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    1. Explain five ways in which the internal Business environment may positively influence Business activities. (10 marks)
    2. Explain five types of direct taxes. (10 marks)
    1. Explain five ways in which Entrepreneurs can maintain a healthy Business environment. (10mks)
    2. On 1st June 2019, Kipchoge Enterprises had cash in hand Sh. 87,000 and cash at bank Sh. 250,000. During the month, the following transactions took place

      June 2 Cash sales Sh. 50,000
      3 Paid salaries Sh. 101,500 by cheque
      6 Received a cheque for Sh 76,800 from Jelimo after allowing her a cash discount of 4%
      10 Bought Office machine by cheque Sh. 85,000
      14 Settled Kiplagat’s account of sh. 40,000 in cash, having deducted sh. 1,200 cash discount.
      18 Received a cheque of Sh. 150,000 in respect to cash sales
      20 Bought stock on credit Sh. 75,000 from Rongo Wholesalers
      21 Paid for wages in cash Sh 25,000
      23 Took money from bank Sh. 35,000 for office use
      25 Withdrew money from bank Sh. 5,000 and used it to pay child’s hospital bill
      28 Received cash sh. 17,100 from Julius after he deducted a cash discount of 5%.
      30 Deposited all the money into bank except Sh. 25,000

      Prepare a Three-column cash- book, duly balanced (10 marks)
    1. Explain five negative effects of inflation in an economy (10 marks)
    2. A team of sales persons have just arrived at Milele Secondary School to promote the text books of a given publisher. Explain five steps that they will follow when conducting product promotion. (10mks)
    1. Explain five challenges that Kenya as an economy may be experiencing during the implementation of her development plans (10 marks)
    2. Differentiate between oligopoly market structure and monopoly. (10 marks)
    1. Explain five money transfer services that are offered by commercial banks in the Kenyan economy. (10 marks)
    2. Explain five new trends and emerging issues in the insurance sector in Kenya today. (10 marks)
    1. Explain four disadvantages of protectionism to a country. (8 marks)
    2. The following trial balance was extracted from the books of Rafiki Traders for the year ended 31/12/2019

      Rafiki Traders   
      Trial Balance
      As at 31st Dec. 2019
        Dr (shs) Cr (shs)
      Capital   270,000
      Drawings 30,000  
      Opening stock 50,000  
      Purchases 255,000  
      Sales   400,000
      Returns 4,000 7,000
      Carriage inwards 28,000  
      Carriage outwards 8,000  
      Discount 12,000 5,000
      Insurance 25,000  
      Commission 3,000  
      Rent   18,000
      Furniture 50,000  
      Land 155,000  
      Premises 110,000  
      Debtors 40,000  
      Creditors   70,000
        770,000 770,000

      Closing stock was valued at sh. 58,000

      1. Prepare a Trading and Profit and Loss account for the year ended 31st Dec.2019 (10mks)
      2. Calculate the following ratios.
        1. Mark up (1mk)
        2. Rate of stock turnover (1mk)

Marking Scheme

    1. How internal environment may influence a business positively (10mks)
      • Committed owners. Committed owners make informed decisions and do proper resource allocation which leads to business success.
      • Skilled personnel. Adequate skilled personnel who are correctly matched with job activities make a business to do better.
      • Adequate physical resources. An organization with adequate physical resources does better. (e.g. enough buildings)
      • Adequate financial resources. Adequate finances , properly allocated and managed leads to business success
      • Inventions and innovations
      • Good Business structure. g. clearly defined duties and responsibilities reduce conflicts in an organization leading to Business success.
      • Good Business culture. A good business culture like the one that involves employees in decision making ,motivates them hence leading to business success
    2. Types of direct taxes. (10mks)
      • Personal income tax. Tax imposed on incomes earned by individuals. E.g P.A.Y.E
      • Corporation tax. Tax levied on profits of a company.
      • Stamp duty. Tax paid in areas such as conveyancing of land or securities from one person to another.
      • Estate duty (death duty) .tax imposed on property transferred after the owners death
      • Wealth tax. Tax imposed on personal wealth that goes beyond a certain limit.
      • Capital gains tax. Tax levied on capital gains. (They are realized when a fixed asset is sold at a higher price than the book value.
      • Capital transfer (gift) tax. Tax imposed on the value of property transferred from one person to another as a gift.
    1. Ways in which entrepreneurs can maintain a healthy Business environment. (10mks)
      • By ensuring there is no pollution (air, light, sound, water and solid waste pollution.)
      • By maintaining a healthy competition through competing fairy e.g not destroying the competitor’s promotional materials.
      • By avoiding environmental degradation.
      • By taking care of employee’s welfare. E.g paying them timely
      • By maintaining security in the organization e.g. buildings and machines should be maintained properly to avoid accidents.
      • By ensuring there is adequate resources.
      • By maintaining good interpersonal relationship with the public / corporate social responsibility.
      • By providing quality goods and services to their customers.
      • By complying with the government policies
    2. Three-column cash book    (10mks)


    1. Explain five negative effects of inflation in an economy  (10mks)
      • Loss of confidence in the monetary system - People lose confidence in the local currency both as a medium of exchange and a store of value. This will lead to a collapse in the county’s monetary system.
      • Retardation of economic growth -Hinders implementation of development plans since the cost of projects increases, business people are also not willing to either take risks, invest in new ventures, expand production or hire more workers .This leads to retardation in economic growth.
      • Reduction in profit -Rise in prices of commodities may lead to reduced sales volume for firms. This in turn may reduce the firm’s profits.
      • Wastage of time -During inflation individuals and firms waste a lot of time hopping around for reasonable prices. The time wasted can be an extra cost to the firm or individual.
      • Increase in wages and salaries - During inflation firms are always forced by trade unions to raise employees‟ salaries to cope with inflation. This normally leads to conflict between the parties concerned.
      • Decline in standards of living- During inflation consumers’ purchasing power decreases especially for people who earns fixed income such as pensioners. The reduction in purchasing power brings about a decrease in standards of living.
      • Loss to creditors- Creditors loss money when they lend out when the value is high but got paid when the value is less due to inflation.
      • Discourages savings and investments- Discourages savings/investments since people fear their money will lose value/as they have less disposable incomes.
      • Adverse effects on the balance of payments. Leads to balance of payment deficits as imports are highly demanded than exports because the exports are very expensive leading to fall in demand.
    2. A team of sales persons have just arrived at Milele Secondary School to promote the text books of a given publisher. Explain five steps that they will follow when conducting product promotion   (10mks)
      1. Establishing the customers contact, as well as choosing an appropriate time to meet the customer to be. That is the time when the customer may be receptive
      2. Arousing the consumers interest in the product by attracting his/her attention through approach and languages, as well as making the prospective customer develop interest in the product
      3. Dealing with the objections on the product which may have been brought about by the customer to be
      4. Closing the sale by inquiring whether the prospective customer will be interested in the product or not. This should be done in a polite manner
      5. Offering after sale service to the customer on the product that has been sold
    1. Explain five challenges that Kenya as an economy may be experiencing during the implementation of her development plans    (10mks)
      • Over reliance on donor funding, which if they don’t receive, the plan may not be implemented
      • Lack of adequate domestic resources such as skilled personnel, finance and capital may make the implementation a problem
      • Failure to involve the local people in planning. This will make them not to be willing to implement it, for they will not be understanding it or rebelling for the fact that they were not included
      • Natural calamities such as diseases, floods, drought, etc may make the funds that had been set aside for implementation be diverted to curb them
      • Over-ambitious plans which are a times just made to impress the donors to release their funds but may not be easy to implement
      • Lack of co-operation among the executing parties which may make the work not to kick off. For example a conflict between the ministry of finance and that of planning of the amount to be released
      • Inflation which may make the estimated value of implementation not to be adequate, bringing a problem of finances. Prices escalate making the amount allocated for the project not to be enough.
      • Lack of political will and commitment in implementing the plan. This may frustrate the implementation.
    2. Differentiate between oligopoly market structure and monopoly. (10 marks)

        Oligopoly market structure Monopoly market structure
      (a) Few large films that produce similar/close substitutes that are highly differentiated. One single producer of a product with no close substitutes.
      (b) Firms engage in none price competition The firm is the same as industry and doesn’t engage in any competition.
      (c) Firms are engaged in collusions/ form cartels to fix the price of their product. The firm is the price setter since its only one in the market.
      (d) Firms usually engage in price wars in order to remain in the market.

      The firm usually engages in huge promotional activities in order to continue dominating the market and keep away potential competitors.

      (e) There may be price leadership where the dorminant firm dictates the market price/rules in the market. The firm is the price setter as there is no other firms in the industry.

    1. Explain five money transfer services that are offered by commercial banks in the Kenyan economy.     (10 marks)
      • Standing orders
      • Credit transfers
      • Telegraphic transfer
      • Electronic fund transfer
      • Cheques
      • Credit cards
      • Bank drafts or bankers cheques
    2. Explain five new trends and emerging issues in the insurance sector in Kenya today.   (10 marks)
      • There is cover on terrorist attacks.
      • Crops and Livestock insurance has been introduced.
      • There is automation of insurance activities in the economy today.
      • There is introduction of pet insurance in Kenya today.
      • There is increased awareness on key policies in Kenya i.e. education and medical care cover.
      • There is rigorous advertising/promotion of insurance products.
      • There is establishment of insurance agencies and brokers, providing insurance services services.
      • Clients are getting education on their rights through insurance regulatory authority.
      • Accountability of insurance companies to I.R.A.
    1. Explain five disadvantages of protectionism to a country. (10 marks)
      • A country experiences limited variety of goods and services.
      • May lead to reduced employment.
      • Other, former trading partners may retaliate causing a reduction in exports.
      • Trade restrictions may lead to poor international relations.
      • May lead to production of substandard goods due to reduced competition.
      • The country is exposed to limited market for its foods and services.
      • BOPS deficit may result due to reduced volume of exports.
      • There is little investment in the country because of limited trading opportunities.
      • The country experiences reduced foreign exchange earnings as a result of low  export volumes.

    2. 6bbusmp2

      Mark up =     
       gross profit         X 100%
      Cost of goods sold

      128,000    x 100   = 47.76%

      Rate of stock turn over =
      Cost of goods sold
      Average stock

      268,000    = 5 times
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