Business Studies Paper 2 Questions and Answers - Eagle II Joint 2021 Mock Exams

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Instructions to candidates

  • This paper consists of six questions
  • Answer any Five questions
  • All questions carry equals marks.
    1. Outline five circumstance under which a producer may use a direct channel in distributing her goods (10Mks)
    2. Explain five benefits that a customer may enjoy for shopping in a hypermarket (10Mks)
    1. Highlight five factors which an entrepreneur should consider when evaluating a viable business opportunity (10Mks)
    2. On 1 st April 2020:Rolan Co. Ltd. had a balance of shs. 100,000 in hand and shs. 250,000 at bank. During the month, the following transaction took place;
      April . 1 Cash sales Shs. 25,000, cash purchase Shs. 17,500
      April. 3  Paid the following accounts by cheque.
                    Kiprob Shs. 15,000 less 5% cash discount
                    Kirui Shs. 20,000 less 5% cash discount
                    Bett shs. 21,000 less 3 % cash discount
      April. 5   Received the following amounts from debtors,
                    Sang shs. 8,000, Jane shs. 4,500 and Korir by cheque shs. 12,000 after allowing him shs. 300                 cash discount.
      April. 14 Paid office cash to the bank shs. 2000
      April. 17 Cash sales 8500
      April 20 Sold goods on credit worth shs 10000 to Kimani
      April. 22 Korir paid his account of shs. 5000 by cheque less 10% cash discount
      April. 28 Paid salary cash shs. 8000
      April 29 A cheque received from Korir on Nov. 5 th was dishonoured.
      April. 30 Deposited all the money in to the bank except shs. 5,000

      Prepare Rolan Co. Ltd. three column cash book. (10Mks)
    1. Explain five differences between public corporation and a private limited company.(10Mks)
    2. Describe five factors which may encourage localization of firms. (10Mks)
    1. Explain five benefits of adopting the use of an open office layout. (10Mks)
    2. With the aid of a well labeled diagram, explain the effects on the equilibrium of an increase in the supply of carrots while the demand remains constant. (10Mks)
    1. Explain five negative effects of rapid population growth. (10Mks)
    2. Explain five factors that determine the premiums to be charged in life assurance policy insurance. (10Mks)
    1. Explain four external factors that would contribute to success of a business enterprise.(8Mks)
    2. The following trial balance was extracted from the books of Bondeni Traders on 31st Dec 2020.
                                                        Bondeni Traders
                                                           Trial Balance
                                                     As at 31st /Dec/2020

       Debtors & Creditors
       Stock 1/1/2020
       Furniture & Fittings
       Cash in hand








      Additional information.
      1. Stock as at 31 st Dec, 2020 was sh. 28,000
        Required :
        1. Prepare a trading, profit and loss account for the year ended 31st Dec, 2020.
        2. Balance sheet as at that date.


    1. Five circumstances under which a producer may use a direct channel in distributing her goods
      • If the producer deals with perishable goods which are likely to get bad easily if they follow a long channel
      • If market is localized /concentrated (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 / require demonstrate
      • When the competition in the market is high, hence want to keep a direct link with the consumers/ to competele favourably cope up
      • Where goods are produced on customer’s specification/ tailed to meet customers specification /hence unnecessary to involve intermediaries
      • Where the size of market is small /has a few consumers hence no need to engage intermediaries
      • Where there are no intermediaries has no other option/alternative to use
      • Where it is a government policy and hence has to adhere/follow it (10 marks
    2. Benefits that a customer may accrue for shopping in a hypermarket (10 marks)
      • Can buy a variety of goods under one roof hence reduce movement from one building to another /hence satisfy different human needs/save on time/incease customers choice
      • Easily accessible as they are well served by access roads /saves time
      • Parking space is available which save on the cost if the consumer would have to shop in other retail shop
      • Availability of auxiliary service e.g. banks and therefore able to access such services without having to move from one building to another
      • Operate for long hours and therefore convenient to shop in late in the night /after work
      • Accept credit/debit card which guarantee safety/convenient of customer; finances/easily portable
      • Security is guaranteed from theft/attacks
      • Convenient to shop in/they are located away from the city/CBD/town Centre’s/ since there is conjection
      • Offer after sales services. saves on extra cost of hiring for such services
    1. Highlight five factors which an Entrepreneur should consider when evaluating a viable Business opportunity (10mks)
      • Profitability of the business-The amount of profit to be made and extent to which it will satisfy the needs of business owner is important.
      • The market (Niche)-This is to know the people’s interest, preferences and ability to buy goods and services. One must evaluate the demand for goods and services.
      • The requisite knowledge and expertise. The ability to manage and operate the business by considering skills, talents, education, training and experience demanded by the business.
      • Acceptance of the business by the community-The entrepreneur should consider how the local community in which the business will be located would react to the business i.e. Selling pork among the Muslim.
      • Potential for future growth- The entrepreneur should consider the opportunities for expansion that the business has i.e. possibility of opening new branches regionally or abroad.
      • Legal framework requirements/gov’t policy – should be in line with gov’t regulate
      • Break-even period-The entrepreneur should consider the period it will take the business before it can be self-supporting i.e. to generate enough revenue to cover expenses (costs) without relying on the supply of goods to consumers
      • The level of competition in the market should be low/fair/favorable
       Date  Details  F   Discount allowed  Cash   Bank  Date  Details  F  Discount received  Cash  Bank
       2020            2020          
       April  1 Balance  b/d    100,000   250,000   April 1 Purchases       17,500   
       1  Sales      25,000     3   Kiprop          750     14,250 
       5  Sang      8,000    3  Kirui     1,000    19,000
       5  Jane       4,500    3  Bett       630    20,370
       5  Korir       300    12,000  14  Bank  C    2,000  
          14  Cash   c       2,000            
          17  Sales      8,500     29  Salary      8,000  
          22  Korir       500      4,500   30  Korir   Dishonoured cheque    12,000
          28  Cash   c       118,500   30  Bank     118,500   
          30  Bal  c/d          Bal c/d      5,000  320,880
              800 146,000  386,500         238  32,738  21,600
          30  Bal  b/d      5,000  320,880          146,000   386,500
      50 x 1 = 10 marks
    1. Difference between public co-operation and private limited company.
       Public Co-operation  Private Limited Company 
       Owned by the state/government  Owned by share holders 
       Formed under the Act of parliament  Formed under companies Act
       Financed bynthe government ( initial capital)  Contributions from share holder financing 
       Profits enjoyed by the government   Profits enjoyed by share holders
       Losses suffered by the government  Loses suffered by the shareholders 
       Managed by directors appointed by the president  Managed by directors appointed by shareholders 
       Main objective to offer essential services  Main objective to maximize profits
      1. Differences must match
      2. No splitting of marks
    2. Describe five factors, which may encourage localization of firms (10mks)
      • A well-developed infrastructure in an area e.g. good roads and communication network may attract firms
      • Availability of large population, which may provide the market/labour
      • Interdependence among firms creating backward and forward linkages. This tends to provide markets/inputs to other firms and hence lower the firm’s costs.
      • Government policy requiring firms to be located in a certain area/centralization policy may confine firms in one location
      • Availability of a pool of (trained) labour, which meets the firms, labour requirements.
      • Availability of raw materials, which lower the cost of looking for the inputs. These materials may be concentrated in an area.
    1. Explain five benefits of adopting the use of an open office layout. (10mks)
      • Enhance sharing equipment’s/facilities/machines this saves on costs/ of purchasing many equipment’s.
      • Easy supervision/control/management of workers as they can all be seen /are all- visible /in a common room.
      • Cheap to decorate maintain /less costly /not expensive since less floor space is used/sharing of equipment/furniture.
      • Easy location /identification of workers as all found in same room.
      • Discourages absconding duties /absenteeism due to close supervision/enhanced supervision by management.
      • Floor space is saved, as no many offices need to be constructed.
      • Easy to consult colleagues, as they are next/in a common room improving working efficiency/ preciseness.
      • Saves on time since there is less staff movements/ minimal movements.
      • Prevents misuse of office equipment/machinery due to the close supervision of workers.
      • Boosts/promote/enhance teamwork among employees through consultations and sharing of office equipment.
    2. With the aid of a well-labelled diagram, explain the effects on the equilibrium of an increase in the supply of carrots while the demand remains constant (10 marks)
      BS EJM PP1Ans4b
      When supply increases more than before, there is a shift to the right from S0S0 to S1S1 . This lowers the price from P0 to P1 and quantity increases from q0 to q1.
    1. Explain five negative effects of rapid population growth. (10mks)
      • High-level of unemployment because the number of people in the labour force may exceed the number of jobs available.
      • High dependency ratio- since many people are unemployed they will be dependent on the few people who are employed.
      • Decrease in per capita income- due to decrease in income and population increasing leading to low standards of living.
      • Reduction in savings investments- this is because a large proportion of an individual income is consumed leaving very little or no savings hence no investment.
      • Strain on social amenities – As results of growing population the government may find it difficult to provide adequate social services e.g. health, education and housing.
      • Uneven/ unequal distribution of income- Majority of the people are very poor and few people are very rich.
      • Environmental degradation. - Over population leads to an environmental degradation e.g. extensive cutting of trees to get building materials or expands their farm land.
      • Increased poverty /poor standards of living circle of poverty because most of incomes generated so into consumption hence low saving and investment.
      • High rates of rural –urban migration to seek for employment/leading to congestion
      • Increase in the rates of inflation. - Avery high population leads to increase in the demand for goods and services, which does not match with supply. Due to high demand for goods/service.
      • residence.
      • Frequency of occurrence of the risks.
      • Extent of previous losses.
      • Period to be covered by the policy.
      • Age of the property in question
    1. External factors that would contribute to the success of a business enterprise
      • High population –provide consumer for goods/services/provide market
      • Stable/good economic environment, which increases the buying
      • Abilities/purchasing power of the consumer
      • Positive socio cultural factors/beliefs/lifestyles which in influence
      • Consumption/buying behavior
      • Favorable political factors/political stability provides/creates a conducive
      • Environment for business activities
      • Favorable Government policies/legal factors/laws encourage expansion/growth of business
      • Reliable suppliers ensure timely production /quality goods/services
      • Loyal Customers guarantee market for goods/services produced by businesses
      • Availability of intermediaries/middlemen Ensures goods/services are
      • Distributed to final consumer.
      • Appropriate /adequate/good/advanced technology lead to high quality/quantity goods/services
      • Fair competition which business can cope with/survive
      • Good Infrastructure which facilitate transport /movement of goods/services /access to market
        (10 mark)
                                                                       Bondeni Traders

                                                            Trading, profit and loss account

      Opening stock                  60,000                                            Sales                                     720,000
      Add purchases                 340,000                                          Less returns inwards              (20,000)
      Less Returns out             (18,000)
      Available for sale              382,000
      Less closing stock            (28,000)
      Cost of goods sold           330,000
      Gross profit c/d                370,000
      Rent                                 16,000                                            Gross profit b/d                       370,000
      Salaries                            15,000    
                                                                                                      Commission received                9,000
      Advertising                       24,000
      Insurance                        30,000
      Net profit c/d                   288,000
                                              379,000                                                                                             379,000
                                                                                                       Net profit b/d                             288,000

                                                                      Bondeni Traders
                                                                       Balance Sheet
                                                                   As at 31st Dec, 2020

      Premises                               400,000                                     Capital                            279,000
      Furniture & fittings         100,000                                      Add net profit                 288,000
      Stock                                       28,000                                      Less drawings               (40,000)
      Debtors                                    54,000                                     Creditors                          64,000
      Cash in hand                           15,000
                                                     597,000                                                                            597,000

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