Business Studies Paper 1 Questions and Answers - Londiani Joint Mock Exams 2022

INSTRUCTIONS TO CANDIDATES.

• Answer ALL Questions in the spaces provided.
• The candidate should ensure that all pages are printed
• Show all your workings. 

FOR EXAMINERS USE ONLY

QUESTIONS

1. State the books of original entry into which each of the following transaction would be entered, stating the source documents used in each case. (4mks)
   

   TRANSACTION	SOURCE DOCUMENT	BOOKS OF ORIGINAL ENTRY
   a) Where goods are sold on credit b) Where goods are sold on cash c) Where goods sold on credit are returned d) When we return goods previously bought on credit to supplier.

2. Outline four reasons why an increase in per capital income may not necessarily lead to a rise in the standards of living of the citizens. (4mks)
3. Mention four benefits accrued to the Kenyan Economy as a result of introduction of the Standard Gauge Railway. (S.G.R.) (4mks)
4. Highlight four benefits that are likely to be enjoyed by a firm as a result of expansion of the entire industry (4 marks)
5. Complete the following table by indicating the account to be debited and the one to be credited. (4mks)
   

   Transaction	A/c to be debited	A/c to be credited
   a) Stared a business by depositing cash into the business bank account. b) Purchase of goods on credit c) Sold goods on credit d) Bought a new motor vehicle by cheque

6. The following information related to Karibu traders of the year ended 31st December
   Details                  shs
   Fixed assets 1.840,000
   Current assets 400,000
   6yr bank loan 600,000
   Current liabilities 150,000
   Using a properly drawn balance sheet determine the owner’s capital. (4mks)
7. State one circumstance under which each of the following source documents may be issued by the trader. (4mks)
   1. Invoice
   2. Debit note
   3. Quotation
   4. Credit note.
8. Highlight four measures that have been put in place by the government to bring order and sanity in the public transport sub-sector. (4 marks)
9. State four reasons for privatizing public corporations. (4 mks)
10. The following information relates to Kiboko Traders as at 31st December 2021.
    Details             Shs.
    Total drawings 400,000
    Added investments 800,000
    Capital on 31st Dec. 2021 7,000,000
    Profit 3,100,000
    Calculate Kiboko’s initial capital (4 mks)
11. Outline four ways in which a firm may be affected negatively by inflation. (4 mks)
12. Given below are transactions of Khan Enterprises. Enter them into the appropriate “T” accounts. (Balancing not required.) (4 mks)
    20 – 9
    August 1: Started business with cash at bank sh.50, 000
    “ 3: Paid salaries sh. 2,000 by cheque
    “ 5: Bought goods on credit sh. 13,000
    “ 8: Withdrew sh. 5,000 from bank for office use.
13. Outline four features of a bonded warehouse. (4 mks)
14. Highlight four factors that determine the fertility rate in a country.(4 Mark
15. Outline four ways in which the government of Kenya supports development of entrepreneurs (4mks)
16. Outline four reasons why firms with popular products find it necessary to continually advertise the same products (4mks) a)
17. Outline four circumstances under which manufacturers may sell directly to retailers (4mks)
18. Identify four factors that determine the level incomes generated through taxation. (4mks)
19. Identify four merits of import substitution (4mks)
20. The following information relates to Marumi Traders on 1st’ July 2022.
                              shs.
    Opening stock 40000
    Closing stock 55000
    Purchases 200000
    Margin 25%
    Required: Draw Marumi Traders’ trading account. (4 Marks)
21. List four services that are rendered by wholesalers to retailers (4mks)
22. Highlight four advantages of division of labour and specialization in an organization. (4 marks)
23. Computerization is a modern trend that has led to success of many organizations. List four ways in which it contributes to the success of an organization. (4 marks)
24. The Kenya Bureau of standards (KEBS) is one of the bodies that is mandated by the Government of Kenya to regulate business activities. Highlight four Ways in which it regulates businesses. (4 marks)
25. Outline four features of perfect competition market structure. (4 marks)

MARKING SCHEME

1. Books of original entry and source documents
   

   TRANSACTION	SOURCE DOCUMENT	BOOKS OF ORIGINAL ENTRY
   a) Where goods are sold on credit	sales/invoice/outgoing Invoice/return invoice	sales journal
   b) Where goods are sold on cash	cash receipt/outgoing  Cash sales receipt	cash receipt Journal
   c) Where goods sold on credit are returned	credit note issued	sales returns Journal /inward journal
   d) When we return goods previously bought on credit to supplier.	credit not received	Return outward Journal/purchase returns Journal

2. Outline four reasons why an increase in per capital income may not necessarily lead to a rise in the standards of living of the citizens. (4mks)
   1. Differences in expenditure patterns between government and individuals
   2. It’s difficult to measure the welfare.
   3. May be obtained at the expenditure of leisure.
   4. High taxes rates may erode the real value of per capital income.
   5. Increase of per capital income can be obtained through the strain of people’s health.
   6. Per capital income is the average hence they are mere statistics.
   7. Those not involved in generation of National income are also included in calculation in per capital income.
   8. Inflation affects the purchasing power of citizens
      (Any four 1x4=mks)
3. Benefits of S.G.R.
   1. Enable a transporter to plan ahead as they follow a fixed timetable
   2. The tickets can be acquired online (online booking)
   3. Economical for transportation of heavy and bulky goods.
   4. Trains that use the S.G.R are fast compared to vehicles/matatus.
   5. Relatively secure as cases of theft and accidents are very rare.
   6. Can facilitate carrying of special type of goods e.g. vehicles, containers.
   7. No delays because they follow a fixed route on their own thus reducing congestions.
      (Any 4 1x4=4mks)
4. Benefits that are likely to be enjoyed by a firm as a result of expansion of the entire industry
   1. Easier access to labour force
   2. Enjoys improved/efficient infrastructure
   3. Firms may be able to dispose off their waste product easily
   4. Ready market may be available from the surrounding firms
   5. Readily available services such as banking, insurance and medical care
   6. Adequate supply of power due to large volume of consumption e.t.c
5.                      
   

   Transaction	A/c to debit	A/c to credit
   i) Starting a business by Depositing cash into the Business bank A/c	cash at bank	capital
   ii) Purchase of goods on Credit	purchase	creditors
   iii) Sold goods on credit	Debtors	sales
   iv) Bought new motor by cheque	Motor vehicle	cash at bank

6. KARIBU TRADERS
   

   Assets                                              shs. Current assets                                  400,000 Fixed assets                                 1,840,000                                                             2240,000                                                         2240,000

   shs         shs Capital                                                1490,000 Long-term liabilities 6yr bank loan                600,000  Current liabilities        150,000                                                                750,000                                                             2240,000

   N.B must have a well-balanced balance sheet
   Trading account
   Average = Opening stock + closing stock
                                          Stock
   40,000 + 600,000
              2
   = 320,000
   (R.O. ST)                                            (Cogs)
   Rate of stock turnover              cost of goods sold
                                                      Average stock
   320,000 X 5times = Cogs x
   Cogs = 1600,000
   1600,000 = 40,000 + P – 600,000
   Purchase = 2160,000.
   Mark up 25 =         GP     
               100      1600,000
   GP = 400,000
7. Source documents
   1. Invoice – when demand payment for goods/requesting for payment of goods supplied.
   2. Debit note- correcting an undercharge
   3. Quotation – when replying to a specific letter of inquiry.
   4. Credit note – when correcting an overcharge for goods supplied.
8. Measures that have been put in place by the government to bring order and sanity in the public transport sub-sector.
   1. Removal of Unroadworthy vehicles which may cause accidents.
   2. Installation of bumps to reduce speed which may cause accidents.
   3. Heavy penalties on motorists who disobey traffic rules.
   4. Making sure that passenger vehicles have safety belts to minimize casualties.
   5. Ensuring that public service vehicles have speed governors to limits the speed
   6. Construction of dual carriage roads and by-pass to ease congestion.
   7. Restrictions on travelling hours to ensure drivers have ample time to rest.
   8. Use of alcoblow to curb drunken driving
   9. All the PSVs are operating under a registered SACCO
   10. All drivers and conductors must have uniforms
   11. Drivers and drivers required to have certificate of good conduct
9. State four reasons for privatizing public corporations. (4 mks)
   1. To improve efficiency/service delivery
   2. To generate revenue for the government
   3. To reduce government expenditure
   4. To attract foreign/private inventors
   5. To reduce government control
   6. To get rid of loss making enterprises
      Any 4 x 1 = 4 mks
10. The following information relates to Kiboko Traders as at 31st December 2010.
    

    Details Shs.
    Total drawings 400,000
    Added investments 800,000
    Capital on 31st Dec. 2010 7,000,000
    Profit 3,100,000

    Calculate Kiboko’s initial capital (3 mks)
    Initial capital = closing capital – Additional – profit + Drawings
    Investment
    = 7,000,000 – 800,000 – 3,100,000 + 400,000
    = shs. 3,500,000
    (6x ½ = 3 mks)

11. Outline four ways in which a firm may be affected negatively by inflation. (4 mks)
    1. May lead to reduced sales volume.
    2. May lead to wastage of time as firms shop around.
    3. May scare away potential investors
    4. May lead to increased wages & salaries which reduce profitability
12. Given below are transactions of Khan Enterprises. Enter them into the appropriate “T” accounts. (Balancing not required.)
    

    Dr Bank A/c Cr
    20 – 9 sh
    Aug 1: Capital 50,000 20 9 sh
    Aug 3: salaries 2,000
    Aug 8: Cash 5,000

    Dr Capital A/C Cr
    20 – 9
    Aug 1: Bank 50,000

    Dr Salaries A/c Cr
    20 - 9 sh
    Aug 3: Bank 2,000

    Dr Creditor A/c Cr
    20 – 9 sh
    Aug 5 Purchases 13,000

    Dr Cash A/c Cr
    20 – 9 sh
    Aug 8: Bank 5,000

    Dr Purchases A/c Cr
    
    20 – 9 sh.
    Aug 5: Creditor 13,000

13. Outline four features of a bonded warehouse. (4 mks)
    1. Most located at the point of entry. Eg. Ports
    2. Stores goods that are under bond
    3. Guarantees payment of customs duty.
    4. Very spacious to accommodate bulky goods e.g motor vehicles
    5. Must issue release warrant to owners of goods for custom clearance.
    6. Works hand in hand with custom officials for inspection of goods.
       (Any 4 x 1 = 4 mks
14. Factors that determine fertility rates
    1. Cultural factors concerning family size
    2. Cost of bringing up children
    3. Literacy level in women
    4. Peace and security in the country
    5. Improved health and education services
    6. Government policy on family life
    7. Age and sex structure of the population
15. Outline ways in which the government supports development of entrepreneurs (4mks)
    1. Funds institution that support entrepreneurs
    2. Providing market for new products both locally and internationally
    3. Provides relevant information to entrepreneurs
    4. Offers incentives to those who want to start businesses e.g. tax relief
    5. Passing favourable laws and policies
16. Outline four reasons why firms with popular products find it necessary to continually advertise the same products (4mks)
    1. To bring notice to new customers on the existence of the product
    2. To increase demand so as to justify mass production that leads to economies of scale
    3. To educate consumers on the proper use of the product
    4. To retain market / consumer loyalty
    5. To cope with competition
    6. To announce the changes / improvements of the product
    7. To create /maintain company image/ reputation
    8. To correct any misleading information about the product
17. Outline circumstances under which manufacturers may sell directly to retailers (4mks)
    1. If manufactures have their own retail outlets
    2. If manufactures can brand, blend, pack and advertise their products
    3. If manufactures have their own channeling depts.
    4. If manufactures deals with perishable goods, like bread
    5. If retailers have enough capital to buy goods in bulk e.g. supermarkets
18. Identify factors that determine the level incomes generated through taxation. (4mks)
    1. Distribution of incomes
    2. Honesty and efficiency of tax authorities
    3. Citizens level of real income
    4. Economic structure of the country i.e. relative size of the county’s commercial and subsistence sectors
    5. Political factors
19. Identify four merits of import substitution (4mks)
    1. Saves on foreign exchange
    2. Creates employment locally
    3. Promotes utilization of local resources
    4. Makes a country self- reliant
20. Marumi Traders
    Trading Account
    For the period ended 30th’June 2016.
    

    sh. Opening stock                   40000 Add purchases                200000 Goods available for sale 240000 Less closing stock            55000 Cost of sales                  185000 Gross profit c/d                61667                                       246667

    sh. Sales               246667                          246667 Gross profit b/d 61667

21. services rendered by wholesalers to retailers
    
    1. Variety of goods
    2. Availing goods at convenient places
    3. Breaking of bulk
    4. Credit facilities
22. Highlight four advantages of division of labour and specialization in an organization.
    1. Employees become specialists I their jobs as a result of performing tasks repeatedly.
    2. It saves on time in performing tasks in work place.
    3. It produces high quality products.
    4. There is standardization of products due to use of machines.
    5. Better organization work increases efficiency in the work place.
    6. Mass production/output per worker is increased/Increased quantity
23. Ways in which it computerization contributes to the success of an organization.
    
    1. It has enable globalization
    2. It has made communication faster.
    3. It has reduced paper work.
    4. Has assisted in data storage and inventory control.
    5. It facilitates market research activities
    6. Makes it easy the performance of any complex mathematic procedure
    7. Aid in security controls
24. Ways in which Kenya Bureau of standards (KEBS) regulates businesses.
    1. Conducting regular inspections to ensure that standards are meet by business people
    2. They stamp on products to prove that the established standards have been adhered to.
    3. Take legal actions against those who violet set standards.
    4. Set standards for all local and imported manufactured goods by conducting research and tests on these goods.
    5. Ensures businesses have valid licenses
25. Features of perfect competition market structure.
    
    1. They are large number of buyers and sellers.
    2. Products are uniform that is homogeneous.
    3. There is freedom of entry and exit.
    4. There is uniformity of buyers and sellers
    5. There is no government intervention.
    6. There is perfect knowledge of the market among buyers and sellers
    7. No excess supply or demand
    8. Perfect mobility of factors of production
    9. No transport costs