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

• This paper consists of six questions
• Answer any five questions in the answer booklet
• All questions carry equal marks.

1.  
   1. Explain five services offered by wholesalers to the retailers.       (10 marks)
   2. Explain five benefits of pooling of risks to an insurance company.       (10 marks)
2.  
   1. Explain five differences between sole proprietorship and public limited company.  (10 marks)
   2. Increase in money circulation is the major cause of inflation. Explain five monetary policies that the central bank of Kenya can use to control inflation.       (10 marks)
3.  
   1. The following balances were extracted from the books of Malaba Traders on 1^st January 2020
                            Kshs.
      Capital          600,000
      Creditors      180,000
      Motor van     200,000
      Furniture      200,000
      Stock            60,000
      Debtors        80,000
      Cash            240,000
      The following transactions took place during the year ended 30^th June 2020
      1. Purchased goods worth Kshs. 100,000 for which of Kshs. 70,000 was paid and the balance was still outstanding at the end of the trading period.
      2. Cash Kshs. 10,000 was taken by the owner of the business to pay the daughter’s school fees
      3. Sold furniture worth Kshs. 60,000 for which Kshs. 40,000 cash was received and the balance was due at the end of the trading period
         Prepare a balance sheet as at 30th June 2020
   2. Explain five factors that may promote entrepreneurship in Kenya.       (10 marks)
4.  
   1. Mutwiri runs a manufacturing firm and has employed fifty workers. Explain five reasons why it is would be beneficial to assign each worker a specific job in production.       (10 marks)
   2. Explain five benefits that Kenya may get as a member of COMESA.       (10 marks)
5.  
   1. Traders are required to observe ethical practices when carrying out product promotion. Explain five reasons for observing such ethical practices.       (10 marks)
   2.  The following trial balance was extracted from the books of Majengo traders as at 31st December 2017
                                              Dr                     Cr
      Opening stock                 30,000
      Purchases/Sales             275,000            390,000
      Debtors                             47,000
      Commission                                             36,000
      Returns                            10,000               6,000
      Carriage inwards             16,000
      Bad debts                          3,000
      Wages                              20,000
      Rates                               12,000
      Buildings                          450,000
      Furniture                          180,000
      Bank overdraft                                         210,000
      Insurance                         19,000
      Discounts                          5,000                7,000
      Drawings                          25,000
      Creditors                                                   52,000
      Cash at bank                    250,000
      Cash at hand                      40,000
      Capital                                                      689,000 
                                             1,390,000         1,390,000
      Additional information
      1. Closing stock Kshs. 50,000
      2. Carriage outwards Kshs. 8,000
         Required:-
         Prepare:-
         1. Trading, profit and loss account for the period ended 31/12/2017
         2. Balance sheet as at 31/12/2017 
6.  
   1. Explain five factors that may lead to an increase in the level of National income. (10 marks)
   2. The table below represents supply schedule of maize flour to Bondo town
      Year              Quantity of maize flour (kg)
      2016              6000
      2017              7800
      2018              10,000
      2019              12,500
      2020              15,000
      Assuming the price remains constant, explain five possible reasons for the trend in the supply of maize flour.      (10 marks)

MARKING SCHEME

1.  
   1. Services of wholesalers to the retailers
      1. They provide finance/credit, which act as a source of capital / enables retailers to expand their business
      2. They offer storage / warehousing facilities, which reduces the cost of storage incurred by retailers / relieves retailers risk of damage
      3. They break bulk, hence retailers are able to buy quantities they can afford
      4. Avail variety of goods hence retailers are relieved the burden of visiting producers’ premises
      5. They offer transport which relieves retailers the cost of transportation
      6. They advice retailers on available offer for some commodities / ways of improving profit margins
      7. They conduct product promotion / advertise goods which enables retailers obtain ready market / relieving them the cost of advertising
      8. Ensure steady supply of goods hence retailers do not experience shortage
      9. Act as a link between producers and retailers hence bring goods closer to the retailers
      10. They prepare goods for sale through blending / packing / sorting / grading e.t.c
   2. Benefits of pooling of risks to insurance company
      1. It enables the insurance company to create a common pool of funds, from regular premiums received from customers
      2. It enables the insurance company to compensate those who suffer loss hence ensures continuity of business
      3. It enables the insurance company to spread risks over a large number of insured people hence reducing the burden of compensation
      4. It enables the insurance company to invest surplus (excess) funds, by giving out loans / buying shares
      5. It enables the insurance company to meet its operating costs e.g. payment of salaries hence smooth operation of the business
      6. It enables the insurance company to calculate premiums to be paid by each customer hence able to project the amount to be received
      7. It enables the insurance company to reinsure itself with another insurance company hence spread the risks
2.  
   1. Five differences between sole proprietorship and a public limited company
      

      Sole proprietorship	Public Ltd Company
      Formed by one person (sole trader)	Formed by a minimum of 7 persons / shareholders
      Unlimited liabilities	Limited liabilities
      Lacks perpetual life / continuity	Has perpetual life
      Main source of capital is personal saving	Main source of capital is sale shares
      Managed by sole trader	Managed by board of directors
      Few legal formalities required to form	Requires many legal formalities to form
      Requires small amount of capital to start	Requires a large amount of capital to start
      Small size	Large size
      It is flexible	Inflexible/ rigid
      Owned by sole trader	Owned by shareholders
      Enjoys profits alone	Profits shared among shareholders
      Fast/quick decision making	Slow decision making
      It lacks separate legal entity	Has separate legal entity

   2. Monetary policies to control inflation
      1. Increasing bank rates which makes the loans from financial institutions expensive
      2. Selling government securities to the public which reduces the deposit balances hence amount available for spending
      3. Increasing cash / liquidity ratio of commercial banks which reduces the amount of money available for lending
      4. Increasing compulsory deposit requirement which reduces the amount of money available for lending
      5. Freezing / restricting lending to some sectors which reduces the number of people who go in for loans
      6. Giving directives to commercial banks to increase the interest rates making the loans to appear expensive
      7. Requesting commercial banks to increase interest rates making loans unaffordable
3.  
   1. Capital 600,000 – 10,000     = 590,000
      Creditors 180,000 + 30,000  = 210,000
      M/Van 200,000
      Furniture 200,000 – 60,000  = 140,000
      Stock 60,000 + 100,000        = 160,000
      Debtors 80,000
      Cash 240,000 – 70,000 – 10,000 + 40,000 = 200,000
      Furniture debtors 20,000
                                                                  Malaba traders
                                                                  Balance Sheet
                                                              As at 30^th June 2020
      

      ASSETS FIXED ASSETS Motor Van            200,000 Furniture              140,000                                                 340,000  CURRENT ASSETS Stock                     160,000 Debtors                   80,000 Furniture debtors    20,000 Cash                      200,000                                                  460,000                                                  _______                                                  800,000

      CAPITAL & LIABILITIES     Capital                        590,000     SHORT TERM LIABILITIES Creditors                     210,000                                           ______                                     800,000

   2. Factors may promote entrepreneurship
      1. Availability of finances which supports the growth / expansion / operation of the business
      2. Availability of security that ensures safety of business property
      3. Availability of market / demand where people can sell goods/services to satisfy their needs
      4. Good infrastructure / roads that facilitate movement of goods to the market
      5. Political stability that creates a conducive environment for starting / running a business
      6. Healthy / fair competition that the owner of the business can cope with / withstand
      7. Favourable government policies / government support that may encourage starting / expansion of business venture
      8. Presence of role models / successful business people that inspires the youths to go into business
      9. Development of positive entrepreneurial culture through early exposure to business activities / that values individuals who are successful entrepreneurs
      10. Relevant education / training in the curriculum which prepares the youths to become entrepreneurs
      11. Good governance that ensures accountability / transparency in conduct of business activities
      12. Availability of appropriate technology that can lead to production of desired quality /quantity of goods
      13. Need for independence / self reliance through earning of income / livelihood
4.  
   1. Benefits of division of labour / specialization
      1. Output per worker is greatly increased thus reducing cost per unit
      2. Workers engage in the trade they are best talented leading to increased productivity / quality production
      3. Encourage invention & innovation which leads to improved productivity / increased turnover / improved productivity
      4. Enhances use of modern machines making production faster / more efficient
      5. Enables a worker to acquire skills in a particular field thus improving efficiency / productivity
      6. Less metal / physical effort is spent since one gets used to a particular job
   2. Benefits of being a member of COMESA
      1. Wider market is created for goods/services hence increased productivity / national income
      2. Promotion of peace/understanding with other countries due to interaction
      3. Higher quality goods/services due to interaction
      4. Creation of employment which provides income improves standards of living
      5. Wider variety of goods/services leading to improved standards of living / wider choice
      6. Improvement of infrastructure e.g. good roads which facilitate movement of goods / due to increased economic activities
      7. Increased bargaining power hence savings on imports
      8. Increased production of goods due to increased market
      9. Reduced prices of good/services due to competition / hence affordable to many
      10. Encourages specialization in production hence increased volume of out put
          NB – Accept any advantage of specialization as value addition
5.  
   1. Reasons for observing ethical practices
      1. To avoid misleading consumers by not making false claims about the product
      2. To ensure that customers not offended by not making use of appeals that goes against their cultural values
      3. To avoid exploitation of certain vulnerable groups such as children since they lack knowledge to understand the appeal.
      4. To avoid negative influence on the consumers lifestyle that may lead to immorality
      5. To create positive image of the business in order to capture the market / attract customers maintain customer loyalty
      6. To avoid environmental degradation by using environment friendly promotional materials
      7. To abide by the laws of a country to avoid conflict with law enforcing agencies
      8. To avoid portraying rival businesses negatively in an attempt to capture the market
   2.  
                                                           Majengo traders
                                              Trading profit and loss account
                                              For the period ending 31/12/2017
      

      Dr

      Cr

      Opening stock                                  30,000 Add purchases         275,000 Add carr. Inward       16,000                                   291,000 Less return outward    6,000 Net purchases                                 285,000 Cost of goods available for sale     315,000 Less closing stock                            50,000 Cost of sales                                   265,000   Gross profit c/d                              115,000                                                        380,000   Bad debts                                           3,000 Discount allowed                               5,000 Wages                                              20,000 Rates                                                12,000 Insurance                                         19,000 Carr. Outward                                    8,000 Total expenses                                 67,000   Net profit                                        91,000                                                                                                                              158,000

      Sales                                     390,000 Less return inward                 10,000 Net sales                               380,000                                                               380,000 Gross profit b/d                      115,000 Comm. Received                     36,000 Discount received                      7,000 Total revenues                       158,000                                                               158,000

                                                                               Majengo traders
                                                                              Balance Sheet
                                                                               As at 31/12/2017
      

      ASSETS    FIXED ASSETS Building                    450,000 Furniture                   180,000                                                             630,000   CURRENT ASSETS Stock                           50,000 Debtors                       47,000 Bank                          250,000 Cash                             40,000                                                            387,000                                                           1,027,000

      CAPITAL & LIABILITIES   Capital                                        689,000 Add net profit                               91,000                                                     780,000 Less drawing                                 25,000 Net capital                                   755,000   SHORT TERM LIABILITIES Bank overdraft       210,000 Creditors                  52,000                                                     262,000                                                      1,017,000

6.  
   1. Factors that may increase level of national income
      1. Adequate / highly qualified labour which would produce more /higher quality goods
      2. Availability of adequate capital which leads to efficient production
      3. Increased entrepreneurial activities which leads to increased production
      4. Adequate / large size of natural resources / land which provides enough raw materials for production
      5. Modern / advanced / improved technology which ;leads to production of high quality goods and services
      6. Increased level of foreign investment which increases capital inflow / productivity
      7. Political stability which creates confidence in investors hence encourage them set up businesses
      8. Positive attitude of citizens towards work which encourages them to be more productive
      9. Small size of subsistence sector which reduces chances of underestimating output
   2. Factors that lead to increase in supply
      1. Reduced cost of production which encourages new producers to venture into business
      2. Availability of adequate factors of production which enables producers to produce more 
      3. Use of improved / advanced / modern technology which increases the volume of output / production
      4. Future expectation of a decrease in price which makes producers to supply more to the market to avoid selling it at reduced price
      5. Entry of new producers (firms) into the industry which increases the quantity of maize produced
      6. Favourable natural factors / good weather conditions that provides conducive environment for maize farming
      7. Favourable government policies which reduces the cost of producing maize