Business Studies Paper 2 Questions and Answers - Kigumo Mocks 2021 Exams

Instructions to candidates:

• Write your name, admission number and class in the space provided above.
• Write your index number, date of the exam, signature and teacher in the space provided above
• This paper contains six questions with equal marks.
• Answer only five questions in this paper in the space provided after question six.
• Answer should be written in English.

For examiners use only

QUESTIONS

1.                    
   1. Outline five ways through which the government of Kenya encourages entrepreneurship in the country. (10 Marks)
   2. Explain five merits of direct taxes. (10 Marks)
2.                  
   1. Outline five circumstances under which a public limited company may be dissolved. (10 Marks)
   2. Explain five methods in which the central bank of Kenya may use to reduce money circulation in the economy. (10 Marks)
3.                
   1. Explain five factors to consider when choosing the means of communication to use. (10 Marks)
   2. Post the following transactions to the relevant ledger accounts and balance them off. (10 Marks)
      1/1/2019 - Started a business with Sh 120,000 in cash.
      6/1/2019- Bought goods worth Sh 10,000 from Shah Traders on credit.
      8/1/2019 – Deposited Sh 100,000 into the business account.
      10/1/2019 – Bought furniture worth Sh 80,000 paying by cheque.
      16/1/2019 – Paid water bill Sh 10,000 in cash.
      24/1/2019 – Took cash Sh 5,000 to pay school fee for his son.
4.                    
   1. Explain five external factors that would contribute to the success of a business enterprise (10 Marks)
   2. Explain five circumstances under which a producer may use a direct channel in distributing his goods. (10 Marks)
5.                  
   1. Explain five factors to consider before buying office equipment. (10 Marks)
   2. Explain five disadvantages that a developing country may suffer by liberalizing foreign trade. (10 Marks)
6.                    
   1. Explain five benefits of high population to a country. (10 Marks)
   2. The following information relates to Kilima traders for the year 2018
      Turnover sh 400,000
      Mark-up 25%
      Rate of stock turnover 5 times
      Opening stock sh 60,000
      Expenses sh 36,000
      From the information given above, calculate
      1. Margin (2Marks)
      2. Gross profit (2Marks)
      3. Cost of goods sold (2Marks)
      4. Net profit (2Marks)
      5. Closing stock (2Marks)

MARKING SCHEME

1.                    
   1. Ways in which the government of Kenya encourage entrepreneurship in the country.
      • Favourable policies/low taxation/increase in subsidies encourage growth/expansion of businesses
      • Provision of infrastructure facilitate movement of goods/services/F.O.P/access to market
      • Provision of appropriate education to equip youth with necessary skills for running business
      • Political stability by creating conducive environment for doing business
      • Availing credit/loans/finances/capital to start/run business
      • Provision of adequate security for smooth running of business
      • Provision markets for goods/services produced
   2. Merits of direct taxes.
      • Economical /cheap to collect since it provide higher revenue at lower cost/it is collected from the source/involve less personnel.
      • Certainty as the government knows the amount of tax/ manner/time of payment /budget/ plan for it/it is difficult to evade.
      • Convenient as it is deducted at source making it easy/ convenient to collect
      • Simple to understand/calculate as every wage level falls into predictable tax bracket
      • Easy to administer as the collection points are few as opposed to collecting tax directly from individuals/ less documentation.
      • Flexibility as it can easily be changed to suit government needs/economic situations.
      • Price stability as it affects the disposable income and hence influencing the aggregate demand
      • Equity/progressive in nature hence able to redistribute wealth by taxing high income earners as opposed to those earning less.
      • It is elastic as it can expand with increased income/population/with change in income/population/contracts with decreased income/population.
2.                        
   1. Circumstances under which a public limited company may be dissolved.
      • A resolution by shareholders to dissolve the company /decision by shareholders-to dissolve the company during the annual general meeting.
      • Change in the country’s law rendering the activities of the company illegal/unlawful/bars certain activities that a company may have been involved in.
      • Inability to repay finance/debts/creditors may go to court/if the debt are not paid.
      • Acquisition /absorption/take over/amalgamation/mergers hence redirection of its activities/loss of identity/change of status.
      • Realisation of sustained /continuous losses to the extent of not being able to meet it recurrent expenditure.
      • Court order on infringing law /granted to a complaint raised by stakeholder/acting ultra-vire.
      • Completion/fulfilment of task/activity/objectives which it was formed hence making it continued existence unnecessary /unreliable.
      • If the company does not commence business a year since its incorporation.
   2. Method through which central bank of Kenya may take to reduce the amount in circulation.
      • Increase compulsory/special deposit the reduces the amount of money available for lending in commercial banks
      • Raising bank/ lending interest making bank loans /credit unattractive /expensive to borrowers
      • Selling securities in open market operations (OMO) thereby reducing the amount of money with members of public
      • Raising the cash ratio which leaves commercial bank with less to lend
      • Selective credit control by only giving loans to only selected sector of the economy thus limiting the sectors/how much it’s to lend
      • Moral persuasion to commercial banks to reduce amount they lend
      • Directives to commercial banks to reduce credit creation
      • Reducing government expenditure by suspending some projects
3.                      
   1. Factors to consider when selecting a mean of communication to use.
      • Confidentiality of/ secrecy of the message it should safeguard the content of the message from being accessed by unauthorised hands
      • Precision /accuracy of the means should be able to deliver the message in its original form/without distortion
      • Need for feedback should allow for response/action where necessary
      • Urgency/speed of the message/means should be fast enough to ensure timely delivery of the message
      • Cost/affordability of the means the sender must be able to meet the cost of the means so chosen
      • Nature of the message an appropriate means should be chosen
      • Need for future reference/record must provide evidence if future reference will be required
      • Capacity of the means it should allow the required volume of information to be passed/at an agreeable speed
      • Availability of the means it should be readily available
      • Intended/desired impression it should be able to create the desired effect /impact/ image
      • Government policy and hence must be adhered to/ has no option
      • Business policy if the has a prescribed way of communicating the it has to followed
      • Type/nature of audience /recipients should be suitable/ appropriate for the need of the audience
      • Size of the audience /number of the recipients the means chosen should be capable of reaching all the recipients/audiences
      • Security of audience/number of recipients the means should guard against loss/theft of information
      • Safety of message the means should guard against damage of information
      • Reliability/ certainty of the means the means should be able to deliver the information to the receiver as intended
   2.                                   
      

      Dr	Capital a/c				Cr
      Date	Details	Amount	Date	Details	Amount
      31/1/2019	Bal c/d	120,000  √	1/1/2019	Cash	120,000 √

      Dr	Cash a/c				Cr
      Date	Details	Amount	Date	Details	Amount
      1/1/2019	Capital	120,000 √	8/1/2019	Bank	10,000 √
      			16/1/2019	Water bill	10,000 √
      			24/1/2019	Drawings	5,000 √
      			31/1/2019	Bal c/d	5,000 √
      		120,000			120,000

      Dr	Purchases a/c				Cr
      Date	Details	Amount	Date	Details	Amount
      6/1/2019	Shah traders	10,000 √	31/1/2019	Bal c/d	10,000 √

      Dr	Shah traders				Cr
      Date	Details	Amount	Date	Details	Amount
      31/1/2019	Bal c/d	10,000 √	6/1/2019	Purchases	10,000 √

      Dr	Bank a/c				Cr
      Date	Details	Amount	Date	Details	Amount
      8/1/2019	Cash	100,000 √	10/1/2019	Furniture	80,000 √
      			31/1/2019	Bal c/d	20,000 √
      		100,000			100,000

      Dr	Furniture a/c				Cr
      Date	Details	Amount	Date	Details	Amount
      10/1/2019	Bank	80,000  √	31/1/2019	Bal c/d	80,000 √

      Dr	Water bill a/c				Cr
      Date	Details	Amount	Date	Details	Amount
      16/1/2019	Cash	10,000 √	31/1/2019	Bal c/d	10,000 √

      Dr	Drawings a/c				Cr
      Date	Details	Amount	Date	Details	Amount
      24/1/2019	Cash	5,000 √	31/1/2019	Bal c/d	5,000 √

4.                                      
   1. External factors that influence success of a business.
      • High population- provide customer for goods/services
      • Stable good economic environment- which increases the purchasing abilities/power of the consumer
      • Favourable political factors/political stability- create a conducive environment for smooth running of business
      • Positive socio-cultural factors which influence consumption/production of goods
      • Favourable government policies/legal factors/laws encourage expansion /growth of business
      • Reliable suppliers ensure timely production of quality goods/services
      • Loyal customers guarantees market for goods/services
      • Availability of intermediaries/ middlemen ensure goods reach the market
      • Adequate/ appropriate /good advanced technology lead to high quality/quantity goods/service
      • Fair competition which business can cope with/survival
   2. Circumstance under which a producer may use direct channel to distribute his goods.
      • If the producer deal with perishable goods which are likely to get bad easily if the follow long channel.
      • If the market is localised/concentration in one area hence not economical to involve intermediaries.
      • If the producer has adequate finance/fund to have their own distribution outlet/facilities.
      • When the volume of goods produced is small and the producer can afford to distribute them to consumers directly.
      • Where goods are technical in nature and hence require after sales services/spare parts/installation.
      • When the competition in the market is high hence wants to keep a direct link with the customer.
      • Where goods are produced on customers specification hence unnecessary to involve intermediaries.
      • Where the size of the market is small/has a few consumers hence no need to engage intermediaries.
      • Where there are no intermediaries has no other option/alternative
      • Where it is a government policy and hence has to adhere/ follow it
5.                              
   1. Factors to consider before buying office equipment.
      • Workflow should ensure continuous flow of documents
      • Minimal/ease movement to save time/reduce distraction
      • Supervision of staff should ensure easy/ quick access of staff
      • Working space to allow ease movement of staff
      • Proximity to equipment to avoid unnecessary movement/wastage of time
      • Office appearance should be attractive to boost the morale of workers
      • Communication should allow the flow of information to help in decision making
      • Legal requirement/compliance should adhere to law of the land
   2. Disadvantages that developing country may by liberalising trade
      • May lead to dumping of inferior/substandard/cheap products into the country.
      • May cause overexploitation of natural resources leading to their depletion/degradation /shortage /exhaustion.
      • May lead to loss of job/ unemployment due to closure of firms/due to unfair competition.
      • Contribute to worsening B.O.P as developing countries have fewer/lowly valued exports/due to expensive imports.
      • Cultural values/beliefs/morals may be eroded due to copying/aping negative/bad foreign habits/lifestyles /culture.
      • Entry of harmful goods/services e.g. beauty creams/drugs may find their way into the country which may affect people health.
      • Slow economic development/the country may stagnate due to influx of foreign goods/services/ declining demand for local goods/services.
      • Brain drain/loss of skilled personnel to developed countries that provide better pay/social amenities/ working condition.
      • Entry of contra band goods/services which may negatively affect security /health/ economy/ stability.
      • May encourage over dependence/over reliance on imports/foreign countries which may lead to political blackmail/vulnerability
      • May lead to imported inflation due to importation of overpriced goods/services.
6.                              
   1. Benefits of a large population to a country.
      • Increased labour supply that increase productivity/ production
      • Increase market for goods/services
      • Diverse talents from the large population increase production
      • Technological advancement which lead to high quality/quantity of goods/ services
      • Proper/efficient use of local resources without wastage due to optimal use
      • Increased government revenue due to increased trading activities/taxes
      • Increased investments due to increased demand of goods/services
   2.                                        
      1. Margin = (25√)/(25+100 √) x 100% = 20% √√
      2. Gross profit = 20% √ x 400,000 √= sh 80,000 √ √
      3. COGS = Sales- Gross profit
         = 400,000√ - 80,000√ = sh 320,000 √ √
      4. Net profit = Gross profit – Expenses
         = 80,000 √- 36,000 √ = sh 44,000 √ √
      5. (Opening stock+closing stock)/2=320,000/5=64,000
         Opening stock = 64,000x2√ - 60,000 √ = sh 68,000 √ √