Business Studies Paper 2 Questions and Answers - KCSE 2021 Westlands Mock Exams

Questions

Instructions to candidates.

• This paper consists of 6 questions. Answer any five questions.
•  All questions should be answered in English.

1.          
   1. Explain five reasons for the popularity of using internet in product promotion. (10mks)
   2. Explain five services that the central bank of Kenya may offer to commercial banks. (10mks)
2.  
   1. Explain five trends in business ownership. (10mks)
   2. On 1st April 2020, Kifaru traders had the following balances:
      Bank 15,000 (CR)
      Cash 25,000 (DR)
      April: 3rd Paid wages in cash Ksh. 15,000
      5th Bought goods worth Ksh. 750 in cash.
      6th Received cheques from the following debtors after allowing a
      2% discount in each Case, Roiki Sh. 980, Kombo Sh. 1960.
      8th Chebe paid Kifaru by a cheque of Sh. 1,000.
      11th Bought machinery by cheque for Sh. 5,000.
      13th Cash sales paid directly to the bank Sh. 4000.
      15th Withdrew Sh. 1,000 for private use.
      20th Cash sales Sh. 20,000.
      21st Banked cash amounting to Sh. 1,000.
      24th A cheque received from Chebe 0n 8th April was dishonoured.
      27th Received Sh. 3,000 by cheque from Kiko, a debtor.
      30th Banked all the available cash except Sh. 1,000.
      Prepare Kifaru Traders three column cash book for the month of April, 2020. (10mks)
3.   
   1. Explain five monetary policies that the Kenyan government may use to control inflation. (10mks)
   2. Explain five factors to consider when choosing an office layout. (10mks)
4.  
   1. Explain five factors that may limit entrepreneurial development in a country. (10mks)
   2. Explain five negative effects of unemployment. (10mks)
5.  
   1. Describe four chains of distribution that a Kenyan producer would use to sell his/her goods to South Africa. (8mks)
   2. The following Trial balance was prepared from the books of Nerea traders as at 31st December 2015.
      
      Nerea Traders
      Trial Balance.
      As at 31st December 2015.
      

      Particulars	Dr. Sh	Cr. Sh
      Sales Purchases Returns Carriage Inwards Carriage Outwards Stock (January 2015) Rent. Creditors Debtors Interest on loan General expenses Capital Fixed assets	600,000 80,000 40,000 3,000 100,000 60,000 120,000 18,000 7,000 240,000 1,268,000	900,000 20,000 170,000 178.000 1,268,000

      Additional Information.
      Stock as at 31st December was Ksh. 100,000
      Required:
      1. Prepare a Trading profit and loss account for the period ended 31st December 2015.
      2. Calculate:
         1. Return on capital employed.
         2. Current ratio.
         3. Rate of stock turnover. (12mks)
6.       
   1. Explain five circumstances under which a country may restrict international trade. (10mks)
   2. Explain five types of direct taxes. (10mks)

Marking Scheme

1.        
   1. Reasons for the popularity of using internet in product promotion.
      • Cost effective since it is cheaper to the trader.
      • Wide coverage, hence can reach customers in their various locations.
      • Demonstration is possible for technical products through use of animations and videos.
      • Feedback is immediate on you-tube, instagram, facebook.
      • Non discriminative i.e small and large enterprises can use without discrimination.
      • The message can last long hence the customer can refer if need be.
      • Readily available to many businesses since it can be accessed everywhere by those with mobile phones.
      • Target group – it is appealing to the target group.
      • Speed – it can reach the customers within the desired time frame.
   2. Services of Central Bank to Commercial Banks.
      • Providing information to commercial banks on financial /banking /economic matters
      • It is a banker to commercial banks
      • It supervises/monitors the operations of commercial banks
      • To provide credit /loans to commercial banks as a lender of last resort
      • Providing clearing house facility to commercial banks.
      • Buying and selling of foreign exchange from and to commercial banks.
      • Mediation /arbitration on disputes that may occur between commercial banks
      • To register /licensing commercial banks
      • Replacing worn out notes and coins to commercial banks.
      • Repatriation of excess foreign currency/ profits on behalf of commercial banks.
      • To appoint statutory manager during financial crisis/receivership
2.    
   1. Trends in business ownership
      1. Globalization
         • Process through which business units in different economic systems work together for a common good e.g by sharing information on how they run their activities.
      2. Franchising: a business unit will grant production rights to another unit to produce similar goods the name of the parent company.
      3. Privatization: being the transfer of a business ownership to private ownership.
      4. Amalgamation / merges/formation of trust – Firms combine with other firms to become the business unit completely or partly.
      5. Cartels: Where businesses agree to sell their products under a common selling organ to operate as a monopoly eg. Organization of Petroleum Exporting Countries (OPEC)
      6. Formation of Holding Companies: Companies holding more than 50% shares of another company known as a subsidiary company.
      7. Absorption / Take overs: Where a company buys all the shares of another company making the acquired one to cease to exist.
   2.          
      

      Kifaru Traders Three Column Cash Book for the month of April 2020√
      Dr						Cr
      Date	Details	F	Discount Allowed	Cash	Bank	Date	Details	F	Discount Received	Cash	Bank
      			Sh	Sh	Sh				Sh	Sh	Sh
      2020 April 1 . April 6 . April 8 April 13 April 20 April 21 April 27 April 30 .	. Bal b/d . Rioki Kombo Chebe Sales Sales Cash Kiko Cash .	. . . . . . . . C1 . C2 . .	. . . 20 40 . . . . . . . 60	. 25 000 . . . . . 20 000 1 000 . . . 46 000	. . . 980 1 960 1 000 4 000 . . 3 000 27 250 . 38 190	2020 April 1 April 3 April 5 April 11 April 15 April 21 April 24 April 30 . April 30 . .	. Bal b/d Wages Purchases Machinery Drawings Bank Chebe Bank . Bal c/d . .	. . . . . . C1 . C2 . . . .		. . 15 000 750 . 1 000 1 000 . 27 250 . 1 000 . 46 000	. 15 000 . . 5 000 . . 1 000 . . 17 190 . 38 190
      May 1	Bal b/d			1 000	17 190

      40 x ¼ = 10 mks
3.     
   1. Monetary Policies that the Kenyan Government may use to control inflation
      • Open market operations (OMO) whereby the government sells Treasury bills to the public
      • Imposing high interest rates on lending to commercial banks / bank rate
      • Raising liquidity ratio and cash ratio of commercial banks.
      • Use of selective controls where commercial banks are required to lend only to certain sectors of the economy.
      • Increasing commercial banks special deposits with the central bank.
      • Increasing margin requirements
      • Requests by Central Bank to commercial (moral suasion). The central bank may appeal to commercial banks to willingly exercise control on their lending with a view of controlling inflation.
      • Directives to commercial banks: The central bank may direct the commercial banks on interest rates to charge on lending. High interest rate would discourage many borrowers.
   2. Factors considered in office layout:
      • Work flow – the layout should enhance smooth flow within the office.
      • Staff mobility – one should consider a layout that allows easy movement of workers into and out of the office
      • Supervision – an open office layout provides easy way to supervise compared to partitioned.
      • Working Space – Depending on the nature of work, a good layout should provide enough working space.
      • Accessibility to equipment – where most of the operations require use of machines and equipment there should be enough space to access them.
      • Communication – Layout should enhance communication between employees
      • Legal requirement – should observe government requirement to avoid conflicts with the law.
      • Confidentiality – where private consultations are required enclosed layout is most convenient
      • Office appearance – to enhance office set up and decorations to reflect status of the business
      • Cost – to minimize on expenses of construction to consider the cheapest option.
      • Staff to be accommodated – many staff can be accommodated in an open office layout compared to partitioned office layout.
4.      
   1. Factors that limit entrepreneurial development in a country:
      • Lack of support from the government eg lack of tax incentives or subsidies and failure to provide training facilities for businessmen.
      • Insecurity which may make businessmen fear to invest for loses that may result.
      • Poor economic resources endowment in the country which limits the possible areas of investments.
      • High levels of corruption which makes products made in the country expensive thereby making them uncompetitive in the world market.
      • Low purchasing power of the people in the country which limits the size of the market thus discourages would – be entrepreneurs.
      • High cost of energy in the country which makes products in the country very expensive thereby making them uncompetitive in the world market.
      • Low income levels as such many people lack the capital necessary to enable them to venture into business.
      • Limited or no business acumen among the population which hinders people from venturing into business.
      • High levels of taxation making products in the country very expensive thereby making them uncompetitive in the world market.
      • Political instability which poses a risk to investments hence few people will be willing to establish businesses for fear of losing their investments.
      • Lack of role models in the community as a result, young people have no one to emulate.
      • Poor infrastructure in the country eg. poor road network, poorly maintained roads, poor rail network and poor means of communication making it difficult to operate smoothly.
      • High cost of capital due to the high rates of interest charged by banks making many potential businessmen to shy away from borrowing money from banks.
   2. Negative effects of unemployment:
      • Loss of income to individuals.
      • Loss of revenue to the governments in form of income taxes since this is the tax paid by those in employment in form of PAYE.
      • Increased in crime rate – when people have no other incomes, they may resort to crime to earn a living.
      • Low consumption index (low demand) form goods and services since people’s buying power is determined by their incomes.
      • Low standards of living due to reduced/ low income
      • Low rate of wealth creation /low investment since there is no income there will be low savings thus low investment.
      • High dependency ratio – if there are few working people and many unemployed.
      • Stiff pressure on resources such as land.
      • Increase in social evils such as prostitution as people look for income to sustain them.
5.  
   1. Chains of distribution for exports
      
      
      • N.B. Local producer can be Kenyan producer and foreign consumer can be South African consumer
        → Arrows direction must be shown.
        Any 4 @ 2 = 8mks
   2.      
      1.    
         

         Nerea Traders Trading Profit & Loss a/c for the period ended 31st December 2015.√
         	Sh	Sh		Sh	Sh
         Opening Stock Add Purchases Add carriage in Less returns out Net purchase Cost of goods available Less C/Stock Cost of sales G.P c/d Expenses Carriage out 200 000 Rent Interest on loan General expenses Net profit	. 600 000 40 000 20 000 . . . . . . . . . . . .	100 000 . . . 620 000 720 000 100 000 620 000 200 000 820 000 . . 60 000 18 000 7 000  112 000	Sales Less returns Net sales . . . . . . . G.P b/d . . . . .	900 000 80 000 . . . . . . . . 200 000 . . . .  .	. . 820 000 . . . . . . 820 000 . . . . .  .
         200 000			200 000

         18 x 1/3 = 6 mks
      2. Return on Capital employed
         1. =         N.Profit             x 100
                 Capital employed
            
            C. employed = F.A + W.C
                                 = 240000 + 50000√ = 290000√
            W. Capital = CA – CL
            = 120000 + 100000 – 170000
            = 50000√
            ROCE =      112000√    x 100 = 38.62%√
                              290000
            
            
         2. Current ratio = C.A/C.L
            = 220000√: 170000√
            = 1.29: 1√
            
            
         3. ROSTO = Cogs/A.S
            A.S    O.S + C.S = 100000 + 100000 √ = 100000
                            2                           2
            =      620,000√      
                   100000
            = 6.2 times√
            12 x ½ = 6 mks 
6.        
   1. Circumstances under which a country may restrict international trade.
      • Where there is need to protect local infant industries which may not withstand competition from established foreign industries.
      • Where there is need to control dumping to prevent adverse effects on the economy.
      • Where balance of payment continues to deteriorate to reduce payment on imports.
      • Where goods are harmful for consumption in order to protect the health of consumers.
      • Where goods involved are a security risk to the country to ensure peace and stability.
      • Where it is necessary to counter the actions of trading partners as a retaliatory measure.
      • Where there is need to avoid imported inflation rising from overpriced imports.
      • Where it is politically expedient to do so in order to promote good governance in another country.
      • Where there is need to safeguard local employment which may be lost through entry of cheap imports.
      • Where there is need to avoid overdependence on imports which may lead to political black mail.
      • Where there is need to avoid overexploitation of resources which may cause their depletion.
      • Where there is need to build reserves of strategic commodities to avoid shortage in meeting local demands.
        
        N.B. Circumstance must come out clearly.
   2. Types of Direct Taxes
      • Personal Income Tax – Tax that is imposed on income earned by individuals eg. PAYE
      • Corporation Tax – levied on profits of companies
      • Stamp duty – tax paid in areas such as conveyance of land or securities from one person to another.
      • Estate / Death duty – imposed on property transferred after the owner’s death.
      • Wealth tax – levied on personal wealth that goes beyo0nd a certain limit eg. value of land, houses
      • Capital gains tax – imposed on the gains realized on sale of real assets eg. land
      • Capital transfer tax – imposed on transferring ownership of capital.