Business Studies Paper 2 Questions and Answers - Bondo Joint Mocks Exams 2022

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Questions

Instruction to candidates

This paper consists of six questions
Answer any five questions of your choice in the spaces provided.
All questions carry equal marks
Students should answer the questions in English.

1. Explain five problems encountered in using national income statistics in comparing the standards of living in different countries. (10 marks)
2. Explain five benefits that could be enjoyed by a person who decides to take out an endowment policy. (10 marks)
1. Explain five benefits that may accrue to a community involved in home trade. (10 marks)
2. Explain five reasons why inflation in an economy may not be desirable. (10 marks)
1. Explain five ways in which division of labour can increase efficiency in the production process. (10 marks)
2. The following transactions belongs to Yala traders for the month of August 2022.
  August 1 st – Started business with Shs. 45,000 in the bank.
  August 3 rd – Bought stock on credit Shs. 15,000 from Nusra.
  August 4 th – Bought Furniture Shs. 5,000 by cheque.
  August 6 th – Withdraw Shs.15,000 from bank and put it in business cash till.
  August 8 th – Paid Shs. 5,000 for goods bought on credit from Nusra.
  August 9 th – Sold stock on credit Shs.9,000 to Nyando traders.
  
  Required:
  Record these transactions in relevant ledger accounts and balance them off. (10 marks)
1. The following diagram shows a shift in the supply curve. Explain briefly five factors that would cause such a shift. (10 marks)
2. Explain five factors that have led to privatization of public corporations by the government of Kenya. (10 marks)

Explain five characteristics of perfect competition market structure. (10 marks)

The following information was extracted from the books of Sunshine traders on 31 st December2021.

	Shs.
Gross profit General expenses Building Equipment Capital Furniture Insurance Stock Commission income Discount allowed Discount received Bank overdraft Salaries and wages Creditors Carriage outwards Debtors Carriage inwards Cash	800 000 180 000 1 250 000 380 000 1 400 000 117 000 48 000 25 000 125 800 55 000 56 200 79 000 320 000 90 000 60 000 65 500 34 500 51 000

Prepare:

Profit and loss account for the period ended 31 st Dec 2021. (5 marks)
Balance sheet as at 31 st Dec 2021. (5 marks)

1. Explain five circumstances under which a country may restrict international trade. (10 marks)
2. An international company is planning to launch its product I the local market. Highlight five factors that should be considered by the company when choosing the appropriate media through which to advertise the product. (10 marks)

Marking Scheme

1. Problems encountered in using national income statistics in comparing the standards of living in different countries.
  1. Differences in the cost of living in a country – where the cost of living is low, low per capita may not mean low standards of living.
  2. Differences in level of inflation – a country with high inflation may have high per capita income but the living standards is low.
  3. Distribution of income – where income is fairly distributed the gap between the poor and the rich will be narrow. Such a country may have low per capita but high standards of living.
  4. Differences in prices of goods and services in different countries – in a country where there is price control the national income may appear to be lower than in a country where the prices are determined by the market prices.
  5. Different needs and tastes – due to different needs and tastes of living in different countries, national income statistics may not compare.
  6. Different currencies – different countries have different currencies with different value which have been tedious to convert.
  7. Different goods and services – used in computing national income may differ from one country to another.
  8. Differences in the levels of the subsistence sector that are never included in some communities.
  9. Differences in political stability hence some are more peaceful but with lownatural income than others.
  10. Working conditions are different in various countries.
    Any 5 explained points
    5x2=10marks
2. Benefits that could be enjoyed by a person who decides to take out an endowment policy.
  1. Policy holder can use the policy as collateral security to obtain loan or credit.
  2. Policy holders partakes/shares in the profit of the company by earning bonuses/interests.
  3. In case of death before maturity of the beneficiaries of the policy holders are entitled to profit/bonus/sum assured.
  4. The policy holder enjoys the sum assured if he/she is alive by maturity date.
  5. Policy holder is entitled to a surrender value where contract is terminated by theassured.
  6. It can be used by the policy holder as a form of saving for future investment.
  7. The policy holder is able to decide on the duration time frame/ maturity date thus enable to fit in his future financial plans.
    Any 5 points
    2x5=10
1. Benefits that may accrue to a community involved in home trade.
  1. Variety of goods/services – enhance consumer choice
  2. Promote peace and harmony – among trading partners as they interact.
  3. Source of government revenue from licenses fees, taxes on goods etc.
  4. Employment – those engaged in trading activities.
  5. Improved infrastructure – to facilitate movement of people and goods.
  6. Utilization of locally available resources – that would have otherwise remained idle.
  7. Sale/disposal of surplus – minimizing wastage.
  8. Improved technology – due to exchange of ideas leading to improved quality.
  9. Encourages specialization and division of labour.
    Any 5 points
    2x5=10
2. Reasons why inflation may not be desirable in an economy.
  1. Leads to decline in the standard of living due to erosion of purchasing power.
  2. Retardation of economic growth due to fear by entrepreneurs to take risks in new ventures/in expansion of production.
  3. Exports become expensive to foreign importers leading to low demand for country’s goods in foreign countries. Imports become relatively cheap leading to high demand.
  4. This would result in unfavorable balance of payments.
  5. Reduction in profits due to fall in demand for goods and services as a result of increased prices.
  6. Brings about wastage of time as individuals and firms move around shopping for reasonable prices.
  7. Loss of confidence in monetary system. People loss confidence in money both as a medium of exchange and store of value.
  8. Discourage savings since people tend to spend most of their earning leaving little/nothing save.
    Any 5 points
    5x2=10

Ways in which division of labour can increase efficiency in the production process.
1. Quality goods – it leads to improvement in the quality of goods/products produced as individuals are assigned in production.
2. Costs of production – the cost of production per unit is reduced as the right number of people are engaged in production.
3. Surplus production – there is surplus in production/large number of goods are produced leading to reduction in cost per unit.
4. There is no time wastage/time is saved in the production process as there is less movement.
5. There is increase use of machinery leading to standardization of goods/services.
6. There is invention and innovation in the production methods leading to more efficient production methods.
7. Easy to plan/organize work within the organization which leads to efficiency in production.
8. It enhances economy to tools which help to minimize cost.
  Any 5 well explained points
  5 x 2 = 10

Capital A/C
Date	Particular	Amount	Date	Particular	Amount
9/8	Bal c/d	45 000 45 000	1/8	Bank Bal b/d	45000 45000 45000

Bank A/C
Date	Particular	Amount	Date	Particular	Amount
1/8 9/8	Capital Bal b/d	45 000 45 000 25 000	4/8 6/8 9/8	Furniture Cash Bal c/d	5 000 15 000 25 000 45 000

Purchases A/C
Date	Particular	Amount	Date	Particular	Amount
3/8	Nusra	15 000 15 000	9/8	Bal c/d	15 000 15 000
9/8	Bal c.d	15 000

Furniture
Date	Particular	Amount	Date	Particular	Amount
4/8	Bank	5 000 5 000	9/8	Bal c/d	5 000 5 000
9/8	Bal b/d	5 000

Nusra
Date	Particular	Amount	Date	Particular	Amount
8/8 9/8	Cash Bal c/d	5 000 10 000 15 000	3/8	Purchase	15 000 15 000
			9/8	Bal b/d	10 000

Cash A/C
Date	Particular	Amount	Date	Particular	Amount
6/8	Bank	15 000 15 000	8/8 9/8	Nusra Bal c/d	5 000 10 000 15 000
9/8	Bal b/d	10 000

Sales A/C
Date	Particular	Amount	Date	Particular	Amount
9/8	Bal c/d	9 000 9 000	9/8	Nyando traders	9 000 9 000
			9/8	bal b/d	9 000

Nyando Traders
Date	Particular	Amount	Date	Particular	Amount
9/8	Sales	9 000 9 000	9/8	Bal c/d	9 000 9 000
9/8	Bal b/d	9 000

20 x ½ 10 marks
N/B: To score mark the account must be balanced

1. Factors that would cause such a shift.
  1. Increase in cost of production
  2. Poor (backward) technology in production.
  3. Unfavorable weather conditions
  4. Diseases and pests in agriculture sectors
  5. Increased taxes on the inputs
  6. Withdrawal of subsidies/unfavorable government policies.
  7. Expectations on decrease in the prices of the product in future
  8. Restricted entry of new firms in the industry/decrease in numbers of producers
  9. Decrease in supply of input and raw materials.
    2 x 5 = 10
2. Factors that have led to privatization of public corporations by the government of Kenya.
  1. To dispose of loss making public corporation
  2. To reduce public debts as most of them are funded through borrowing money.
  3. To reduce government expenditure
  4. To reduce political interference in management of the business unit.
  5. To allow the public corporation to operate more efficiently and professionally.
  6. To earn government revenue from the sale.
  7. To encourage foreign investments as foreigners may be allowed to purchase these corporations.
  8. To give in to pressure from financial institutions (world bank, IMF) and doner community in order to qualify for funding.
  9. To generate more employment opportunity.
    5 x2 = 10 marks

Characteristics of perfect competition market structure.
1. It has many buyers and sellers hence none of their activities can change or influence the market hence all firms are price takers.
2. The product produced are homogeneous in all ways like colour branding packaging hence consumers do not prefer products of a particular firm.
3. Firms are free to enter or leave the industry at any time in case of profits or loss without any restrictions.
4. All buyers and sellers have perfect knowledge of the market in terms of price quality and market conditions.
5. All buyers and sellers are uniform in all ways hence there is no advantage of buying or selling to any.
6. There is free and perfect mobility of factors of production from one area or job to another to produce goods and services and ensure continuous supply.
7. There is no government interference in market operations which can influence buying and selling of products.
8. There are no transport costs as buyer and sellers are in one place hence price cannot change due to this cost.
9. There is no excess demand and supply since all goods produced and sold are bought.
10. The demand curve is perfectly elastic since the industry has many sellers or producers with homogeneous products.
  Any 5 points
  5 x 2 = 10 marks

SUNSHINE TRADER PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 ST DEC 2021
Sh		Sh
General expenses Insurance Discount allowed Salaries and wage Carriage outwards Net profit	180 000 48 000 5 000 320 000 60 000 319 000	Gross profit b/d Commission income Discount received	800 000 125 000 56 000
	982 000		982 000

SUNSHINE TRADERS BALANCE SHEET AS AT 31 ST DEC 2021
Fixed assets	Shs			Shs.
Building Equipment Furniture		125 000 380 000 117 000	Capital Add Net Profit		1 400 000 319 000
		1 747 000			1 719 000
Current Assets			Current Liabilities
Stock Debtors Cash	25 000 65 000 51 000	141 000	Creditors Bank Overdraft	90 000 79 000	169 000
	1 888 000				1 888 000

10 x ½ = 5 marks

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 countries.
  - Where there is need to control dumping to prevent adverse effects on the economy.
  - Where balance of trade/payment continues to deteriorate to reduce payment on imports.
  - Where goods are hazardous/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 action of trading partners as a retaliatory measures.
  - Where there is need to avoid imported inflation arising 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 over dependence on imports which may lead to political blackmail.
  - Where there is need to avoid over exploitation of resources which may cause their depletion.
  - Where there is need to build reserves of strategic commodities to avoid shortages in meeting local demands.
    5 x 2 = 10
2. Factors that should be considered by the company when choosing the appropriate media through which to advertise the products.
  - The cost of the media – a business firm should go for the cheaper method
  - Nature/type of the product – some products are better promoted through some methods than other/those requiring demonstration will be best promoted through personal selling.
  - Target group – the firm should choose a method that only target group to avoid wastage.
  - The law – a firm should choose only those methods allowed by the law to the land.
  - Objectives of the promotion of firm – the method chosen helps the firm to achieve the set goal for the product promotion/to correct a dented image of a product it will be wise to use public relation methods.
  - Methods used by competing business – a firm should choose a method of product promotion that will make it compete favorable with another firm.
  - Availability of resources – firms should use the physical and human resources that are available in order to implement the promotion mix/to use sales persons, the firm must have enough resourced persons and finance.
  - Geographical area to be covered. If the message is to cover a wider area, the company will choose a suitable medium in order to reach customers in their locations.
    5 x 2= 10mks