Business Studies Paper 1 Questions and Answers - Mang'u Mock 2020 Exam

BUSINESS STUDIES
PAPER 1
TIME: 2 HOURS.

Instructions to candidates

• Answer all the questions

1. Highlight four factors that affect the quantities of potatoes in the market. (4 marks)
2. Highlight four benefits of operating a large scale retail outlet to a trader. (4 marks)
3. Outline four roles that a business plan plays to an entrepreneur (4 marks)
4.  Highlight four advantages of transacting business using e-commerce. (4 marks)
5. Outline four causes of demand-pull inflation in Kenya.
6. Identify the books of original entry used in recording each of the following transaction of solo traders. (4 marks)
   

   	Transaction	Book of Original Entry
   a	Sold goods on credit to Wanjiku for Sh 20,000
   b	Bought goods on credit from Sushi Traders for Sh. 10,000
   c	Azoth returned goods worth sh. 6,000
   d	Solo returned goods worth sh. 11,000 to Nova Traders

7. Over the years, Superstar has grown into a large enterprise. Highlight four internal diseconomies of scale which it may be experiencing. (4 marks)
8. Record the following transactions relating to Kibaki stores in the general journal (4 marks)
   2011
   8th June: A photocopier worth Kshs. 93,000 was purchased on credit from Lisa paper works
   9th June: bought goods on credit worth Kshs.50,000 from Kamau traders
   10th June: An old motor vehicle worth Kshs. 250,000 was sold to Iten Traders on credit
9. Outline four demerits of using electronic filing. (4 marks)
10. Highlight four trends in international trade. (4 marks)
11. State four major decisions made by senior managers in a production firm. (4 marks)
12. Identify the state of the market in the diagram given below. Highlight two characteristics of this market.
    
    1. State of the market.
    2. Characteristics of the market
13. Outline four circumstances when containers can be used to transport goods. (4 marks)
14. Insurance firms operate under the concept of pooling of risk. Outline four benefits of pooling of risk to the insurance firms. (4 marks)
15. In the table below, indicate the effect of the transactions described on the balance sheet totals. Use either increase, decrease or no effect. (4 marks)
    

    	Transaction	Effect on the balance sheet totals
    a	The owner cleared a business debt worth Kshs. 10,000
    b	Paid creditors Kshs. 25,000 in cash
    c	Deposited Kshs. 20,000 cash into the bank account
    d	Took a banks overdraft of Kshs. 35,000

16. There is a recent trend of reviving the railway transport in Kenya. State four benefits that will accrue to the economy of Kenya. (4 marks)
17. Outline four reasons why the government gets involved in business activities (4 marks)
18. State four circumstances when a public corporation may be dissolved. (4 marks)
19. The following statements relate to the different types of taxes in our country today. For each statement name the type of tax it describes(4 marks)
    

    Statement	Type of tax
    Paid by anyone who earns an income
    A tax levied on the transfer of capital from one person to another
    Taxes used by the governments to control quantity of goods exported
    A uniform tax applied to all individuals paying taxes

20. The following information was extracted from the books of Amka Traders for the year 2012. (3 marks)
    

    	Kshs.
    Capital 1st January, 2012	450,000
    Net profit	100,000
    Withdrew Cash for personal uses	250,000
    Capital 31st December, 2012	1,000,000

    Determine additional inyestment for the year.
21. State four advantages to a manufacturer of using the channel of distribution shown below. (4 marks)
    Manufacturer → wholesaler → retailer → consumer
22. The following information relates to dimples limited for the year ended 31st July 2010.
    

    Average stock at selling price	144,000
    Rate of stock turnover	5 times
    Margin	20%
    Total expenses	48,000

    Calculate:
    1. Average stock at cost(1 mark)
    2. Cost of sales (1 mark)
    3. Turnover (1 mark)
    4. Gross profit (1 mark)
23. State one negative effect of the following factors on the business environment. (4 marks)
    1. Economic factors:
    2. Demographic factors:
    3. Social cultural factors: ..
    4. Political factors:
24. Outline the procedure of obtaining an insurance policy. (5 marks)
25. Name the factor that each of the following resources relate to (4 marks)
    

    	Resource	Factors of production
    a	Manager
    b	Vehicle
    c	Water
    d	Owner

MARKING SCHEME

1. Highlight four factors that could affect the quantities of potatoes supplied in a market.
   • Cost of production
   • Government policy/subsidies/taxation
   • Technology
   • Price of cabbages
   • Price of other related products such as substitutes
   • Natural factors/seasonal/dim a tic factors
   • Skills/training of farmers
2. Outline four benefits to a trader who operates a large scale retail outlet.
   • Gets favourable discounts when he/she purchases stock in bulk
   • Have good access to external financing e.g. from banks/other financial institutions.
   • Managed by professionals unlike small scale retailers which is run by the owner.
   • He/she enjoys economics of scale since it is large
   • Able to attract more customers than small scale retailers since their customers are able to buy all their goods under one roof.
3. Outline four roles that a business plan plays to an entrepreneur
   • It helps the entrepreneur to describe the products to be provided.
   • It helps one to outline the market opportunities that have been identified 
   • It helps one to determine the resources required so as to achieve the goals of a business
   • It helps one to outline short, medium and long term goals of the business
   • It helps one to outline competition
   • It facilitates business evaluation i.e. determining whether objectives have been achieved or not.
4. Highlight four advantages of transacting business through E-commerce.
   • Facilitates access to large markets/world wide/global markets since many countries/ regions are connected to the internet/website
   • Large and small businesses can transact business through internet since there is no discrimination in the use of internet.
   • Quick /a fast way of doing business through the internet thereby saving time.
   • Reduces number of transactions since many dealings are online/making transactions cheaper/less cumbersome.
   • One can access other different business information from the internet which can enhance the running of the business
   • Saves on cost of sending/receiving/storing business information/products.
5. Outline 4 causes of demand-pull inflation in Kenya
   • Increase in government expenditure
   • Increase in wages and salaries
   • A reduction in direct/indirect taxation
   • General shortages off good and services
   • A fall in level of savings
   • Increase in money supply credit creation by commercial banks
   • Future expectation of price increases
   • Increase in consumer expenditure
6. Identify book of original entry used in recording each of the following transactions of solo Traders

1. Over the years, Superstar has grown into a large enterprise. Highlight four internal diseconomics of scale which it may experience
   • Complex managerial function/complexity of management due to expanded operations (fimm suffers from inherent problems)
   • Slow/delay in decision making: due to increased bureaucracy/red tape
   • High cost per unit/average cost of production after the optimal price has been reached/as output of the firm continues to expand/grow
   • Strained labour relations due to impersonal of management of employees due to lack of direct contact with management
   • Inflexibility due to shifting costs to other (profitable) lines/investment in the existing enterprise.
2. General joumal 
   

   Date	Details	Dr(shs)	Cr(shs)
   2011 June 8	Photocopier Lisa paper works  Being purchases of photocopier on credit	93,000	93,000
   June 10	Iteni traders  Motor vehicle Being sale of motor vehicle on credit	250,000	250,000

3. Outline four demerits of using electronic filing
   • Initial cost of system in relatively high
   • Loss of data/information if system collapses
   • Security risk is high due tom hacking/damage/theft of information
   • Lack of confidentiality due to access by unauthorised people
   • Frequent additional cost in upgrading the system to overcome obstacles
   • Need to train staff is an additional cost 8) Power failure without backup/means inaccessibility for quick decision making
4. Highlight four trends in international trade.
   • Liberalisation/removal of trade restrictions
   • Creation of export processing Zones for free trade
   • Disintegration of polarised trading blocks
   • E-commerce: Buying and selling goods/services over the internet /online
   • Globalisation-expansion of trade operations/markets to new countries
   • Use of flexible exchange rates.
   • Privatisation to enhance competition in international trade.
5. State four major decisions made by senior managers in a production firm
   • What to produce (specialisation)
   • How the production is to take place(cost minimisation; efficient technology)
   • Where to produce (location, physical of firm).
   • When to produce (long-run ahead of time, short-run/immediately)
   • How much to produce (large scale, market size, storage capacity, transport)
6. Identify the state of the market in the diagram given below. Highlight three characteristics of this market
   • Quantity demanded is equal to quantity supplied in the market.
   • At equilibrium point, the quantity brought to the market is sold as total demand is met by total supply.
   • There is no fluctuation point of stability
   • Both buyers and sellers are satisfied with prevailing market price,
   • No shortage or excess in the market.
7. Highlight four circumstances under which or can use containers to transport goods.
   • Where goods are bulky
   • Where goods are not urgently needed
   • When transporting goods over long distance
   • Where one wants to save on costs
   • Where one requires a large carrying capacity thus saving on space
   • Where railway terminals are closer to the use
8. Insurance firms operate under the concept of pooling of risks. Highlight four benefits of pooling of risks. 
   • Spreading of risks/loss shared among the insured
   • Insured is guaranteed compensated; if loss from relevant risk occurs
   • Guaranteed protection against business failure continuity/eliminates uncertainty
   • Insurance company doesn't incur any financial liability
   • Individuals subject to same risk raise large amount in a common pool of fund
   • Losses suffered by a few may be too heavy for them to recover as individuals using own financial resources
   • Only a few of the insured will actually suffer from the risk at only a given time i.e. surplus is invested
9. State the effect of business transactions on the balance sheet total

   • 	Transaction	Effect on the balance sheet totals
     a	The owner cleared a business debt worth Kshs. 10,000
     b	Paid creditors Kshs. 25,000 in cash
     c	Deposited Kshs. 20,000 cash into the bank account	No effect
     d	Took a banks overdraft of Kshs. 35,000

10. Recently there has been a trend of reviving the railway transport in Kenya. State four benefits that will accrue to Kenyan economy
    • It will ease congestion on the roads
    • It is economical over long distances thus many will save on transportation of bulky goods.
    • It has capacity to carry bulky and heavy goods this will improve the volume of trade within and outside the country
11. Highlight four reasons why a government gets involved in business activities
    • To provide essential goods and services to the public such as electricity to avoid consumers against exploitation by the private investors
    • Invest in areas where private investors would not be interested due to low profits and high risks involved
    • To provide goods and services which would be too sensitive/risky to be left in the hands of private investors.
    • To spur/stimulate economic development by setting basic network eg. efficient transport system/by providing social services
    • To create employment for its people
    • To attract foreign investment by initiating major business projects
    • Where the government wants to maintain control of resources in areas of interest
12. State four circumstances under which a public corporation may be dissolved
    • When a court of law declares a corporation bankrupt after establishing that it is unable to pay its debts
    • When the parliament passes a voluntary resolution that a public corporation is dissolved.
    • When a public corporation is Privatized selling it to private enterprises
    • Where the corporation has been incurring persistent losses
    • The following statements relate to the different types of taxes in our country today.
13. For each statement name the type of tax it describes.

1. The following was extracted from the books off Amuka Traders for the year 2012. Determine the additional investment for the year
   Response
   Additional investment = final capital - initial capital - Net profit + Drawings =
   1,000,000 - 450,000 - 100.000 + 250,000
   = shs. 700,000 21.
2. Advantages to a manufacturer of using the channel of distribution shown below
   • He/she will enjoy bulk buying from wholesalers and large scale retailers
   • The wholesaler will relieve him/her of the storage costs hence will be able to concentrate on production
   • The wholesalers and large scale retailers will relieve him/her of transport cost.
   • Will benefit from a reduction of promotional costs since it will be done by the large scale retailers and wholesalers.
3. Calculate
   • Average stock at stock
     = 100 - margin x average stockt selling price
      = 100 - 20 x 144,000
            100
     =115,200
   • Cost of sales
     = average stock at cost x rate of stock turnover
     = 115,200 x 5 = 576,000
   • Turnover
     = average stock at selling price x rate of turnover
     = 144,000 x 5-720,000
   • Gross profit
     = turnover - cost of sales
     = 720,000 - 576,000 = 144,000
4.   
   • Economic factors: Low per capita income means low income for investments or reduced consumer purchasing power
   • Demographic factors:Low population means lower sales/ Population age may affect the sales of a certain product- high population may lead to increased insecurity
   • Social cultural factors: A communities cultural beliefs may be against the type of product/service the business may be offering thus low sales
   • Political factors: Political instability affects the growth and satbility of businesses
5. Outline the procedure of obtaining n insurance claim
   • Filling in a proposal form: Proposer ills in a proposal form requesting for an insurance cover from an insurer.
   • Determination of the premium to be paid: after the proposal form is accepted, the insurer fixes the premiums and asks the proposer to pay.
   • Payment of the first premium: The proposer is required to pay the first premium after the insurer accepts to cover the applicant's risk.
   • Issuance of cover note; this shows the commencement of the insurance contract while waiting for the issuance of the insurance policy document.
   • Issuance of policy: is evidence that the insured has entered into a contract with the insurer. 
6. Name the factor that each of the following resources relate to
   

   	Resource	Factors of production
   a	Manager	Labour
   b	Vehicle	Capital
   c	Water	Land
   d	Owner	Entrepreneur