Business Studies Paper 2 Questions and Answers - Bungoma Diocese Mock Exams 2021/2022

Instructions to candidates;

• This paper consists of six questions.
• Answer any five questions in the spaces provided after question six.
• All questions carry equal marks

1.  
   1. Explain five factors to consider when choosing office equipment. (10marks)
   2. Explain the causes and remedies of the following types of unemployment. (10 marks)
      1. Seasonal unemployment
      2. Structural unemployment
      3. Disguised unemployment
      4. Residual unemployment
      5. Involuntary unemployment
2.  
   1. Explain five importance of insurance to an economy. (10marks)
   2. On 1^st march 2019, Ukwala traders had ksh 95,000 in hand and a bank overdraft of ksh 15,000. During the month, the following transactions took place.
      March 2: Bought goods for resale in cash ksh 68,000.
      March 3: Cash sales banked, ksh 22,000
      March 9: Paid Anyang’ a creditor ksh, 12,880 by cheque in full settlement of his account after deducting 8% cash discount.
      March 11: Paid salaries ksh 14,000 in cash.
      March 16: Received a cheque of ksh 40,200 from Sakaya after allowing him a cash discount of ksh 1,800.
      March 20: Shamim, a debtor paid her account of ksh 55,000 by cheque less 10% cash discount.
      March 24: Withdraw 26,000 from bank for office use.
      March 27: Took ksh 9,000 cash to pay his brother’s medical bill.
      March 28: Deposited all the cash into bank except ksh 14,400.
      Required: prepare a three-column cashbook and balance it off. (10 marks)
3.  
   1. Explain five features of oligopoly. (10 marks)
   2. Explain the difference between partnerships and cooperative societies forms of business units. (10marks)
4.  
   1. Explain five reasons for continued existence of small firms in an economy.  (10marks)
   2. Outline five channels that can be appropriate for the distribution of exporting tea to France. (10marks)
5.  
   1. Explain five reasons for government involvement in business. (10 marks)
   2. Explain five documents sent by the buyer to the seller in Home trade. (10marks)
6.  
   1. Explain four unethical practices in product promotion. (8marks)
   2. The following trial balance relates to the business of OMASAJA Traders for the period ended 31^st March 2019.
                                                      OMASAJA TRADERS
                                                       TRIAL BALANCE
                                                   AS AT 31^ST MARCH 2019
                                                                 Dr                                                     Cr
                                                                Shs.                                                   Shs.
      General expenses                            120,000
      Rent expenses                                    46,000
      Telephone expenses                           20,000
      Carriage inwards                                 28,000
      Salaries                                             360,000
      Sales                                                                                                          4,000,000
      Purchases                                       2,400,000
      Discount received                                                                                      36,000
      Sales returns                                        40,000
      Motor vehicle                                       500,000
      Debtors                                               300,000
      Stock (1st April 2018)                         200,000
      Land and buildings                            2,000,000
      Cash at bank                                      120,000
      Cash in hand                                       12,000
      Capital                                                                                                       1,850,000
      Drawings                                             80,000
      Creditors                                                                                                      240,000
                                                                 6,226,000                                        6,226,000
      Additional information
      Stock as at 31^st March 2019 was valued at ksh. 100,000
      Prepare:
      
      1. A Trading profit and loss (7marks)
      2. A Balance sheet (5marks)

MARKING SCHEME

1.  
   1. Explain five factors to consider when choosing office equipment. (10mks)
      
      1. Cost; this refers the initial, maintenance and running cost of the equipment. Organization will choose an equipment they can afford based on amount of capital available.
         
      2. Adaptability; this is the ability of the equipment to cope with future changes and development. An organization will choose an equipment that will adjust to any future changes without becoming obsolete.
         
      3. Possibility of hiring rather than buying; one has to consider the cost and convenience of buying an equipment as opposed to hiring. If hiring is expensive than buying, then the organization will have to buy.
         
      4. Durability; this refers to the lifespan of equipment. The organization will acquire an equipment that will last long.
         
      5. Effect on staff morale; this refers to staff attitude towards the equipment. The organization will acquire an equipment that will motivate the staff to use. Staff members should be involved in deciding which equipment to acquire.
         
      6. Availability of complimentary resources; this refers accessories required in order to operate the equipment. i.e the availability of power, spare parts etc.
         
      7. Availability of manpower; it is personnel required to run and operate an equipment. A business should consider the availability and cost of skills required.
         
      8. Availability of room; where the equipment will be kept safely.
         
      9. Security of the equipment; one has to consider whether the available resources are adequate to offer enough security for the equipment
   2. Explain the causes and remedies of the following types of unemployment. (10 marks)
      
      1. Seasonal unemployment; it is experienced whereby products loses demand and responsible labor force is laid off.
         Solution; introduction of variety of economic activities
         
      2. Structural unemployment; it occurs where jobs are available but one does not have the required skills to handle the jobs.
         Solution; provision of relevant education training opportunities to ensure necessary skills required by the labor market.
         
      3. Disguised unemployment; occurs where the number of people employed exceeds those that are required. The workers full capability is not completely utilized.
         Solution; initiating more projects that would create more jobs.
         
      4. Residual unemployment; occurs when the physically or mentally challenged members of population are not offered job opportunities by employers.
         Solution; ensuring the implementation of policy of affirmative action.
         
      5. Involuntary unemployment; it occurs where people are actively searching for job opportunities at any existing wage rate but couldn’t find.
         Solution; initiate economic activities that could spur economic growth to create more job opportunities.
2.  
   1. Importance of insurance to an economy
      
      1. Creation of employment. Insurance provides employment to individuals as actuaries and sales persons.
         
      2. Creating confidence in investors. Compensation in the event of occurrence of loss encourages investors to invest in risky ventures.
         
      3. Revenue to the government. The government receives revenue from license fee and taxes from the insurance profits.
         
      4. Continuity of business. Business that could close down because of loss due to event of a risk will continue to operate because of compensation from the insurance companies.
         
      5. Spreads risks. Pooling of risks ensures that the few who suffer loss are indemnified.
         
      6. Encourages savings. Endowment assurance is a savings plan to the assured.
         
      7. Investments. The excess of the total premiums over claims can be invested by the insurance firms.
   2. Dr                                                    Three column cash book                                                     Cr
      

      Date	details	foli	D.A	Cash	bank	Date	Details	foli	D.R	cash	Bank
      2019  1/3	balance	b/d	Sh.	Sh.  95,000	Sh.	2019  1/3	Balance	b/d	Sh.	Sh.	Sh. 15000
      3/3	sales				22000	2/3	purchases			68000
      16/3	Sakaya		1800		40200	9/3			1120		12880
      20/3	Shamim		5500		49500	11/3	salaries			14000
      24/3	Bank	c		26000		24/3	cash	c			26000
      28/3	Cash	c			15600	27/3	Drawings			9000
      						28/3	Bank	c		15600
      						28/3	Bal c/d			14400	73420
      			7300	121000	127300				1120	121000	127300
      	bal b/d			14400	73,420

3.  
   1. Explain five features of oligopoly. (10 marks)
      1. Firms are interdependence in decision making/ firms keenly observe each other’s action s/ decisions hence acting in any way triggers (counter) reactions (from other firms)
      2. Firms deals with products that are homogeneous / similar / the products are close substitutes (of each other) but are only differentiated in terms of aspects like colour/packaging/shapes/prices/branding
      3. Firms may engage in non-price competition / the firms under oligopoly may avoid price wars hence only compete via other means like (aggressive) advertise/after sales service/market segmentation / fixing products
      4. Unpredictability / uncertainty of behavior since firms( under oligopoly) keep reacting to market changes differently (depending on actions taken by other firms within the market/firms may be taken by surprise
      5. The market is made up of a few (large) firms since firms (operating under oligopoly) tend to have a large capital outlay / make (extensive) use of modern technology (in their production activities) / control substantial share of the market
      6. There are limiting factors to entry such as the large capital investment required to be (to be a player in the market) / the level of technology involved (make keep off entrance in to the market) / intimidation / economies of scale / collusion / cartel / accept examples of limiting factors as mention
      7. Firms may engage in price wars / price rivalry / cutthroat competition which may lead to survival / collapse of (some) firms.
      8. It may lead price rigidity / kinked demand - occasion by fear other firms reaction / if a firm tries to sell a price above the kinked no other firm may follow it but if below all other firms may follow suit.
      9. There may be price leadership – where the dominant firm dictates the market price / rates in the market.
   2. Difference between partnerships and cooperative societies
      

      Partnerships	Cooperative societies
      i)Formed by a minimum of 2 partners	Formed by a minimum of 10  partners
      ii)The maximum number of partners is 20 but can be 50 for professional partnerships	The is no set maximum for the number of members to form the society
      iii)Some partners have unlimited liabilities	All members have limited liabilities
      iv)The day-to-day management of the partnership is left to the active partners assisted by employed professionals	The management of the society is an elected committee of 9 members who are assisted by employed professionals
      v)It can be dissolved due to retirement or exit of a general partner	The retirement or exit of a member cannot lead to the dissolution of the society
      vi)Formed through drafting of a partnership deed	Formed through drafting of by-laws that are submitted to the commissioner of cooperatives for consideration
      vii) they are partners	Members are cooperative members

4.  
   1. Reasons for continued existence of small firms in an economy.
      1. Need for personalized services such as hair cutting makes them to thrive.
      2. Flexibility. Small scale firms can be changed when need arises.
      3. Less capital requirement. They require relatively less capital to start and operate unlike large firms.
      4. Ease management. Small firms are easy to manage and control compared to large firms.
      5. To keep away from rigorous legal process associated with starting of large firms.
         ( any 5 point x2 = 10mks)
   2. Channels for distributing exported tea from Kenya to France. (10marks)
      1. Local producer → foreign Agent → Wholesaler → Retailer →  foreign consumer
      2. Local producer → foreign Wholesaler → foreign Retailer → foreign consumer
      3. Local producer → foreign Manufacturer’s representative → foreign wholesaler → foreign Retailer→ foreign consumer
      4. Local producer → foreign Wholesaler → foreign consumer
      5. Local producer → foreign retailer → Foreign consumer
      6. Local producer → Foreign consumer
         ( any 5 point x2 = 10mks)
5.  
   1. Explain five reasons for government involvement in business.
      1. To attract foreign investment by initiating major business projects
      2. To prevent foreign dominance of the economy by investing in areas where the locals are not able to.
      3. To provide goods and services which are too sensitive to be left in the hands of the private sector e g fire arms.
      4. To provide essential goods and services in areas where private individuals and organizations are unwilling to venture due low profits or/and high risks.
      5. To provide essential goods and services which private organizations are unable to provide due high initial capital required.
      6. To prevent exploitation of the public by private business persons especially in provision of goods and services like sugar, transport and communication
   2. Documents sent by the buyer to the seller in home trade.
      1. Letter of inquiry. A request by a prospective buyer for information about the goods dealt in by a seller.
      2. Order. List of goods a potential seller is required to supply the buyer with.
      3. Goods received note. Sent to inform the seller that goods sent have been received.
      4. Goods returned note. Sent to the seller to inform him/her that goods have been returned
      5. I owe you. Is a written acknowledgement of debt.
6.  
   1. Unethical practices in Product promotion
      1. Give false information about a product; misleading consumers/making wrong claims about their products
      2. Not disclosing side effects of a product; so as to increase sales
      3. Overpricing of goods;
      4. Cheating on ingredients of goods;
      5. Advertising with negative effects on the environment;by littering the /making excessive noise/using environmentally unfriendly promotional materials.
      6. Promoting genuine products but sell counterfeits;
      7. Potraying rival business negatively; in attempt to capture the market/gain undue advantage
      8. Exploiting vulnerable groups; such as children since they lack knowledge/experience to understand the purpose of appeals
   2.  
      1.                                                     OMASAJA TRADERS
                                               TRADING, PROFIT & LOSS ACCOUNT
         Dr.                   FOR THE PERIOD ENDED 31^ST MARCH 2019                      Cr.
         

         Cost of sales:                              Ksh. Opening stock                          200,000 Add purchases  2,400,000 Add carriage in. 28,000           2,428,000 C.O.G.A.S                               2,628,000 Less closing stock                    100,000                                                 2,528,000 Gross profit c/f                        1,432,000                                                 3,860,000 General expenses                    120,000 Rent                                           46,000 Telephone                                  20,000 Salaries                                     360,000 Net profit                                   922,000                                                1,468,000

         Ksh. Sales                                   4,000,000 Less returns inwards              40,000                                              3,960,000                                               3,860,000 Gross profit b/f                     1,432,000 Discounts received                36,000                                                  1,468,000

      2.                                                OMASAJA TRADERS
                                                          BALANCE SHEET
                                                     AS AT 31^ST MARCH 2019
         

         Ksh.     Fixed Assets: Land & Buildings                      2,000,000 Motor vehicles                             400,000                                                  2,400,000 Current Assets: Stock                      100,000 Debtors                   300,000 Bank                       120,000 Cash                       12,000          532,000                                                   2,932,000

         Ksh. Capital                               1,850,000 Add Net profit                       922,000 Less Drawings                       80,000                                           2,692,000 Short term Liabilities: Creditors                               240,000                                                                                       2,932,000