FOB (FREE ON BOARD)

FOR (FREE ON RAIL)

 LOW

EX-WAREHOUSE: This means the quoted prices does not include delivery so the buyer bears the delivery charges.

CARRIAGE PAID

WEEK FIVE

TOPIC: BUSINESS ORGANIZATION

SOLE PROPRIETORSHIP

Sole proprietorship is one of the forms of business organization established, owned financed and controlled by one person with the aim of making profit.

This form of business is the oldest and the most common type of business organization. It is also known as one-man business or sole trading e.g. farmers, hunter, lawyers, doctors, tailors, barbers, musicians etc.

ATTRIBUTES OF SOLE PROPRIETORSHIP

1. Ownership – it is business owned by one person
2. Motive of formation – is to make profit
3. Source of capital – the capital is from the proprietor/sole trader (owner)
4. Legal status – it is not a legal entity

SOURCES OF CAPITAL

1. Personal savings – contribution
2. Loan from friends and relatives
3. Trade credit
4. Load and overdraft from banks
5. Grants loan from government

MERITS OF SOLE PROPRIETORSHIP

1. This is a business that is easy to set up: It is easy to establish because it requires small capital and may not involve much protocol when setting up such business.

2. It is easy to manage: Its small size few workers, non-complexities in its organisation etc are some of the factors that make sole proprietorship easy to manage.

3. It requires small capital: This form of business requires small capital and that is why it is the commonest and cheapest form of business organisation in West Africa.

4. Quick decision making: quick decision are easily taken because the owner consult nobody before taking any decision.

5. Profits belong to the owner: The owner enjoys the profit alone because he/she contributed the capital used to establish the business.

6. It can fit any environment: It adopts very easily and well to any environment it funds itself either urban or rural areas.

DEMERITS OF SOLE PROPRIETORSHIP

1. The owner bears all risks alone: The owner bears the risks alone i.e. the risk is borned by the owner.

2. Lack of enough capital: The capital used in running the business come the proprietor so the owner is faced with in adequate capital.

3. Limited expansion: lack of enough capital limits the expansion of the business.

4. The business is not a legal entity: the business cannot sue or be sued in its own right because it is not legal entity.

5. The exit of the owner may end the business: The death of the owner may end the business if there is no successor to take over from the owner.

6. Miscellaneous disadvantages: No retirement no leave and no period of break for the owner because he works harder and closes very late in order for the business to succeed etc.

ASSIGNMENT

1. Define sole proprietorship
2. List 5 features of sole proprietorship

Lesson note on Commerce SS1 –Edudelight.com

WEEK SIX

TOPIC: PARTNERSHIP

Partnership may be defined business that exist between two or more person who contribute skilled and money in order to establish, own and manage business with the aim of making profit.

Partnership is formed by two to twenty persons and for banking system it is two to ten persons.

FEATURES OF PARTNERSHIP

1. Ownership: it is owned by two to twenty or two to ten person

2. Liability: The liabilities of the partners are unlimited

3. Source of capital: they get the capital from the contribution of the partners.

4. Motives of formation: The aim of this business is to make profit

5. Legal status: It is not a legal entity

6. Method of withdrawing capital: capital must be approved by other partners as laid own in their partnership deed.

SOURCES OF CAPITAL

1. Profit plough back: profit realized can be ploughed back into the business for expansion.

2. Personal contribution: Each partner contribution adds to the business expansion.

3. Loan: The business can obtain from commercial banks to finance

4. Trade credit: deposits can be obtained from the middle man to aid production.

5. Admission of new partners: when new partners are admitted more capital is made into the business.

RIGHTS OF PARTNERS

• Every partner must have access to the partnership book of account
• Partners are entitled to a refund for any expense incurred in the course of the partnership business.
• Partners should be consulted before admitting new partner
• Every active or general partner is to take active part in the management of the partnership
• Every partner is entitled to vote during partners inactive or deliberation.

OBLIGATIONS OF PARTNERS

The partners own the firmed their obligations are:

1. Partner must not make secret profit in the course of partnership business without disclosing such profit to the partnership.

2. Partners must not disclosed confidential information of the to a third person.

3. Partners must be legal to the firm there must not be conflict of interest

4. Partners must keep a true and accurate account of all properties and money of the partnership in their possession.

5. Even partner is entitled to a share of the firm’s liabilities.

ASSIGNMENT

1. What is partnership?
2. List 5 obligations of partners

Lesson note on Commerce SS1 –Edudelight.com

WEEK SEVEN

TOPIC: PARTNERSHIP CONTINUES

TYPES OF PARTNERSHIP

1. Ordinary partnership
2. Limited partnership

ORDINARY PARTNERSHIP: In this type of partnership all partners have equal power and each can participate in the management of the business. Ordinary partners take active part in the running of the business and they are liable for the debits of the company.

LIMITED PARTNERSHIP: This is registered and formed under the limited partnership act. They do not take equal part in the running of the business through one of the partners may be an ordinary partner responsible all the liabilities in case the business fails.

KINDS OF PARTNER

Kinds of partner are:

• Active partner
• Sleeping dormant partner
• Nominal or passive partner
• Limited partner
• General partner

1. ACTIVE PARTNER: This is a partner who takes active part in the formation, financing and management of the business. Salary is paid to active partner who plays the role of the manager or the director of the business.

2. SLEEPING OR DORMANT PARTNER: This partner only contribute part of the capital used information and running of the business but those not take part in the management of the business he takes part in the showing of profit and loss of the business bit salary is not paid to him as he does not take part in the management of the business.

3. NOMINAL OR PASSIVE PARTNER: This partner exist only in name because he contribute nothing but only name in the business. Partners of this nature are men and women of substance who contributes their names.

They share in the profit and liabilities of the business in partnership deep provides for that.

4. LIMITED PARTNER: This is partner who agrees to contribute a certain sum of money into business but prohibited by law not to take active part in the day to day management and administration of the business.

5. GENERAL PARTNER: Is somebody who has agreed to be responsible for the success failure of the business. He/she takes part in day-to-day running of the business and placed on salary of his active role on the business.

PARTNERSHIP DEED

For the partnership to be effective and efficient, partners make rules and regulations to guide the business.

The rules and regulations guiding members of a partnership business is known as deed of partnership. It contains come of the following:

1. Names od partners
2. The name and nature of the business formed
3. The amount of capital contributed by each partner
4. The role of each partner
5. How profit and loss are to be shared
6. The right of partners to the business
7. Whether or not salary should be paid to any or all the partner
8. How long the business will last
9. How matter can be determined either by the major vote or not
10. How the business shall end when the needs arises.

MERITS OF PARTNERSHIP

1. Sufficient Capital: partnership have more resources that a sole proprietorship because more people are involved.

2. Joint and better decision: better result are divided when two or more people put their head together and take joint decision for the business

3. Sharing of risks and liabilities: the partners share risks and liabilities among themselves unlike sole proprietorship where the owner bear the risks alone

4. Possibility of Expansion: There is possibility of expansion because more capital can be raised which will increase the profit of the business

5. Creation of employment opportunity: the size of partnership made possible by its enough capital which leads to more employment opportunity.

DEMERIT OF PARTNERSHIP

1. The business is not a legal entity: partnership is a separate and district personality. It cannot sue and be sued in its own name. If they are declared bankrupt, partners properties will confiscated and caution in order to pay their creditors.

2. Slow in decision and policy making: as a result of consulting many people before a decision is made caused delay in decision making on like sole proprietorship.

3. Unlimited Liability: If the business goes into liquidation, partners will loose the properties they contributes and may loose their properties in order to off set the remaining debts.

4. Limited capital: The partnership has no legal right to obtain more capital through shares and debentures from members of the public.

5. Exist of a partner may end the business if a partner leaves as a result of debit of resignation the business may collapse especially if the partner is an active partner.

ASSIGNMENT

1. Explain the following:
2. ORDINARY PARTNERSHIP
3. LIMITED PARTNERSHIP
4. ACTIVE PARTNER
5. SLEEPING OR DORMANT PARTNER
6. NOMINAL OR PASSIVE PARTNER
7. LIMITED PARTNER
8. GENERAL PARTNER

WEEK EIGHT

TOPIC: COMMODITY EXCHANGE

Commodity exchange can be defined as food or other agricultural produce such as wheat, cocoa, and natural resources e.g. oil, gas and metal. Commodities also means standardized goods which are traded in bulk whose unit are interchangeable.

Commodity exchange is a former market regulated and standardized raw materials or primary commodities are bought and sold.

TYPES OF TRADEABLE COMMODITY

a. Agricultural produce: these are cash and food crops e.g. soya beans, coffee, sugar, ginger, millet, groundnut, cocoa, cotton, cow pea etc.

b. Oil and Gas: kerosene, petrol, palm oil. They are crude oil, natural gas, gasoline, acid etc.4

c. Financial Instrument: They are currencies, bonds and other tradeable commodities.

d. Solid material: gold, copper, tin, zinc, aluminium, silver and lead.

TYPES OF COMMODITY MARKET

There are four majors of commodity market which are:

• Spot
• Future
• Option
• Forward

SPOT: This is buying and selling of commodities on the spot date i.e. buying and selling are on cash and carry buying and selling of commodities taxes paid immediately and commodities are delivered. The settlement price is called spot price.

FUTURE: This is a contract to buy and sell commodity on future date at a price decided when the contract is made regardless of whether the real price will fall or rise. It is a standardize contract between two parties to buy and sell a specify commodity of standardized quantity for a price agreed upon when delivery and payment accruals at a specified future date. It is to protect against future change in price of commodity.

OPTION: This is a contract given the holder the right to sell or buy a certain commodity at a set price at a specified date. It gives the holder the right but not the organization to trade in a commodity on some future date.

FORWARD: This is a non-standerdised contract between two parties to sell and buy at a specified future time at a price agreed upon with this contract price is agreed for commodity to be delivered at a future date.

DIFFERENCES BETWEEN COMMODITY AND STOCK

S/N	COMMODITY	STOCK
1.   2.   3.   4.     5.	Commodity are tangible items   They are non-financial instrument   Ownership of raw unprocessed goods   Most commodities are not bought or held in a port folio because some are perishable   They are not entitled to dividend	They are intangible items   They are financial instrument   Ownership of company   They are bought and held in a port folio   They are entitled to dividend

ASSIGNMENT

1. Define commodity exchange
2. List and explain 4 types of commodity market
3. Differentiate between commodity and stock.

Lesson note on Commerce SS1 –Edudelight.com

WEEK NINE

TOPIC: COMMODITY EXCHANGE – REQUIREMENT FOR TRADING

The requirement for trading are:

• Grading system
• Clearing system
• Warehousing system
• Standardization
• Information requirement

GRANDING SYSTEM: In commodity market, there should be a system which provides grading and officials certification of the quality, size and weight of commodity.

Grading system is based on standard developed from each product provides means of measuring, the level of quality and value of commodities.

CLEARING SYSTEM: A clearing and settlement system ensure payment to seller as well as minimize over exposure of counter partners.

STANDARDIZATION: This provides means measuring quality of products. It provides a basis for domestic and international trade and promotes efficiency in marketing procurement.

Standardized has to be with ensuring that all similar commodities have some features and acceptable level quality.

WAREHOUSING SYSTEM: Warehousing is the act of keeping goods in a warehouse until delivery. Licencing of warehousing and operators who meet specified requirement is needed. A credible warehouse receipt system is found to be very important is assuring delivery of goods warehouse should be adequately equipped.

INFORMATION REQUIREMENT: Is the provision of reliable and timely market information on prices, supply, demand, import and export.

METHODS OF TRADING

The method of trading may be by open outcry or electronic.

1. Open Outcry: It is also referred to as manual system. The method of communication among the participants is through shouting and using hand signal to transfer information about buying and selling to the hearing of everybody.

With this method, trade is conducted verbally with all offers and trade done out loud so that competitiors on both sides.

2. Electronic System: The trading is through the use of computer networks. The network transmit data and information on offer and trade.

Transactions are conducted on the screen of computer. The system is faster, cheaper and efficient than open outcry.

ASSIGNMENT

1. List and explain 5 requirement 4 trading.
2. List and explain 2 methods of trading

Lesson note on Commerce SS1 –Edudelight.com

WEEK TEN

TOPIC: PROBLEMS FACING COMMODITY EXCHANGE

The problem facing commodity exchange are:

1. Inadequate supply: The level of production is low there by there is inadequate or insufficient sully to meet the demand.

2. Poor storage: There are inadequate and inefficient storage facilities which leads to high seasonal price viability.

3. Bad weather: Unfavourable climate and weather condition contribute to the problem facing commodity exchange excessive, or low rainfall may be detriment to agricultural product.

4. Middlemen: These are intermediaries between the buyers and the seller. They prevent interpersonal relationship between them and also responsible for scarcity and price increase.

5. Lack of formal quantity grading and standard: The grading function is not efficient so it create uncertainty about the quality and quantity of commodities.

6. Inadequate knowledge of commodity exchange: There is lack adequate information about the market. The general public rarely understand how commodity are traded on the exchange.

ASSIGNMENT

List and explain 5 problems militating against commodity exchange.