BUSINESS PAPER 2 - 2019 LAINAKU JOINT MOCK EVALUATION EXAMINATION

1. 1. Explain five negative effects of inflation                                                           (10mks)
   2. Explain five circumstances under which an insurance contract may be terminated (10 mks)

2. 1. Explain five ways in which transport promotes the growth of trade.           (10mks)
   2. On 1^st march 2017 Kamau had cash in hand Ksh 7,800 and a bank overdraft of Ksh 24,300. During the month, the following transactions took place
      March 3   cash sales paid directly into the bankKsh 16,500
      4   bought goods for Ksh 15,000 and paid by cheque
      6   cash sales Ksh. 50,000
      9   received a cheque of ksh 18,000 from Amolo in full settlement of his debt
      13 paid insurance premiums of Ksh 16,000 in cash
      15 paid Kamotho by cheque Ksh 9,700 in full settlement of his account less 3% cash discount
      21 withdrew Ksh 30,000 from bank for office use
      24 received a cheque of Ksh23,750 from Rotich in full settlement of his account less 5% cash discount
      25 paid wages in cash Ksh 20,000
      30 banked all cash except Ksh 3,000
      Required: prepare a three column cash book

3. 1. Explain five types of wholesalers who may be found in our country today (10mks)
   2. Explain five ways through which the Central Bank regulates economic activities in the Country                        (10mks)                                               

4. 1. Explain five ways of solving unemployment in Kenya                                           (10 mks)
   2. Explain five merits of proper filing of documents in an organization.                  (10mks)                                                                                              

5. 1. Explain five short comings of using per capita income as a measure of economic welfare          
   2. Explain five benefits that may accrue to a country from trading with other countries.(10 mks)                                                                                                                                      

6. 1. Demand for bananas in a certain market has been declining over time.
      Explain four factors that may be responsible for this trend.                               (8 mks)                                                  
   2. The following balances were extracted from the books of Nakuru Enterprises as at
      
      1. Nakuru Enterprises profit and loss account for the year ended 30^th June 2016.                                                                                      (6 mks)
      2. Nakuru Enterprises Balance sheet as at 30^th June 2016.              (8 mks)

MARKING SCHEME 

1. 1. Five negative effects of inflation           (10mks)
      • Reduction in profits- the rise in prices of commodities may lead to reduced sales volumes thereby reducing the profits.
      • Wastage of time- firms and individuals may waste a lot of time shopping around for reasonable prices.
      • Loss of confidence in the monetary system-it leads to loss of confidence in money both as a medium of exchange and store of value which affects trading activities.
      • Retardation of economic growth- it leads to a situation where businesses are not willing to invest in new ventures, expand production or hire more workers which results into retardation of economic growth.
      • Decline in the standards of living- the purchasing power of consumers reduces during inflation hence poor living standards.
      • Increased wages and salaries- firms are pressurized by employees and trade unions to raise the salaries and wages so as to cope with inflation
      • Loss to creditors-they led when the value of money is high and are paid less in real money terms due to inflation.
      • Adverse effects on the balance of payments – inflation makes exports from the domestic market more expensive leading to a fall in demand which leads to low export earnings. It also makes imports cheaper leading to high demand for them and therefore more payments for imports. This results to unfavorable balance of payments.
        (Naming 1 mark explanation 1 mark: total 2× 5).
   2. Five circumstances under which an insurance contract may be terminated       (10mks)
      • When the insured has lost insurable interest in the property destroyed as he will not suffer financial loss.
      • When the insured did not disclose all relevant and material facts concerning the property destroyed- lack of utmost good faith
      • When the policy was not in force at the time of the occurrence of the lost i.e. time had elapsed.
      • When the loss occurred due to wilful action by the insured / when the insured intentionally causes the loss.
      • When the insurance company is insolvent hence unable to meet its financial obligations
      • Late claim- when the insured fails to make claim within the stipulated period r to.
      • When the insured fails to follow the laid down procedures when claiming compensation.
      • When the loss was caused by a natural calamity
      • If the risk insured was not for a legal purpose/ violated the laws of the country.
        (any five well explained points (2 )

2. 1. Ways in which transport promotes the growth of trade.           (10mks)
      • Wider market- widening the market because goods are transported from areas of surplus to areas with shortages
      • Promotes specialization- as producers concentrate on production leaving distribution to other traders. This leads to high quality goods (any other benefit of specialization accepted).
      • Large quantities/ mass production- transport ensures production in large quantities thereby enabling producers to benefit from economies of scale.
      • Variety- consumers enjoy a variety of goods as since transport enables movement of goods from where they are produced to where they are consumed.
      • Creation of employment- people get employed in the transport industry , they can also move to areas where labour is required therefore getting employment.
      • Creation of place utility- transport adds value of goods by providing place utility
      • Promotes economic development- it expands commercial activities by opening up rural/ remote areas/ leads to urbanization/ industrial development.
        (Naming 1 mark explanation 1 mark: total 2× 5).
   2. THREE COLUMN CASH BOOK
      

      DATE	Particulars	Disc all	Cash	Bank	Date	Particulars	Disc recd	Cash	Bank
      March 1	Balb/f		7,800		March 1	Balb/f			24,300
      3	sales			165,000	4	Purchases			15,000
      6	Sales		50,000		13	Insurance		16,000
      9	Amolo			18,000	15	Kamotho	300		9,700
      21	Bank ( c )		30,000		21	Cash (c)			30,000
      24	Rotich	1250		23,750	25,	Wages		20,000
      30	Cash (c)			48,800	30	Bank (c)		48,800
      					31	Bal c/d		3,000	28050
      		1250	87,800	107,050			300	87,800	107,050
      31	Bal b/d		3,000	28050

3. 1. General merchandise wholesalers-deal in a wide range of goods i. e. many different lines and many product ranges(a) Explain any FIVE types of wholesales who may be found in our Kenya today (10mks)
      • General line wholesalers- deal with one product line and many product ranges
      • Specialized wholesalers- deal in one product line and only one product
      • Nationwide wholesalers- distribute their products to all parts of the country
      • Regional wholesalers- distribute their products in certain parts of the country
      • Cash and carry wholesalers- they operate on self-service basis where traders come and pick goods. They do not offer credit facilities
      • Mobile wholesalers- they use vehicles to go around selling goods to traders
      • Rack jobbers- they specialize in selling particular products to the other specialized wholesalers. They display their goods on shelves or racks from where customers pick the goods they want to buy.
        (Naming 1 mark explanation 1 mark: total 2× 5).
   2. Explain FIVE ways through which the central bank regulates economic activities in the Country                                                                                                      (10mks)
      • Bank rate policy- by varying the bank rate the central bank gives an indication to the commercial banks as to the rate and interests to charge to their customers. To reduce money supply, bank rate is raised and vice versa
      • Cash/liquidity ratio- by varying the liquidity ratio, the central bank can increase or decrease the money supply. To reduce money supply, central bank raises the ratio so that banks keep less for lending and vice versa
      • Open market operations- involves buying and selling of government securities. To reduce money supply, the central bank sells treasurer bills and treasury bonds and vice versa
      • Special /compulsory deposits- this is a requirement by central banks that commercial banks keep specific amount in the central bank as deposit. To reduce money supply the compulsory deposit is raised so that banks have less to lend to their customers.
      • Selective lending credit control- central can identify sectors that should receive lending from commercial banks. Sectors that are not included have to get funding from other sources which limits money getting into circulation
      • Direct action/ supervision- central bank can direct the commercial banks and ensure that they follow the laid down procedures in lending.
      • Moral persuasion- under special circumstances, the central bank nmay persuade the commercial banks to regulate their lending habits.
      • Margin requirement-
      • Lending ceiling-
        (Naming 1 mark explanation 1 mark: total 2× 5).                                  

4. 1. Explain FOUR steps that Kenya can take to solve her employment problems
      • Increase government expenditure to stimulate aggregate demand , hence the level of production e.g. road construction, rural electrification
      • Encourage local private investors to increase productivity
      • Educational reforms so as to impart skills that are required in the labour market- blue collar jobs
      • Diversify the Kenyan economy- these will help to ensure people are employed throughout the year by changing jobs (seasonal unemployment).
      • Protect local industries in order to maintain employment levels
      • Find market for locally produced goods through aggressive export promotion in order to expand production capacities of local industries
      • Adopt measures that will attract foreign capital into the country so as to create more employment opportunities- this will assist in starting firms that will absorb idle labour force
      • Controlling population growth rate-this will enable the labour force being generated top to match with the rate of job creation
      • Adopting/ using appropriate technology-labour intensive methods of production should be used in order to generate more jobs
      • Establishing youth development funds/provision of capital- to provide youth/unemployed with capital to start their own firms/ businesses or to be self employed
      • Exporting labour to other countries-
      • Maximum utilization of local resources- will ensure when the resources are productive more people will be employed eg utilizing idle land
      • Encourage informal sector (jua kali) since it encourages self employment and generate more jobs
      • Controlling inflation- this makes labour cheap/affordable by many firms increasing demand hence firms cannot lay off workers.
        (Naming 1 mark explanation 1 mark: total 2× 5).
   2. Explain five merits of proper filing in an organization.                                                                                                              
      • Easy retrieval of documents-
      • Office tidiness
      • Safety of documents
      • Documents kept neat
      • Saving on space
      • Easy reference in the future
      • Provide evidences
      • Safety from unauthorized persons
        (Naming 1 mark, well explained 1 mark: total 2× 5)

5. 1. Explain five short comings of using per capita income as a measure of economic welfare
      • Incorrect statistics- May have been computed from inaccurate statistics of production or population
      • Uneven/ unequal income distribution- National income measure does not show the distribution of gross output among citizens
      • Working conditions- Increased national output may have resulted from increase in the number of hours worked, leisure time or increased national output may have resulted from workers working under poor conditions
      • Social cost -It does not take into consideration the social cost. It does not take into consideration the effect of production activities on the environment i.e. pollution degradation
      • Economic growth does not necessarily measure economic development
      • Inflation/ value of money/ cost of living- It does not take into consideration the value of money. the effect of inflation might not be shown in the national income statistics yet it affects the purchasing power and therefore the welfare. i.e. devaluation of currency
      • It does not consider the nature of products that make up the national product.
      • Illegal activities- the income might be arising from illegal activities
        (Naming 1 mark explanation 1 mark: total 2× 5).
   2. Explain five benefits that may accrue to a country from trading with other countries.
      • Variety of goods and services- access to wider range of goods from other countries
      • Improved living standards/Imports/ buying- a country can buy goods and services it does not produce
      • Earns foreign exchange- a country earns foreign exchange which it can use to pay fro imported goods and services.
      • Promotes international peace and understanding- this enhances international relations
      • New technology- a country through interaction can access modern technology which leads to improved quality, better production and lower costs.
      • Source of government revenue- it earns government revenue from customs/ import duties
      • Creation of employment –creates employment in the increased trading activities.
      • Wider market- the country can access markets in other countries
      • Disposal of surplus- the country can dispose of its surplus production thereby avoiding wastage
      • During calamities- the country can be assisted during calamities for example drought.
      • Quality goods and services- country is able to import high quality goods and services due to competition
      • Specialization-a country can concentrate on production of the goods /services it has comparative advantage as it can import other goods where it lacks advantage from other countries. This leads to high quality goods and mass production.
        (Naming 1 mark explanation 1 mark: total 2× 5).

6. 1. Demand for bananas in a certain market has been declining over time. Explain four factors that may be responsible for this trend                                                             (10 marks)
      • Decrease in consumer’s income-incomes constitutes ability to buy goods and services. When they decrease consumer buy few
      • Decrease in substitutes price- a fall in price of other price makes them cheaper than bananas making consumers buy fewer bananas
      • Decrease in population-constitutes market. A decrease in population leads to decrease in demand for bananas
      • Deteriorating terms of sales- unfavorable terms leads to decrease in demand i
      • Negative preference for bananas- consumer may have other fruits preferred to bananas
      • Government policy-increase in taxes leads to fall in demand or may have removed subsidy leading to fall in demand due to high prices (any 4 well explained )
        NB:do not award marks for fashion, future expectation of a decrease in price
   2.