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  1. State four elements of economic environment which affect business positively.(4mks)
  2. Outline four reasons which make it difficult to satisfy human wants .
  1. Give four reasons why Kenya has few entrepreneurs.(4mks)
  1. Outline four reasons why the government may train traders.(4mks)
  1. Name four recent trends in the transport sector in Kenya.(4mks)
  2. State four benefits of advertising products in the face book.(4mks)
  1. Outline four factors which cause supply curve to shift to the left.(4mks)
  2. State the effect of the following transactions on the balance sheet totals.(4mks)
  3. Payment to a creditor­­­­­­
  4. Receipts from a debtor
  5. Addition of capital
  6. Purchase of an asset on credit
  7. Give four errors that will make trial balance totals not to agree.(4mks)
  1. Give four external diseconomies of scale.(4mks)
  2. Give four features of monopoly.(4mks)
  3. Outline four limitations of national income statistics as a measure of the standards of living.(4mks)
  1. Outline four problems associated with under population.(4mks)
  1. Outline four merits of indirect taxes.(4mks)
  1. Outline four challenges that faces direct production.(4mks)
  2. Outline four features of fixed deposit account.(4mks
  1. Outline four measures that central bank may put in place to reduce high inflation in a country.(4mks)
  1. Outline four problems experienced by the East African Community.(EAC). (4mks)
  1. The following information relates to Mwangi Traders for the period ended 31st March 2018.
    Sales                               1,000,000
    Opening Stock                  100,000
    Closing Stock 25% of cost of goods sold Gross profit Margin 20%

    Prepare a trading account of Mwangi Traders for the period ended 31st March 2018.(4mks)
  1. State four benefits of electronic filing.{4mks}
  1. Under what four circumstances would deferred payment be appropriate.(4mks)
  2. Outline four benefits that accrue to a person who joins savings and credit co-operative Society.(4mks)
  1. For each of the following transactions below indicate in the spaces provided the source document from which the transaction would be recorded.


    Source Document

    a)      Sales of goods on credit


    b)      Purchase of goods on credit


    c)      Goods returned


    d)     Correction of an undercharge

  1. Identify the insurance terms described below:



    An interim document issued to

    the insured after payment of the first



    Amount refundable to the assured on

    terminating a life policy prematurely


    Restoration of the insured who suffers Loss to his former financial position


    Insurance Company insuring itself with another insurance Company

  1. The following transactions relates to Patel traders as at 31.Dec.2017.
    Bank overdraft                 -           100,000
    Rent received                   –          200,000
    Salaries                            –          100,000
    Creditors                           –         50,000
    Cash                                -           40,000
    Discount allowed             -          40,000
    Discount received            -           30,000
    Commission allowed         –          30,000
    Commission received        –          10,000
    Furniture                           -          150,000
    Drawing                            –          10,000
    Return outwards               –          50,000

    Required: A trial balance


  1. Low levels of inflation.
    • Suitable prices of goods and services.
    • High level of income.
    • Low levels of taxation.
    • Giving more subsidies to producers.
    • Fair distribution of income.
    • Lowering interest rates.
    • High levels of income.
    • Availability of credit.
    • Debt repayment abilities.
  1. Reasons why it is difficult to satisfy human wants.
    • Due to unlimited nature of wants.
    • Wants are recurrent.
    • Changing nature of wants due to age.
    • Wants are habitual.
    • Wants are complementary.
    • Competitive nature of wants.
    • Limited resources.
  1. Reasons why Kenya has few entrepreneurs
    • Lack of government support.
    • Insecurity
    • High level of corruption. It makes Kenya product expensive.
    • Low levels of income.
    • Political instability.
    • Lack of role models.
    • High interest rates by banks.
    • Poor infrastructure.
    • High levels of taxation.
    • High cost of energy.
    • Limited size of market.
  1. State four reasons why government train traders.
    • Inform traders on the available business opportunities.
    • Expose them to modern technology.
    • Educate them on modern management problems.
    • Inform traders on availability and utilisation of government funds.
    • Trained on how to overcome business challenges.
    • Inform them about government policies.
  1. Recent trends in transport
    • Construction standard gauge railway(SGR)
    • Use of bodaboda transport.
    • Construction of modern superhighways.
    • Enhancement of road safety by NTSA.
    • Increased use of containers in transport.
    • Use of direct air flight e.g from Kenya to America.
    • Introduction of modern and faster trains.
    • Construction of the second port at Lamu.
  1. State benefit of advertising product in the face book.
    • Wider market.
    • Faster to reach the potential customer.
    • Immediate feedback from customers.
    • Cheap to advertise.
    • Easy to make changes.
  2. Factors which causes supply curve to shift to the left are:
    • Increased cost of production.
    • Outdate technology.
    • Increase in prices of other communities.
    • Unfavourable natural factors.
    • Unfavourable government policies e.ghigh taxation
    • Expectation of high prices in future.
    • Withdrawal of firms in the industry.
    • Decrease in the number of production.
    • Workers unrest.
  3. Effect of transactions to the balance sheet totals.
    • Decrease
    • No change
    • Increase
    • Increase
  4. Errors affecting the trial balance totals:
    • Recording a transaction in one account only.
    • Addition errors in the trial balance.
    • Addition errors in the ledgers account.
    • Recording different figures for the same transaction.
    • Transferring ledger account balance on the wrong side of trial balance.
    • Posting a wrong account balance into trial balance’
  5. External economies of scale.
    • Increased pollution.
    • Competition of available raw materials.
    • Inadequate land for expansion.
    • Competition of available market.
    • Competition for the available labour.
    • Easy target by enemies.
  6. Features of monopoly market.
    • One firm in the market.
    • Prices fixed by the seller.
    • No freedom of entry into the market.
    • Exploitation through high prices.
    • Poor quality due to lack of competition.
    • Possible to use price discrimination.
  7. Limitations of national income statistics as a measure of the standard of living
    • Data being used may not be accurate.
    • The national income figures do not reflect the distribution of income.
    • Consumption patterns and lifestyles are not constant.
    • It may not show the proportion of income spent on productive or non-productive activities.
    • A high income could be at the expense of the citizens social welfare.
    • Figures may not reflect depreciation or appreciation of assets.
    • Except per capita income, population figures may not have been taken into account.
  8. Problems associated with under population
    • Limited labour supply.
    • Limited market.
    • Under utilisation of resources.
    • Uneconomical to provide goods and services.
    • Lack of specialisation.
    • Reduced phase of economic development.
  9. Merits of indirect taxes
    • Economical to collect
    • Convenient to taxpayers
    • Not easy to evade.
    • Payment is voluntary.
    • It’s flexible.
    • Can be used selectively.
  10. Challenges facing direct production.
    • Production of goods in low quantities.
    • Quality of goods produced is low.
    • There is no surplus produce for the market.
    • There is less variety.
    • Lack of standardised goods.
    • Lack of efficiency.
    • Loss of time due to movement.
  11. Features of fixed deposit account.
    • Account is opened for an agreed period of time.
    • The account earns high interest.
    • Withdrawal before maturity may lead to penalty.
    • No deposit or withdrawals before expiry of the period.
    • Account holder is issued with a receipt or certificate of deposit.
    • At expiry of the period, the holder may withdraw the money or enter into a new contract.
  12. Methods used by Central bank to control inflation.
    • Increasing bank rate.
    • Moral persuation.
    • Raising cash ration.
    • Using selective credit control.
    • Increasing commercial bank special deposit with central bank.
    • Lowering margin requirements.
    • Open market operation industry.
  1. Problems experienced by the East African Community
    • Differences in political and economical ideologies.
    • Lack of common currency.
    • Common or similar goods.
    • Poor infrastructure.
    • External interference.
    • Mistrust – Do not agree.
    • Political problems- Each country has its own political problems.
    • Failure by member countries to provide funds for the secretarial operations.
  2. Gross profit = Margin x Sales
    = 20/100 x 1,000,000 = 200,000
    Cost of sales    = Sales – Gross profit
    1,000,000 – 200,000 = 800,000
    Closing stock = 25/100 of cost of sales
    25/100 x 800,000 = 200,000
    Purchases =     Cost of sales = 800,000 + closing stock = 200,000 -opening stock =100,000
  3. Mwangi Traders
    Trading account
    for the period ended 31/3/18

    Opening stock 100,000


    + purchase 900,000


    C.O.G.A.S                 1,000,000


    -Closing stock                                   200,000


    C.O.G.S 800,000


    Gross profit c/d 200,000




  4. Benefits of electronic filling
    • Quick access of information.
    • Less storage facilities.
    • Easy to update.
    • Less paper work.
    • Reduced labour costs.
    • More secure/safe
    • Environmental friendly
  1. Circumstances for deferred payment.
    • Where the credit worthiness a buyer is not in doubt.
    • Where the seller wants to attract or retain customers.
    • Where the seller wants to increase sales.
    • Where the trader wants to use credit facilities as a competing tool.
    • Where the seller wants to dispose off slow moving stock.
  2. Benefits of joining sacco
    • Incase of death, outstanding loans are written off.
    • One is able to save.
    • Can share dividends.
    • Low interest loans available
    • Can obtain different categories of loans – normal loan, school fees etc.
    • Easy to obtain loans as only few formalities are required.
    • Incase of death the beneficiaries may be refunded twice the amount of share contribution.
    1. Sales invoice (outgoing invoice)
    2. Purchase invoice (incoming invoice)
    3. Credit note
    4. Debit note
  2. Insurance terms
    • Cover note/binder
    • Surrender value
    • Idemnity
    • Re-insurance
  3. Patel traders
    Trial Balance
    As at 31.Dec.2017



    Bank overdraft



    Rent received












    Discount allowed



    Discount received



    Commission received









    Return outwards







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