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

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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. 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
    1. Explain five importance of insurance to an economy. (10marks)
    2. On 1st 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)
    1. Explain five features of oligopoly. (10 marks)
    2. Explain the difference between partnerships and cooperative societies forms of business units. (10marks)
    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)
    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)
    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 31st March 2019.
                                                      OMASAJA TRADERS
                                                       TRIAL BALANCE
                                                   AS AT 31ST 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 31st March 2019 was valued at ksh. 100,000
      1. A Trading profit and loss (7marks)
      2. A Balance sheet (5marks)


    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.
    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 
       balance   b/d   Sh.  Sh.
      Sh. 2019
       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            
    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
    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)
    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.
    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
      1.                                                     OMASAJA TRADERS
                                              TRADING, PROFIT & LOSS ACCOUNT
        Dr.                   FOR THE PERIOD ENDED 31ST 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
        Gross profit c/f                        1,432,000
        General expenses                    120,000
        Rent                                           46,000
        Telephone                                  20,000
        Salaries                                     360,000
        Net profit                                   922,000

        Sales                                   4,000,000
        Less returns inwards              40,000


        Gross profit b/f                     1,432,000
        Discounts received                36,000



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

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

        Capital                               1,850,000
        Add Net profit                       922,000
        Less Drawings                       80,000
        Short term Liabilities:
        Creditors                               240,000



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