2ND TERM E.

NOTE

SUBJECT: COMMERCE CLASS: SS2

WEEK 1
SUBJECT: COMMERCE
CLASS: SS2
DATE: ……………………..
TOPIC: Banking
CONTENT: (a) Meaning of bank and origin of banking

(b) Function of Commercial banks

(c) Types of Account

Sub-topic 1: Meaning of bank

A bank is a commercial institution that performs various financial activities such as

accepting and handling deposits and other valuables. Simply put, a bank is a place
where money and other valuables like will, jewellery etc are kept.

Origin of Banking

Banking had its origin with the goldsmiths in London in the seventeenth century. The
goldsmith had facilities for storing valuables; therefore, they accepted money and
valuables from Merchants for safekeeping.

The first banking function was accepting deposit of cash from merchants who had no
safe place to keep their money. The goldsmith demanded a charge for looking after
their money. The second stage came when receipts for these deposits were being used
as means o payment by merchants. The next stage was the development of money
lending to customers with interest. This provided a profitable business; hence bankers
began to offer inducement of interest to encourage merchants and others to increase
their deposit.

The first known formal bank is the bank of Venice, in Italy which was
established in 1157 to finance the monarch in his wars. The modern bank started with
the English goldsmith. In 1894, the Bank of British West Africa (now First Bank) opened
a branch in Lagos while Barclays Bank (now Union Bank) was established in 1925. Many
more banks came up but after the 2006 reform, 25 banks emerged and got listed in the
Nigeria Stock Exchange.

TYPES OF BANKS

1. Commercial bank

2. Central bank

3. Merchant bank

4. Savings bank

5. Development bank

COMMERCIAL BANKING

Commercial banks are financial institution granted licence by central banks to accept
deposits and other valuables from the public for safekeeping with the sole aim of
making profit. Commercial banks are limited liability companies. Examples of
commercial includes; united Bank for Africa (UBA) Plc, Guaranty Trust Bank (GTB), First
Bank of Nigeria PLC etc

CHARACTERISTICS OF COMMERCIAL BANKING

1. Commercial banks are Limited Liability Company.

2. It is profit oriented.

3. They are incorporated.

4. They are members of the money market.

5. They accept deposit and valuable.

EVALUATION

1. Give a brief history of banking in Nigeria

2. Mention four types of bank in Nigeria

Sub topic 2: Functions of Commercial Bank

1. Accepting deposit: Commercial Banks accept deposit from the public for safe
keeping. This is the oldest function of Commercial Banks.
2. Lending to customer: Commercial Banks grant loans and overdrafts with interest
to people and firms for profitable investment.

3. Agent of payment: Commercial Banks act as agent of payment on behalf of their

customers by collecting and paying their cheques, paying insurance premiums, paying
of salaries, pensions etc.

4. Safe keeping of valuables: Commercial banks accept and keep valuables for their
customers such as certificates, jewelleries, wills etc.

5. Discounting Bills: Commercial banks discount bills of exchange; i.e. they pay cash
for bills of exchange before the maturity date of the bill.

6. Issuance of Bank Statement: Commercial banks prepare and send the statement
of accounts to their customers at intervals to show their transactions with the
customers.

8. Issuance of traveller’s cheque: Commercial Banks can issue travellers cheque to

their customers to facilitate their commercial transaction.

9. Foreign Exchange transaction: Commercial banks make foreign currencies

available to their customers. They process foreign exchange requests and help in
transferring funds.

10. Provide Financial/technical Advice: They also encourage and advice their
customers on projects or viable business they could invest in.

11. Facilitate international trade: Commercial Banks provide credits to exporters

which facilitate payment in foreign trade.

ROLES OF COMMERCIAL BANK IN INTERNATIONAL TRADE

1. Provision of documentary credits: Commercial banks provide exporters with

credit facilities which help in the payment of goods.

2. Minimising default in payment: They guarantee payments for goods bought in

order to ensure that default in payment is reduced.

3. Discounting documentary credit: Commercial banks can provide credit to

facilitate foreign trade by discounting documentary credit. This will ensure that sellers
are paid at once.

4. Act as Referees to Customers: commercial banks act as referees to exporter by

providing information to foreign businessmen about their credit worthiness.
5. Foreign Exchange Transaction: They help to arrange for purchase and sales of
foreign currencies which are used to finance import and export.

6. Issuance of traveller’s cheque: They facilitate foreign trade by issuing travellers

cheque to business men going abroad.

CREDIT FACILITIES PROVIDED BY COMMERCIAL BANKS

(a) Loan: This is an amount of money that is lent out to customer at an agreed rate of
interest for a specific period. The customer must have an account.

(b) Overdraft: This is a credit facility that enables the customer to withdraw above
what he has in his account at an interest rate.

DIFFERENCES BETWEEN LOAN AND OVERDRAFT

LOAN OVERDRAFT

Collateral security required Collateral security not require

It attract lower rate of interest It attracts higher rate of interest

The money is repayable at a fixed time. There is gradual deduction from the
persons account

A separate account called loan account is No separate account is opened.

opened.

FACTORS FOR CONSIDERATION BEFORE GRANTING LOAN

1. Purpose of the loan: The bank will want to know the purpose why a customer
needs the loan

2. Financial position of the customer: The bank is interested in knowing the

financial capability of the customer to repay the loan. They will study and know the
financial position of the customer.

3. Credibility of the customer: The bank will study the credibility of the customer to
ascertain his credit worthiness.
4. Source of income to repay the loan: The bank will be interested in the source of
income that the customer is using to repay the loan.

5. Total amount applied as loan: The bank will also look at the amount applied for.

6. Provision of collateral security: They will require collateral that will cover for the
amount of loan. This is to enable the bank recover the money in case the customer
defaults. The security will be converted to money to settle the loan taken.

7. Provision of referees: The referee will be required to provide a land or security for
the loan.

8. Viability of the business: The bank will also look at how viable the business or
project is.

9. Period of repayment of loan: The bank is interested in knowing the duration of

repaying the loan.

EVALUATION

1. Explain seven functions of commercial bank.

2. Describe five way by which commercial bank aid foreign trade.

3. Differentiate between loan and overdraft

Sub topic3: Types of Account operated in commercial banks

There are three types of accounts which customers can open in a bank. These are;
current deposit and savings account.
 WEEK 2
CURRENT ACCOUNT
A current account is an account opened by customers in a commercial bank with the
aim of making deposit and withdrawal by means of cheque. It is suitable for business
and often used by individual, companies and organizations. The customer will be given
a cheque book which he uses to withdraw money anytime. Holders of current account
are not entitled to interest but are charged commission by the bank. They can obtain
overdraft. Current accounts are accounts on which cheques can be drawn.
FEATURES OF CURRENT ACCOUNTS
1. Money can be withdrawn frequently.
2. Customers are entitled to the use of cheque.
3. Commission is paid by the customer to the bank.
4. Holders of this account are not entitled to interest
5. Other people can withdraw money from the account on behalf of the customers.
PROCEDURE FOR OPENING A CURRENT ACCOUNT
1. The customer will collect and fill the application form
2. He will submit a prescribed number of passport photographs.
3. Two guarantors, who are account holders in a bank, must be provided to
recommend the applicant.
4. The customer will submit his complete particulars to the bank, showing personal
details.
5. The bank will issue the customer a pay in slip booklet.
6. An account number will be given to the customer
7. He will pay in an initial deposit with the pay in slip.
8. A cheque book will be given to the customer.

SAVINGS ACCOUNT

Savings Account is operated by low income earners who are small savers.
Customers pay small amount and it accumulate over time. Holders of such account
are entitled to interest but cannot withdraw frequently. The customer will be given
passbook with which to make occasional withdrawal from the account.

FEATURES OF SAVINGS ACCOUNTS

 1. Money can only be withdrawn occasionally.

2. It attracts a favourable rate of interest

3. Holders are issued passbook.

4. Withdrawal cannot be made by another person on behalf of the account holder.

DIFFERENCES BETWEEN CURRENT ACCOUNT AND SAVINGS ACCOUNT

SAVINGS ACCOUNT CURRENT ACCOUNT

1. Customers are issues passbook Customers are issued cheque book
2. It attracts interest No interest is given
3. Only the holder can make withdrawal Cheque can be issued to anyone.
4. Withdrawal is occasional Withdrawal is frequent

DEPOSIT ACCOUNT

Deposit account is also called time deposit. It is an account in which money is saved in
the bank for a fixed period of time to earn interest. Holders of such account earn higher
interest than savings account. Customers can withdraw subject to seven days of notice.
People save money in deposit account for a specific purpose and can be renewed on
maturity. The customer will be issued a deposit account passbook. Fixed deposit
account can only be withdrawn at the agreed time.

FEATURES OF DEPOSIT ACCOUNT

1. Money is deposited for a specific period of time.

2. It attracts higher interest

3. Notice of seven days must be given before withdrawal.

 WEEK 3

CHEQUE

A cheque is an order written by the drawer to a bank to pay on demand a specified sum
of money to the person named as payee on the cheque. To complete a cheque, the
drawer inserts the name of the payee, the amount to be paid in words and figures, date
and signature.

PARTIES TO A CHEQUE

1. Drawer: This is the owner of the account in the bank and he is responsible for
drawing a cheque.

2. Drawee: This is the bank on which the cheque is drawn i.e where the cheque will be
presented.

3. Payee: This is the person to whom the cheque is made payable i.e the person to
whom the payment is directed to be made.

FEATURES OF A CHEQUE

1. A cheque is an order to pay.

2. It is an unconditional order.

3. The amount must be specified.

4. It must be written not oral.

5. The name and branch of the bank appear on the cheque.

6. The account number of the drawer is stated.

7. It is addressed by one person to another.

8. The name of the payee must be shown on the cheque.

9. A stamp duty is paid on the cheque.

10. Amount must be clearly written in words and figure.

ADVANTAGES OF PAYMENT BY CHEQUE

1. It is convenient to carry cheque than cash.

2. Cheque is a safe means of payment.

3. It can serve as a receipts and a proof of payment.

4. Using cheque to make payment saves time and energy of counting.

5. It is safe to carry cheque than to carry cash.

6. The counterfoil can be used to keep proper record.

7. It is easy to stop payment so as to prevent fraud.

PRECAUTIONARY MEASURES TO BE TAKEN WHEN DRAWING CHEQUE

1. The signature must be consistent.

2. The drawer must sign on any alteration.

3. The cheque must not be folded.

4. The amount must be written in words and figure.

5. The name of the payer should be properly written on the cheque.

6. The signature must be such that cannot be easily forged.

TYPES OF CHEQUE

1. Order Cheque: Order cheque is made payable to a person or firm named on it or an

order which requires the endorsement of the payee unless he pays it into his own
account.

2. Bearer cheque: Bearer cheque is payable to the bearer i.e. whoever present it. The
bearer cheque is payable without any endorsement.

3. Open cheque: Open cheque can be presented and cashed over the counter of the
bank which it is drawn.

4. Crossed Cheque: This is a cheque having two parallel lines drawn across its face.
Crossed cheque cannot be cashed at the counter.

REASONS FOR CROSSING CHEQUE

1. To protect the owner against damage by loss or theft.

2. It prevents the cheque from being paid over the counter.

3. Crossing restricts a cheque to a particular bank.

4. The holder must pay it to his account.

5. It can help in tracing the culprit in case.

OTHER FORMS OF CHEQUES

1. Stale cheque: This is a cheque that is more than six months and the date have
expired.

2. Post dated cheque: This is a cheque that have a future date and cannot be
presented before that date.

3. Certified cheque: This is a cheque that has been ratified by the bank in order to
guarantee that the drawer has sufficient funds to settle a debt

4. Dishonoured cheque: This cheque that a banker for some reasons refuses to pay on
presentation.

BANK CLEARING HOUSE

Bank Clearing House is an institution established by member banks to simplify

exchanging and obtaining payments for cheques that are paid into the banks’ branches
throughout the country. The Clearing House is used among banks to settle cheques
drawn on them.

TYPES OF CLEARING HOUSE

1. Local Clearing House: The Local Clearing House takes care of clearance of cheques
among various banks in the same town. All large towns have their own cleaning house
where representatives of the various banks in the town meet each day to clear
cheques.

2. Head Office Clearing House: Head Office Clearing System undertakes to settle
cheques drawn by the customers of the various branches.

3. Bankers Clearing House: Bankers Clearing House is the ultimate clearance and
settlement of cheque is carried out in the country. All banks in the country will come
together to sort out cheques drawn on each other. The final settlement is through
cheques drawn on the central bank

EVALUATION
1. Explain each of the following;

(i) Order Cheque

(ii) Bearer Cheque

2a. Define the term Clearing House

b. Mention the types of Clearing House

GENERAL EVALUATION

Objective Test

1. The Correct name for the bank on whom a cheque is drawn is a. the payer b. the
drawer c. the drawee d. the payee

2. When dealing with payments, it is the duty of the bank to carry out the instructions
of the a. Payee b. drawer c. drawee d. debtor

3. A bank whose name is printed on a cheque leaf is known as the a. Drawer b.

payer c. drawee. d. payee

4. It is important for banks to maintain a high percentage of cash ratios in order to

a. make high profits b. invest in long term venture c. encourage more tax
deposits d. meet their customer demand at any time

5. Which of the following is not a reason for dishonouring cheque?

a. insufficient fund
b. different amount in words and figures
c. uninstalled alteration
d. Special crossing
Essay Test

1. Describe to Kola a new staff in your organisation, the steps he may take to open
a current account.
2. List and explain five factors a manager of a bank should consider before granting
a loan to a customer
b. Outline five functions of commercial bank in Nigeria?
3. a. Differentiate between a ban loan and an overdraft.
b. Highlight five benefit of using cheque for payment.

WEEKEND ASSIGNMENT

Read Complete Commerce for Senior Secondary School by Alan Whitcomb and Adekoya
Fatai Olusegun pages 146- 147

Read Commerce for Senior Secondary School Book 2 by P.S.Onuka, M.A.Adesola,

O.O.Oyefesobi pages 143-148

Read Essential Commerce for Senior Secondary Schools by A.O LONGE pages 72-79

PRE – READING ASSIGNMENT

Read about forms of payment

WEEKEND ACTIVITY

1. List the forms of payment

2. Describe two forms of payment
 WEEK 4
SUBJECT: COMMERCE
CLASS: SS2
DATE: ……………………..
TOPIC: PAYMENT
CONTENT: (a) Forms of payment
(i) Automated Teller machine
(ii) Western Union money transfer
(iii) Money gram
(iv) Computer and the bank
(v) e banking
Sub-topic 1: Automated Teller machine, Western Union and Money
Gram
Automated Teller machine,
The automated teller machine (ATM) or automated banking machine is a
computerised telecommunication device that provides clients of financial
institutions with access to financial services in a public area without the need of
seeing a cashier, human clerk or bank teller. With most ATMs, the customer is
identified using a plastic smart card that incorporates a chip containing a unique
card number and some security data. Authorisation to use the service is provided
by the customer entering personal identification number (pin).
Using an ATM a customer can access their bank accounts in order to;
 Make cash withdrawals.
 Make credit cash advances.
 Check their account balances.
 Request an account statement.
 Purchase prepaid cell phone credit.
 Obtain local currency when abroad.
Western Union money transfer
The Western Union Company is a financial services and communication
company based in the United States. It has been in operation for over 150 years
and has over 400,000 agents.
Western Union money transfer is a means of sending and receiving money
easily. A sender presents the fund at Western Union office or any of their
location and provides the details of the recipient. Western Union generate a 10-
digit Money Transfer Control Number (MTCN) for the sender to be sent to the
recipient. The recipient will go to the Western Union Agent Office at the
designated location with the 10-digit MTCN and a photo identity card. Money is
paid to the individual at the presentation of these details. Their services can be
accessed via the internet, by phone, or by an Agent that could be a bank, travel
agent etc.
Money gram
Money gram is a product of Money Gram International which transfers money
around the world. It offers or issues money gram branded cash transfers and
money order at some network of 244,000 local agents across 192 countries
locations around the world. Money gram local agents in Nigeria include UBA, First
Bank of Nigeria, Union Bank etc. A sender goes to a money gram office of its
local agents to pay for money gram and a reference number is given to the
sender to be transmitted to the recipient. The recipient presents some means of
identification and the reference number and then completes a form before
receiving money.
EVALUATION
1. Write short notes on the following
(i) Automated Teller Machine (ATM)
(ii) Western Union Money Transfer
(iii) Money Gram
Sub-topic 2: Computer and the bank and E- Banking
Computer and the bank
 Computers are used to track most transactions and also to track customer
information. It is used to keep record of all transactions daily. When a customer
wants to withdraw cash from an account, the computer is used to verify the
details and to instantly debit the account before the payment is made and when
a deposit is made, the computer is used to credit the account instantly.
Therefore without computers, it would be very difficult for a bank to offer
effective service to the customers. Computers are greatly helpful to banks. It
makes bank transaction faster. It helps bank personnel operate more efficiently
and effectively.
E- Banking
Electronic banking refers to the process of performing banking transactions
through electronic medium without physically visiting the banking halls.
Electronic banking involves personal computer banking, internet banking, virtual
banking, online banking, phone banking etc. It can be used for different forms of
payment as it is used in conducting banking activity such as transferring funds,
paying bills, checking savings account balances etc.
EVALUATION
1a. Itemize three benefits of computer to the banking industry
b. Explain the term E- Banking
GENERAL EVALUATION
Objective Test
1. E- Banking means a. enhanced banking b. enlightened banking c. electronic
banking d. exemplary banking
2. The full meaning of ATM is a. Amplified Teller Machine b. Alternated Teller
Machine c. Automated Teller Machine d. Accommodated Teller machine
3. Western Union Company headquarters is located in a. Addis Ababa b. Britain
c. Greece d. USA
4. MTCN means a. Machine Teller Control number b. Money Transfer Control
Number c. Mutilated Teller Control Number d. Money Telegraphic Control
Number
5. The following are forms of E-Banking Except a. Personal computer banking b.
internet banking c. online banking d. specialised banking
Essay Test
1. 1a. Outline four forms of payment
b. List three benefit of computer in banking.
2. Briefly explain the procedure of transferring money from abroad using Western
Union Money Transfer
3. A. Mention the names of seven banks acting as Money Gram Agent in Nigeria.
a. Identify the benefit of E – Banking in Nigeria
WEEKEND ASSIGNMENT
1. Read Complete Commerce for Senior Secondary School by Alan Whitcomb and
Adekoya Fatai Olusegun pages 147- 148
2. Read Commerce for Senior Secondary School Book 2 by P.S.Onuka, M.A.Adesola,
O.O.Oyefesobi pages 148-150
PRE – READING ASSIGNMENT
Read about specialised bank
WEEKEND ACTIVITY
1. Mention the names of three specialised bank
2. Explain the functions of the following
(i) Development Bank (ii) Mortgage Bank
WEEK 5-6

SUBJECT: COMMERCE

CLASS: SS2

DATE: ……………………..

TOPIC: Banking

CONTENT: (a) Specialised Banking

(i) Development Bank

(ii) Mortgage Bank

(iii) Building Society

Sub-topic 1: Development Bank

Development Banks are specialised financial institutions which provide long term credit
or loans to other enterprises for capital projects. They provide loans for projects in the
area of agriculture, commerce, and industry. Examples of development banks in Nigeria
are; Nigeria Industrial Development Bank, Nigeria Bank for Commerce and Industry and
Nigeria Agricultural and Co operative Bank.

FUNCTIONS OF DEVELOPMENT BANKS

1. Development Banks provide long term loans for capital projects in specific areas.

2. They make funds available to manpower training institute.

3. They also help in implementing government policies on industrial, commercial, and

agricultural development.

4. Development Banks gives advice to the industrialist on the best way to invest.

5. They supervise industrial project in order to ensure the success of the project.

6. Development banks also underwrite security issues.

7. They undertake research to determine viable areas to develop.

EVALUATION

1a. What do you understand by the term Development Bank

 b. Explain the function of a Development Bank

Sub-topic 2: Mortgage Bank

Mortgage banks are financial institution that specialise in granting loans to individual
and corporate bodies for building purposes. Such loans are repaid by instalments and
can be spread over several years.

Mortgage banks accepts deposit from investing public at a rate of interest and use the
fund to lend, at a higher rate of interest, to people who wish to own their houses.

The Federal Mortgage Bank was established to encourage people to save in order to
own a house. It is the apex bank that is charged with the responsibility to supervise
other mortgage banks.

FUNCTIONS OF MORTGAGE BANK

1. Mortgage banks accept deposit from customers in order to encourage savings

towards owning a house.

2. They can provide long term loans to people or developers to build houses

3. They supervise and encourage the development of mortgage institutions.

4. They give advice and assist the government on housing matters.

5. Mortgages banks are involved in the construction of houses and then offer them for
sale to people.

EVALUATION

1. Enumerate five functions of a Mortgage Bank.

Sub-topic 3: Building Societies

A building Society is a financial institution, owned by its members, that offers banking
and other financial services, especially Mortgage lending. They are Limited Companies.
Building societies like mortgage banks, accept deposit on which they pay interest and
use the funds to finance mortgages.

EVALUATION

1. Write a short note on Building Societies.

GENERAL EVALUATION
Objective Test

1. Development Banks are

a. specialized financial institution

b. investment houses

c. bankers bank

d. public corporation

2. ---------bank encourages people to own a house

a. Merchant bank

b. Commercial bank

c. Cooperative bank

d. Mortgage bank

3. ------------provide loans for projects in the area of agriculture, commerce, and

industry.

a. Development bank

b. Merchant bank

c. Mortgage bank

d. Microfinance Bank

4. ----------is a financial institution, owned by its members,

a. Mortgage banks

b. Commercial banks

c. Development bank

d. Building Societies

5. Nigeria Industrial Development Bank, Nigeria Bank for Commerce and Industry
are examples of

a. Development bank
 b. Specialised bank

c. Mortgage bank

d. Building Society

Essay Test

1. Write short note on the following;

(a) Development Bank

(b) Mortgage Bank

2. List and explain five functions of Development Bank.

3. Describe five function of a Mortgage Bank.

WEEKEND ASSIGNMENT

1. Read Complete Commerce for Senior Secondary School by Alan Whitcomb and
Adekoya Fatai Olusegun pages 149- 150

2. Read Commerce for Senior Secondary School Book 2 by P.S.Onuka, M.A.Adesola,

O.O.Oyefesobi page 152

3. Read Essential Commerce for Senior Secondary Schools by A.O LONGE pages 83-
84
 WEEK 7

CONTENT

1. Importance of warehousing
2. types of warehouses
3. Factors to be considered in sitting a warehouse
4. Documents used in warehousing

NOTE

Warehousing is the act of storing goods produced or bought in a place until they are
needed. Warehousing ensures that there is a regular and steady supply of goods. A
warehouse is a place where goods are kept until they are needed.

IMPORTANCE OF WAREHOUSING

1. It provides protection and security for goods.

2. It encourages large scale production it ensures production of goods ahead of demand.
3. It helps to stabilize prices of goods by reducing fluctuation of prices due to supply level.
4. It facilitates re-packaging and branding of goods.
5. It ensures constant and steady supply of goods throughout the year.
6. It provides employment opportunities e.g. for warehouse keepers.
7. It is a source of income for the owners e.g. rent received etc.
8. It promotes emancipator purchases.

TYPES OF WAREHOUSING

1. Ordinary warehouse: This may be called goods warehouse – i.e where goods
are stored by traders and manufacturer until they are needed. It could either be;

a) Wholesaler warehouse

b) Manufacturers warehouse

c) Public warehouse

2. Bonded warehouse: This is a warehouse where goods whose customs duties

have not been paid are stored until the duties are settled by the Owners. Bonded
warehouse is privately owned by are under the supervision of the Customs Authority.
They are usually located near the port (seaport or airport) for storing goods until the
duties are paid.
 3. State warehouse (Queen’s warehousing or Government warehouse ): This is a
warehouse where seized contraband goods (e.g smuggled goods) are kept until they
are sold on auction to members of the public.

EVALUATION

1. List and explain five types of warehouse

2. Explain five importance of warehousing in commerce.

USEFULNESS OF BONDED WAREHOSUE IN FOREIGN TRADE

1. Bonded warehouse provides security (safety) for goods imported from other countries
whose duties have not been paid
2. The importer will be allowed adequate time to pay the charged customs duties
3. It facilitates foreign trade
4. The period of bond enables the customs authority to have enough time to inspect the
goods and calculate the actual value of import duties.
5. Goods in bonded warehouse can be easily sold by the importer while in bond in which
case the buyer will settle the import duty.
6. Production processes like branding, packaging, can be done while the goods are still in
bond.

FACTORS TO BE CONSIDERED IN SITTING A WAREHOUSE

1. Location of the factory i.e proximity of the warehouse to the factory

2. Nearness to the market
3. Nearness to the distribution centres
4. operating costs (running cost) involved in the operation of the warehouse
5. cost of building or renting the warehouse
6. The mode of transportation to be employed
7. Consumers buying pattern
8. Good road network and availability of other infrastructure e.g telecommunication
9. Regular power supply e.g. for frozen food items
10. Presence of security and safety.

DOCUMENTS USED IN WAREHOUSING

1. Dock Warrant: This is the document issued by the warehouse authorities to depositor of
goods. It is a document of title transferable by endorsement
2. Delivery Order; this is a document issued by a dock warrant holder to enable a third
party collect a specified part of the goods from the warehouse.

EVALUATION
1. Write short notes on the following;

(a) Dock Warrant (b) Delivery Order

 Outline five factors to be considered in sitting a warehouse

READING ASSIGNMENT

Comprehensive Commerce SSS page 37-39

Essential Commerce for SSS page 107-115

WEEKEND ASSIGNMENT

1. The receipt issued by a warehouse keeper for goods taken into the store is
called

(a) warranty (b) dock warrant (c)customs warrant (d) drawback warrant

2. Warehousing is one of the functions of the (a) wholesaler (b)

retailer (c) government (d) ministry of trade and industry.

3. Which of the following warehouses is generally found near a

port?…………warehouse (a) manufacturer (b) wholesaler (c) bonded (d) distributors

4. Who among the following is a middleman? (a) manufacturer (b) agent (c)
insurer (d) consumer

5. An individual who makes the final use of goods and services provided by a firm
is the (a) wholesaler (b) retailer (c) consumer (d) manufacturer.

Theory

1. What is warehouse?

2. State three ways in which warehousing is important to commerce.

GENERAL EVALUATION

1. Explain six functions of the wholesaler to manufactures.

a. State six reasons why a producer may distribute goods directly to consumers.
b. List five advantages and four disadvantages of branding.
c. State five importance of warehousing to Commerce.
d. Give six reasons why manufacturers pre – package their products
WEEK 8

SUBJECT: COMMERCE

CLASS: SS 3

TOPIC: CAPITAL

CONTENT:

1. Meaning of Capital
2. Types of Capital
3. Importance of Working Capital.

Sub-topic 1: Meaning of Capital

This is the total amount of money employed to run a business. It represents any form
of wealth set aside for the production of further wealth.

There are two schools of thought or views above the above definition. These views are
the accountant point of view and the economist point of view.

Accountant’s Definition of Capital: This is the total assets of a business entity, less
its liability due to third parties outside the firm. It is also the original money with which
a person used to start a business. It can be derived as follows:

Total Assets―All liabilities =Capital.

Economists’ Definition of Capital: Capital is wealth reserved or used for the

production of more wealth. It is also referred to as any man-made tool or equipment
that helps in the production of goods and services.

Layman’s Concepts

To the layman, capital is the total amount of money for running a business.

Evaluation:

Define Capital.

Sub-topic 2: Types of Capital

There are various types of business capital. These are:

 1. Authorized /Registered/Nominal Capital: This is the total amount stated in
the Memorandum of Association and approved by the registrar of companies
which a company can issue out for subscription.
2. Issued Capital: This is part of authorized capital which has been approved and
the company decides to issue out to the public for subscription. For example, if
₦10 million worth the share is registered and half of it is being issued out for
subscription, this half is called issued share capital.
3. Called Up Capital: This is part of the issued capital that has been called up,
and the shareholders have been asked to make payment. For example if ₦10
million in ₦1 shares, the company may not require the total amount immediately.
It request that part of it be paid.
4. Capital Employed: This is the total capital raised to finance the running of a
business. It is total assets, both fixed and current, less current liabilities. It is
derived as Total Assets ― Current Liabilities = Capital Employed.
5. Liquid Capital: This is made up of assets that can be easily converted into cash
or money or assets that can be converted into money at short notice. Examples
are cash, near-money-debt, and inventories.
6. Circulating or Floating Capital: It is also called working capital. This is the
amount that is used for the day-to-day running of the business. Circulating
capital includes capital used for the wages, salaries, and payment for raw
materials. It is also described as the excess of current assets of a business over
its current liabilities.
7. Uncalled Capital: This is the total amount that has not been called-up on the
issued share capital. It simply means capital that is yet to be called up for
payment.
8. Capital Owned: It is the owners’ financial interest in a business. It is the excess
of total assets of a business over the value of its total short and long term
liabilities. It is the net worth of a business. It is derived as:
Total Assets ― All Liabilities = Capital Owned.

9 Fixed Capital or asset: These are the durable things or investment of a

business, e.g. building, plants, motor vehicles, etc.

10 Loan Capital: This is the total amount of money a business borrows from
external sources. A good example is the debenture and mortgage loan.

Evaluation:

Write short notes on the following:

i. Authorized capital
 ii. Issued Capital
iii. Called-up capital
iv. Circulating Capital.

Sub-topic: 3: Importance of Working Capital

1. It serves as a check against tying down too much money for current assets.
2. It helps to determine whether the business is solvent or not, i.e., whether it has
the ability to settle debt without selling fixed assets.
3. It helps to determine the fund that will be available for the running of the
business on a daily basis.
4. It gives an indication that the business is being financed internally and not by
suppliers.
5. It is a sign of health i.e.it will help the investors to know whether to invest or
not.
6. Working capital can be used by a business as a basis for planning to avoid
losses.
7. It provides basis for profit making by the business since it is used to buy stock
from where profit is derived.

Evaluation:

State five importance of working capital.

Sub-topic 4: Calculation of Working Capital.

DLHS Enterprises financial position as at 31st Dec., 2013 is as follows:

Fixtures ₦1,000.
Stock 31 Dec 8,000.
Debtors 5,000
Creditors 3,000
Cash at hand 7,000
Bank overdraft 1,200
Typewriter 4,500
Furniture 2,500
Capital 18,000
One year cooperative loan 4,100
Profit for the year 1,700

Question
Calculate:

a) Capital owned
b) Working capital
c) Current liabilities
d) Fixed capital and
e) Capital employed.

Solution:

Capital owned (capital + net profit)

Capital 18,000

Add net profit 1,700

₦19,700

b) Working Capital = Current Asset― Current Liability

Current Assets

Stock 8,000

Debtors 5,000

Cash at hand 7,000

₦20,000

Current Liabilities

Creditors 3,000

Bank overdraft 1,200

One year cooperative loan 4,100

₦ 8,300

Current Assets ― Liabilities

₦20,000 ― ₦8,300 = ₦11,700.

C) Current Liabilities
Creditors 3,000

Bank overdrafts 1,200

Cooperative loan 4,100

₦ 8,300

D) Fixed Assets

Fixtures 1,000

Typewriter 4,500

Furniture 2,500

₦8,000

Current Assets

Stock 8,000

Debtors 5,000

Cash at hand 7,000

₦ 20,000

Fixed Assets = ₦8,000 + ₦20,000 =₦ 28,000

E) Capital Employed = Total Assets ― Current Liabilities

Fixed Assets

Fixtures 1,000

Typewriter 4,500

Furniture 2,500

₦ 8,000

Less Current Liability

Creditors 3,000
Bank overdrafts 1,200

One year cooperative loan 4,100

₦ 8,300

Capital Employed = ₦28,000 ― ₦8,300

= ₦19,700

Evaluation:

The following are the trading figures of Messi Trading Co. Ltd for the year ended 31st
Dec. 2012

Creditors 20,000

Premises 20,000

Machinery 20,000

Cash 20,000

Debtors 30,000

Stock 50,000

Cost of goods sold 100,000

Sales 200,000

Plant 30,000

Rent 10,000

Question:

From the above, calculate:

1. Fixed assets
2. Working Capital.

GENERAL EVALUATION:

Objective Tests
 1. The net worth of a business is also called ------- {a} total asset {b} capital owned
{c} working capital {d} owner’s stake
2. The capital used in the day to day running of a business is called --------- {a}
fixed asset {b} paid up capital {c} authorized capital {d} circulating capital.
3. The part of issued capital which is expected of the shareholders to be paid for is
called ---------- {a} issued capital {b} paid-up capital {c} working capital {d}
circulating capital.
4. All these are fixed asset except ---------- {a} plant {b} vehicle {c} furniture {d}
raw-materials.
5. Another name for circulating capital is -------- {a} floating capital {b} working
capital {c} liquid capital {d} unpaid capital.

Essay Tests:

1. Mention five uses of working capital

2. Explain the meaning of working capital and state its importance.
3. AZ Ltd financial position as at Dec. 2010 is given below
Stock as 31/12/’10 2,000
Fixtures 16,000
Debtors 10,000
Creditors 6,000
Cash at hand 14,000
Bank Overdraft 2,000
Typewriter 9,000
Furniture 5,000
Capital 36,000
One year cooperative loan 3,400

You are required to calculate:

a. Capital owned
b. Working capital
c. Current liabilities
d. Fixed capital
e. Capital employed

WEEKEND ASSIGNMENT

Read Essential Commerce by O.A. Longe. Pg 177-179

PRE-READING ASSIGNMENT
Read Credit- Meaning and sources of credit.

WEEKEND ACTIVITY

Explain the factors that should be considered by a bank manager before granting a loan
to a new customer.
WEEK 9-10

SUBJECT: COMMERCE

CLASS SS3

TOPIC: CREDIT

CONTENT:

1. Meaning of Credit
2. Sources of Credit
3. Functions of credit to Retailer, wholesaler and Credit instrument

Sub-topic 1: Meaning of Credit.

Credit is the ability of a person, individual or corporate entity to buy and enjoy goods
and services and pay at a future date usually with interest. The credit worthiness of the
buyer must be taken into consideration before granting credit so that it will not lead to
bad debt. There should also be contractual agreement between the seller and the
buyer.

BASIS FOR CREDIT SALES.

Credit can be granted based on the following

1. The income of the buyer

2. Sources of payment
3. Integrity of the buyer
4. Availability of guarantors
5. Present employment
6. Time of payment.

Evaluation:

1. Explain the term credit

SUB-TOPIC 2: SOURCES OR TYPES OF CREDIT

Sources of credit are as follows:

1) Loans: These are formal credits granted to a customer repayable at an agreed

date, place and condition. Loan could also be given informally by friends. Loans
require collateral securities
 2) Overdraft: This is a formal credit granted to customers with current accounts.
An overdraft allows a customer to withdraw sums of money in excess of his
credit standings. The amount overdrawn is redeemed subsequently as he makes
future deposits with interest.
3) Lease: This is the permission granted to a leaser to use to use equipment, land
plant or machinery for a given purpose {e.g. for the production of goods or
rendering of services} over a period of time at an agreed condition.
4) Trade Credit: This type of credit allows the trader to collect goods from a
supplier without paying for them immediately. It is aimed at increasing the
quantity of goods sold by the seller.
5) Hire Purchase: This is a form of credit whereby the seller allows the buyer to
have the possession of the goods on the payment of the first instalment of
agreed price. Under this arrangement, the seller retains ownership of the goods
until the last instalment is met otherwise the buyer loses possession to the seller
and no refund is made of earlier amount paid.

Advantages of Hire Purchase to seller

i. The seller gains more as he sells the goods at a higher price than he
would have done for cash.
ii. He sells more goods over a given period of time
iii. He stands to gain whether the buyer defaults or not
iv. The system enables the seller to sell fairly durable and expensive articles
such as motorcycles, computers, television sets, etc.

Disadvantages of Hire Purchase to the Seller.

i. The seller may incur additional costs in order to recover the goods if the
buyer defaults.
ii. The incidence of wear and tear {depreciation} is borne by the seller
whose goods are later reclaimed.
iii. There is the risk of the seller losing the goods completely if the buyer
dies, is transferred to another location, or changes address unknown to
the seller.

Advantages of Hire Purchase to the Customers

i. It allows the customer with little income to buy expensive goods.

ii. Customers enjoy the advantages of using the goods while payment is on.
iii. It encourages savings habit for customers
iv. It enables people to acquire important house-hold items.
Disadvantages of Hired Purchase to Customers

i. The buyer is not given the chance to negotiate favourable conditions for
sale.
ii. Customers are made to pay higher interest rate.
iii. Customers stand the risk of buying more than they could readily pay for.
iv. The risk of losing both the goods and instalment already is possible.
v. The buyer may not be able to insist on his quality goods.

6) Deferred Payment: This is a form of credit whereby the seller allows the buyer
ownership of the goods on payment of initial deposit. The seller under this
arrangement can only sue for his balance, should the buyer default. Generally,
deferred payment facilities favour the buyer while hire purchase favours the
seller.
Similarities between Hire Purchase and Deferred Payment
I. Under both systems, the hirer and the buyer take possession of the
goods.
II. Both the hirer and the buyer may start using the goods as soon as the
initial deposit is made.
III. Both hire purchase and deferred payment attracts instalmental payment.
IV. The same type of goods such as durable capital good and durable
consumer goods is sold.
V. Prices of goods on both systems are often higher than normal sales.
VI. Both have serious legal implications on the buyer if he defaults in
payment.

Difference between Hire Purchase and Deferred Payment

Hire Purchase Deferred Payment

I. Goods sold are regarded to be still
on hire.
2 Seller retains ownership until the
last instalment is paid
3 If the hirer defaults the seller can
reposses the goods.
4 Prices charged are usually higher
5 It favours the seller
6 Durable goods are mostly sold
7 Hire purchase is governed by hirer
purchase act.
Goods are sold to be paid for in future.
Buyer becomes owner of the goods as
soon as initial deposit is made.
If the buyer defaults, the seller can only
sue the buyer to count for the balance.
Prices charged are usually lower.
It favours the buyer
Durable and less durable goods could be
sold
There is no law for deferred payment.
Difference between Credit Sales and Hire Purchase

Hire Purchase Credit Sales

1 The hirer is not the owner of goods until
the last instalment is paid.
2 The hirer cannot sell the goods until the
end of the contract.
3 The hirer must pay the agreed
instalments regularly; else the seller can
repossess the goods through the court.
4 The hirer can withdraw from the
agreement within an agreed period and
return the goods provided he has paid up
to half of the stated amount.
5 The agreement must be made in writing The agreement could be oral or written.
to be enforceable and must be signed.
The buyer becomes the owner
immediately the arrangement is signed
and sealed.
The buyer can sell the goods anytime but
will still have to pay for what he is owing
The buyer can only be sued for the
amount he is owing if instalments are not
paid but there cannot be repossession of
goods.
The buyer cannot cancel the agreement
and return the goods.

7) Debt Factoring:- This is the method of financing exports in which a factor{

usually a bank} buys the invoiced debts of the exporter and assumes all the risks
of default by the overseas buyers. A situation whereby a creditor sells the debt
owed to him at cheaper price to a firm usually banks. The firm will by
arrangement collects the debt on behalf of its client.
8) Charge Accounts (Book-me-down):- This is a monthly or short-period
account commonly used by larger shops and department stores. Here, the
customer purchases goods on credit and their names are written down.
Payments may be made at the end of the month after receiving their
remuneration from their places of work. It is commonly used by low income
earners.
9) Credit Cards:- Holders of these cards can obtain credit within the organizations
that accept the card. When purchases are made, the shops send an account to
the company that issued the credit cards and is normally paid after deducting
their own commission. Examples of credit cards used in Nigeria are Luncheon
Vouchers and Fuel Vouchers.

Advantages of Credit Cards

a. Holders are able to obtain credit from traders

 b. It enables holders to get advances at any of the branches of the bank that
operates the scheme.
c. It facilitates the encashment of cheques at any of the bank branches
operating the scheme.
d. It enables traders to increase their turnover

Disadvantages of Credit Cards

a. There may be too much purchases

b. Sellers may increase their prices to cover the commission paid.
c. It must lead to uncontrolled credit expansion, thereby causing inflation
d. A holder who loses his credit card is held liable for any purchases made by
the new holder

Evaluation:

1) What is credit
2) State and explain four types of credit
3) State 4 advantages of hire purchase to the customer and 4 disadvantages to the
customer

Sub-topic 3: Functions of Credit to {1} Retailer {2} Wholesaler

Functions of Credit to Retailers

a. Credits enable retailers to acquire important facilities.

b. It helps them to finance wholesaler to stock variety of goods.
c. It helps them to finance customers by giving them small credits
d. It helps them to buy goods in bulk e.g large retailers
e. It supports their speculative motives of stocking goods hoping for future rise in
prices.
f. It helps them to satisfy immediate needs of consumers.

Functions of Credits to Wholesalers

a. Credits help wholesalers to acquire more facilities such as fixed assets

establishment of new deport, etc.
b. It helps them to finance primary and secondary producers as they often make
advance payments to them
c. It helps them to finance retailers also.
d. It encourages them to buy in bulk
 e. It helps them to support the speculative motives of wholesalers as they aspire to
buy more goods in anticipation of future rise in price.
f. It enables them to stock goods from more than one manufacturer at a time.

Evaluation

a. State five functions of credit to the retailer

b. State five functions of credit to the wholesaler.

Sub-topic 4: Credit Instrument

Credit instruments are defined as written agreements between creditors and debtors. It
is used as evidence of repayment in credit transactions.

They include the following:

1) Bill of exchange
2) Promissory notes
3) Letter of credit
4) Credit Cards
5) Debentures
6) Trading cheques
7) Vouchers
8) Hire purchase contract
9) Bonds

10) I owe you {IOU}

11) Mortgage agreements

12) Lease agreements

13) Bank draft.

Advantages of Credit Sales

1) Credit sales increases turn over as customers buy more when they are
required to pay in future.
2) It enables customers to enjoy goods which they could otherwise not afford.
3) It encourages saving habit as buyers have to save in order to redeem their
instalmental payment.
4) It facilitates the payment of durable goods.

Disadvantages of Credit Sales

 1) Goods bought on credit are often more expensive than cash payments
2) Customers are often tempted to buy more than they are really needed.
3) It leads to more clerical work and record keeping at extra cost.
4) It encourages/leads to bad debt
5) It may tie down capital for a long time.
6) The buyer may likely lose the goods if he defaults in the last instalment.
7) The seller may lose the goods or balance if buyer dies or change contract
address without notice
8) The seller may lose the goods or balance if buyer dies or change contact address
without notice.
9) There is fear of deflation in monetary value at the time of maturity of debts.
10 There is the cost of litigation in case of default.

Evaluation:

Write short notes on the following credit instruments

1) Promissory notes
2) Bill of exchange
3) Letter of Credit
4) Credit Card
5) Debenture.

GENERAL EVALUATION

Objective Test:

1. Which of these is not a form of credit? {a} Debenture {b} cash withdrawal {c}
bank loan {d} bank draft.
2. The credit that will arise by allowing a customer to draw from a bank account
more than credit balance is called ----------- {a} suppliers credit {b} loan {c}Bill
of exchange {d} Bank overdraft.
3. The following are sources of credit except -------- {a} loans {b} lease {c} credit
cards {d} money transfer.

Essay Test

1. Give five differences between hire purchase and deferred payment

2. State and explain five problems associated with credit sales.
3. Explain the factors that should be considered by a bank manager before
granting a loan to new customers.
 4. State five effects of hire purchase on each of the following;
a. Buyer
b. Seller

5 What is the credit? State eight features of hire purchase.

WEEKEND ASSIGNMENT.

Read Essential Commerce for Secondary Schools by O.A. Longe, Pages 106-111

REFERENCE

Commerce for Senior Secondary Schools book 3 by P.S. Onuka et al.