Lesson Note on Credit Instruments: Hire Purchase vs Deferred Payment and Documents for SS 2

Class: Senior Secondary School 2 (SS2 / SSS 2)
Term: Second Term
Week: 10
Age: 16 years
Duration: 45 minutes
Subject: Commerce
Curriculum Theme: Business Finance
Previous Lesson: Credit: Meaning, Types and Hire Purchase Basics.
Topic: CREDIT CONTD
Subject Matter: Differences between hire purchase and deferred payment (similarities), functions of credit to wholesaler and retailer, credit instruments (bill of exchange, promissory note, letter of credit, debentures, vouchers)

Specific Objectives

By the end of the lesson, pupils should be able to:

Cognitive Domain:

• Define credit instruments.
• State the differences and similarities between hire purchase and deferred payment.
• Explain the functions of credit to wholesalers and retailers.

Affective Domain:

• Appreciate the importance of credit in business transactions.
• Discuss the potential risks and benefits associated with using credit.

Psychomotor Domain:

• Identify various credit instruments from given examples.
• Compare and contrast hire purchase and deferred payment using a table or clear points.

Social Domain:

• Share personal or observed experiences related to credit.
• Participate in group discussions about the role of credit in local businesses.

Reference Materials

The following resources were used in planning this lesson:

• Senior Secondary Schools Education Curriculum
• State Unified Scheme of Work
• Comprehensive Commerce for Senior Secondary Schools 2

Instructional Materials

The teacher will teach this lesson with the aid of:

• Newspaper cuttings of finance houses
• A sample hire purchase agreement
• Whiteboard or chalkboard
• Markers or chalk

Rationale for the Lesson

Understanding credit is important for pupils as it is a common aspect of modern business and personal finance. This lesson helps pupils to differentiate between various forms of credit and recognize common credit instruments used in commerce, preparing them for future economic activities.

Prerequisite/Previous Knowledge

Pupils should have a basic understanding of what credit is and some of its general forms from previous lessons.

Lesson Content/Board Summary

Credit

Differences between Hire Purchase and Deferred Payment

Hire Purchase (HP): This is an agreement where a buyer pays for goods in installments, and ownership is transferred only after the final installment is paid. Until then, the goods remain the property of the seller.

Deferred Payment (DP): This is an agreement where a buyer takes possession and ownership of goods immediately upon purchase, but payment is made at a later agreed date or in installments. The buyer becomes the owner right away.

The following are the differences between Hire Purchase and Deferred Payment:

• Ownership: In Hire Purchase, ownership transfers after the last installment. In Deferred Payment, ownership transfers immediately upon delivery.
• Right to Repossess: The seller can repossess goods in Hire Purchase if installments are not paid. In Deferred Payment, the seller cannot repossess goods as ownership has passed; they can only sue for debt.
• Legal Status: A hire purchaser is a bailee until the final payment. A deferred payment buyer is the owner from the start.
• Risk: In Hire Purchase, the seller bears the risk of loss or damage until ownership passes. In Deferred Payment, the buyer bears the risk immediately.

The following are the similarities between Hire Purchase and Deferred Payment:

• Both involve payment over a period of time.
• Both allow the buyer to use the goods before full payment.
• Both usually involve an initial deposit or down payment.
• Both are forms of consumer credit.

Functions of Credit to Wholesalers and Retailers

Credit plays an important role in facilitating trade for both wholesalers and retailers.

The following are the functions of credit to wholesalers:

• Enables them to buy goods in bulk from manufacturers without immediate full payment.
• Allows them to maintain adequate stock levels to meet retailers’ demands.
• Helps in expanding their business operations and sales volume.
• Provides flexibility in managing cash flow.

The following are the functions of credit to retailers:

• Allows them to stock goods without immediate full payment, thus increasing inventory.
• Helps them to offer a wider variety of goods to customers.
• Enables them to meet customer demands promptly.
• Reduces the need for large working capital, making it easier to start or expand a business.

Credit Instruments

Credit instruments are documents that represent a claim for payment or a promise to pay money. They facilitate trade by providing a written record of credit transactions.

Bill of Exchange

A bill of exchange is a written order binding one party to pay a fixed sum of money to another party on demand or at a predetermined future date. It usually involves three parties: the drawer (who issues the bill), the drawee (who is ordered to pay), and the payee (who receives the payment).

Promissory Note

A promissory note is a written promise made by one party (the maker) to pay a specific sum of money to another party (the payee) either on demand or at a specified future date. It is a direct promise from the debtor to the creditor.

Letter of Credit

A letter of credit is a financial instrument issued by a bank on behalf of a buyer (importer), guaranteeing payment to a seller (exporter) once certain conditions are met, typically the presentation of specified documents. It is commonly used in international trade to reduce payment risk.

Debentures

Debentures are long-term debt instruments issued by companies to raise capital. They are essentially loans to the company, usually unsecured, and pay a fixed rate of interest to the debenture holders. Debenture holders are creditors of the company, not owners.

Vouchers

A voucher is a document used as proof of a transaction, typically indicating that a payment has been made or is due. It serves as an internal document to authorize and record payments within a business. Examples include payment vouchers, receipt vouchers, and journal vouchers.

Teaching Methods/Instructional Techniques

Discussion, Lecture, Demonstration, Question and Answer, Visual Aids

Instructional Procedures

Step 1: Introduction

Time: 5 minutes
Teaching Skill: Set Induction
Teacher’s Activity: The teacher welcomes the pupils and asks them to recall what they learned about credit in the previous lesson. The teacher then invites a local business person, farmer, or trader to briefly narrate their experiences with credit, highlighting both helpful and harmful aspects.
Pupils’ Activity: Pupils respond to questions about credit and listen attentively to the guest speaker’s experiences.
Learning Point: Pupils recall prior knowledge and are introduced to real-world applications of credit.

Step 2: Explanation of Differences and Similarities between Hire Purchase and Deferred Payment

Time: 10 minutes
Teaching Skill: Explanation/Comparison
Teacher’s Activity: The teacher explains the definitions of hire purchase and deferred payment, then uses a chart or board summary to highlight their key differences and similarities. The teacher may use a sample hire purchase agreement to illustrate.
Pupils’ Activity: Pupils listen, take notes, and ask questions for clarification regarding the distinct features of each payment method.
Learning Point: Pupils understand the distinctions and commonalities between hire purchase and deferred payment.

Step 3: Functions of Credit to Wholesalers and Retailers

Time: 7 minutes
Teaching Skill: Elucidation
Teacher’s Activity: The teacher explains the specific benefits and roles of credit for wholesalers and retailers, emphasizing how it facilitates their business operations.
Pupils’ Activity: Pupils listen and note down the different functions of credit for each business type.
Learning Point: Pupils grasp the importance of credit in supporting the activities of wholesalers and retailers.

Step 4: Introduction to Credit Instruments

Time: 5 minutes
Teaching Skill: Visual Aid Usage
Teacher’s Activity: The teacher uses newspaper cuttings of finance houses and other related materials to introduce the concept of credit instruments. The teacher asks pupils if they recognize any of the terms or documents.
Pupils’ Activity: Pupils observe the newspaper cuttings and respond to the teacher’s questions, trying to identify credit instruments.
Learning Point: Pupils are introduced to credit instruments through real-world examples and context.

Step 5: Explanation of Specific Credit Instruments

Time: 8 minutes
Teaching Skill: Definition/Explanation
Teacher’s Activity: The teacher defines and explains each of the credit instruments listed in the subject matter: bill of exchange, promissory note, letter of credit, debentures, and vouchers. The teacher provides simple examples for each.
Pupils’ Activity: Pupils listen carefully, take notes on the definitions and uses of each instrument, and ask questions for better understanding.
Learning Point: Pupils gain knowledge of various credit instruments and their functions in commerce.

Step 6: Class Discussion on Credit Experiences

Time: 5 minutes
Teaching Skill: Facilitation
Teacher’s Activity: The teacher facilitates a short discussion, inviting pupils to share any personal observations or experiences related to the use of credit, either positive or negative.
Pupils’ Activity: Pupils share their observations and engage in the discussion respectfully.
Learning Point: Pupils relate theoretical knowledge to practical scenarios and develop critical thinking about credit.

Step 7: Evaluation/Review

Time: 5 minutes
Teaching Skill: Questioning/Assessment
Teacher’s Activity: The teacher evaluates the learning by asking the following questions:

1. Define a credit instrument.
2. State three differences between hire purchase and deferred payment.
3. Mention two functions of credit to a retailer.
4. List three types of credit instruments you have learned today.

Pupils’ Activity: Pupils answer orally and in writing.

Learning Point: Pupils demonstrate understanding of the lesson.

Step 8: Conclusion

Time: 0 minutes
Teaching Skill: Summarization
Teacher’s Activity: The teacher summarizes the key points of the lesson, emphasizing the importance of understanding different forms of credit and credit instruments in business. The teacher assigns homework for pupils to find more examples of credit instruments from local businesses.
Pupils’ Activity: Pupils listen to the summary and copy down the homework assignment.
Learning Point: Pupils consolidate their learning and are encouraged to explore further.

Lesson Keywords

• Hire Purchase – An agreement where ownership transfers after the final installment.
• Deferred Payment – An agreement where ownership transfers immediately, but payment is made later or in installments.
• Bill of Exchange – A written order to pay a fixed sum of money to a third party.
• Promissory Note – A written promise to pay a specific sum of money to a payee.
• Letter of Credit – A bank’s guarantee of payment to a seller on behalf of a buyer.
• Debentures – Long-term debt instruments issued by companies, paying fixed interest.
• Vouchers – Documents used as proof of a transaction or authorization for payment.
• Wholesaler – A business that buys goods in bulk from manufacturers and sells to retailers.
• Retailer – A business that sells goods directly to consumers.

Differentiation

For pupils who grasp the concepts quickly, the teacher can encourage them to research the legal implications of each credit instrument. For pupils needing more support, the teacher can provide simplified definitions and additional visual aids or examples, offering one-on-one guidance during activity time.

Note for teachers using this lesson plan

Ensure that the guest speaker’s narrative in Step 1 is brief and focused on the practical aspects of credit. When explaining credit instruments, use simple, relatable examples relevant to the pupils’ local context. Encourage active participation throughout the lesson to foster a deeper understanding of these important commercial concepts.