Commerce: Trade, Business Units and Finance
What the paper tests
Commerce tests business activity, trade, business units, finance, insurance, consumer protection and business documents. It expects definitions plus application to a short case.
Core rules
- Trade discount reduces the list price on the invoice; cash discount is a reduction for prompt payment and is calculated after trade discount.
- Sole trader: unlimited liability. Company: separate legal entity with limited liability. Cooperative: owned and controlled by members.
- Insurance transfers risk; it does not remove it. Premium is the payment; excess is the first part of a claim paid by the insured.
- A cheque crossing means it must be paid into a bank account; it is not an endorsement.
Worked example
Goods are listed at $500 with 20% trade discount and 5% cash discount for payment within 10 days. Invoice price = 500 - (20% of 500) = 500 - 100 = $400. If the buyer pays early, cash discount = 5% of 400 = $20, so payment = $380. The reasoning is sequential: trade discount first, then cash discount on the reduced invoice value.
Traps
- Applying cash discount before trade discount.
- Confusing debit and credit in simple business records.
- Saying insurance prevents risk instead of transferring it.
- Ignoring dates and conditions in a discount question.
- Treating a fixed asset as an expense.