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  • Answer all the questions in the spaces provided.

Answer ALL questions in the spaces provided.

  1. Identify four difficulties that may make an individual not to satisfy most of his needs.(4 marks)
  1. Highlight four characteristics of free resources. (4 marks)       
  1. Outline four measures that can be taken to improve the efficiency of parastatals in Kenya.(4 marks)
  1. State four factors that would influence the amount of money held by an individual for transaction purposes. (4 marks)
  1. State four measures that the government may employ to regulate and control business activities. (4 marks)
  1. Given below are books of original entry, state the source document used to prepare each of the books.  (4 marks)


    Source document

    (i)Cash book

    (ii)Sales journal

    (iii)Purchase journal

    (iv)Sales return journal


  1. Post the following transactions to the relevant ledger accounts.
    1. Started business by depositing in the bank a cheque of shs. 100,000.
    2. Withdrew Kshs. 20,000 cash from the bank for business use.
    3. Tumanka a debtor paid shs. 40,000 cash.
    4. Took shs.10, 000. from cash till for personal use.  (4mks)
  1. Identify four ways through which manufacturers protect the consumers against exploitation.  (4 marks)
  1. List four sources of monopoly power for a firm in a market. (4 marks)
  2. Outline any four benefits of “pooling of risks” to insurance company. (4 marks)
  3. The diagram below shows a supply curve SoSo and SISI.
    Highlight four factors that account for the above phenomena.  (4 marks)
  1. Highlight four roles played by inter-mediaries in the chain of distribution. (4 marks)
  2. Outline four uses of national income statistics (4 marks)
  3. Highlight four methods that can be used by a country to solve the problem of deficit balance of payment. (4 marks)                                                                                            
  1. Outline four positive implications of high population growth rate in a country. (4 marks)
  2. Highlight four reasons why hypermarkets are increasingly becoming popular in Kenya. (4 marks)
  1. For each of the following transactions, indicate with a tick (√) whether it will increase, decrease or have no effect on the balance sheet totals.(4 marks) 


                                   Effect on the balance total



    No effect

    (i) Borrowing sh  20,000 from bank for paying creditors


    (ii) Used sh 10,000 cash pay for loan arrears


    (iii) Sale of part of business premises


    (iv) Sale of goods worth sh 5,000 for sh 4,500

  1. Outline four circumstances under which personal selling is appropriate. (4 marks)
  2. State four disadvantages of localization to a developing country (4 marks)
  1. The following information relates to NtutuTraders
    Purchases                    sh 2,700,000
    Return outwards         sh 600,000
    Closing stock              sh 500,000
    Opening stock             sh 1,200,000
    Margin                         2/9
    1. Cost of sales         (2 marks)
    2. Gross profit          (2 marks)
  1. State the meaning and significance of the following terms used in international trade.
    1. Depreciation of the currency of country
    2. Determination of the terms of trade of a country
    3. Traderestrictions
    4. Common market
  1. Outline four advantages of a business using E-mail in communication. (4 marks)
  1. Outline four economic conditions that would prevail in a country undergoing inflation.(4 marks)
  1. Indicate in the spaces provided whether the following taxes are either direct taxes or indirect taxes.  (4 marks)
    Tax                                                      Types of tax
    Corporation tax                                   ___________
    Capital gain tax                                   __________
    Value added tax                                  __________
    Income tax                                          _________
  1. Indicate in the spaces provided, the account to be debited and account to be credited. (4 marks)


    Account Debited

    Account Credited

    (a) Started business by depositing sh 80,000 in the bank account of the business.


    (b) Bought stock of goods worth sh 20,000 from XYZ retailers on credit.


    (c) Returned goods worth sh 4,000 to XYZ retailers


    (d) Paid XYZ retailers’ sh 15,000 cheque



  1. - Unlimited wants/wants are many/ numerous
    - The resources required are limited.
    - The finances/funds/money required is limited/not enough.
    - Human wants keeps on changing with time/circumstances.
    - Wants vary with urgency/intensity.                                                                         
    (4 x 1 = 4mks)
  1. Characteristics of free resources
    • Gifts of nature e.g. sunshine, air, rain
    • Provided/consumed freely.
    • Plenty in supply
    • Have no money value.
      Any 4 x 1 = 4mks
  1. - Employments qualified staff.
    - Eliminating political influence in parastatals.
    - Restricting the parastatal to make it viable/competitive.
    - Motivating employees.
    - Strengthening supervision/monitoring of staff.
    - Application of modern technology                                                             
      (4 x 1 = 4mks)
  1. - The spending habits of individuals.
    - The size of an individual’s money income.
    - The price levels.
    - The effects of inflation/deflation.
    - The intervals between pay days.                                          
    (Any 4 points x 1 = 4mks)
  1. - Licensing.
    - Formulation of fiscal and monetary policies.
    - Quotas.
    - Guidelines and directives.
    - Enacting laws e.g. weights and measures Act.
    - Price control.
    - Total ban.                                                                             
    (Any 4 points x 1 = 4mks)
    • Receipt
    • Invoice/outgoing/issued
    • Invoice/Incoming/received
    • Credit note     
    (8 x ½ = 4mks)
  1. - Promoting production of high quality goods
    - Maintain standards specified for each product
    - Ensuring that their members give correct/ accurate/ fair description of their goods
    - Maintaining/ insisting on their fair prices for their products
    - Maintaining/ using proper packaging for their products in order to avoid easy contamination
    - Dealing with customer complains so as to create consumer confidence
    (4 x 1 = 4mks)
  1. Four sources of monopoly power.(4mks)
    • Control of an important input in production
    • Ownership of production rights
    • Internal economies of scale
    • Size of the market
    • Additional cost by other firms
    • Where a group of firms combine to act as one.
    • Restrictive practices
    • Financial factors
    • Enables an insurance company to create a common pool of funds
    • Enables insurance company to compensate those who suffer loss when risk occurs
    • Enables insurance company to spread risks over a large number of insured people
    • The surplus funds can be invested e.g giving out loans or buying shares in real estates
    • Enable company to meet operating cost by using the pooled funds
    • Enables insurance company to calculate premiums to be paid by each client
      (4 x 1 = 4mks)
  1. Factors that account for a fall in supply
    • Increase in cost of production
    • Inadequate inputs
    • Exit of firms from the industry
    • Price of other related products is low
    • Use of poor technology
    • Future expectation of decrease in price
    • Unfavorable natural factors/ weather
    • Unfavorable government policy
  1. - Break bulk
    - Accumulate bulk
    - Risk bearing
    - Finance provider
    - Advice producers and consumers
    - Carry out product promotion
    - Avail a variety of goods
     (4 x 1 = 4mks)
    • Indicators of standards of living
    • Comparing standards of living in different countries
    • Assessing the performance of the economy over time
    • Assisting the government to plan the economy
    • Assist in making appropriate investment decisions
    • To calculate the per capita income
    • To attract foreign aid and investment       
      (Any 4x1=4marks)
    • Borrowing from other countries. A country can borrow from another country so that such money can be used to offset a deficit balance of payment
    • Control imports. A country can control a deficit balance of payment by controlling imports using total ban, tariffs and quotas
    • Increase the volume of exports. A country can correct its deficit by increasing or encouraging exports
    • Evaluation of home currency. This will encourage exports and discourage imports
    • Through import substitution. A country can put up industries to produce goods for home consumption instead of importing
    • Encourage foreign investment in a country so as to produce goods for export
    • Using foreign reserves. A country exchange reserves and gold to offset its deficit
    • Use of customs. Draw backs to encourage export of goods and services
    • Giving subsidies to local manufacturers in order to increase exports          Any (4mks)
  1. - Provide security to the country
    - Provide market for goods and services
    - Due to high consumption rate, it would attract foreign investment
    - Enhances specialisation of labour
    - The countries resources would be fully exploited
    Any 4 x 1 = 4mks
  1. -Easily accessible
    -One stop-shop-arrange of goods and services
    -Parking space is available
    -Availability in auxiliary services
    -Operate for long hours
    -Accept debit/credit cards
    -They offer after sale services
    -Security guaranteed
    -They are located away from hassles of the city
    -Attractive and convenient shop in
    -Saves on space/land rates               
    • No effect
    • Decrease
    • No effect
    • Decrease
      4 x 1 = 4mks
  1. -When launching a new product
    -When a product should meet customers’ specification
    -When demonstration is required
    -When the value of the product is high
    -When organization can afford to finance the sales force
    -When market is concentrated in an area                                                        1x4 = 4mks                                                                                                        
  1. Disadvantages of localisation
    • Regional imbalance in development
    • Negative effects on environment e.g. pollution
    • Rural – urban migration
    • Increase in crime rates
    • Spread of diseases
    • High rate of unemployment
    • Undesirable during sometime e.g. times of terrorism
      Any 4 x 1 = 4mks
  1. Cost of sales =opening stock + Net purchases√ (½) – Closing stock
    = 1 200 000 + {2, 700,000 (½)√ – 600 000} – 500 000 = 2 800 000(1)
    Mark up = 2 =   2 √(½ )
                  9-2     7
    Mark up = Gross profit
                    Cost of sales
    = G.P               = 2 √½
        2, 800 00         7
    G.P = 2/7 x 2 800 000
    = 800 000 √(1)
    1. Falling of the price /exchange rate of a country’s currency against a foreign currency due to free forces of demand and supply in the foreign exchange market
      Significance-making exports cheaper and imports expensive
    2. This is the decreasing rates at which a country exports exchange with its imports
      Significance less imports exchange with more exports worsening balance of payment of a country
    3. Are barriers to free international trade imposed by government  
      Significance done with the imposed on protecting domestic economy (mention of protection should be accepted as significance)
    4. It is a form of economic integration/association agreement where a number of countries agree to eliminate restrictions on production among themselves
      4 x 1 = 4mks
  1. Advantages of using E-mail in communication in business.
    • One can send messages that contain photographs and diagrams
    • Ability to communicate to more than one person at the same time
    • There is evidence of communication
    • It is possible to forward the information to other businessmen
    • One can access the message using either PC, Mobile phone e.t.c.
      Any relevant 4 x 1 = 4mks
  1. Economic conditions that would prevail in a country undergoing inflation
    • Income is redistributed unevenly
    • Rise in interest rates
    • Discouragement of investment
    • Competition for higher incomes
    • Loss of vale of local currency
    • Retardation of economic growth
    • Balance of payment problems
      Any 4 x 1 = 4mks
  1. Types of tax
    • Direct
    • Direct
    • Indirect
    • Direct
      4 x 1= 4mks
  1. Account debited Account credited
    1. Bank                                  Capital
    2. Purchases                           XYZ retailers
    3. XYZ retailers                       Purchases returns
    4. XYZ retailers                       Bank
       8 x ½ = 4mks
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