Business Paper 2 Questions and Answers - Cekenas Mock Exams 2022

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    1. Assuming you were planning to start a business after form four, explain any five factors you would consider when evaluating your business idea. (10 marks)
    2. Distinguish between whole life insurance policy and endowment insurance policy (10marks)
    1. Explain five benefits that may be realized by a country as a result of government policy to relocate industries to rural areas. (10 marks)
    2. Outline five ways in which an office manager can ensure that the company’s property is safeguarded. (10marks)
    1. There has been a decline in the demand for wooden furniture in Kenya. Explain five factors that may have cause this trend. (10 marks)
    2. On 1st January 2022 Fadhili Traders had 180,000 cash in hand and a bank credit balance
      of sh 56800 . During the month the following transactions took place (l0marks)
      3rd cash sales sh 21,800
      5th A debtor settled his account of sh 75,000 by cheque
      10th Paid salaries sh 40,000 in cash
      12th withdrew cash sh 3500 to settle a personal debt
      23rd Received a cheque shs 11520 from Kavutha wholesalers after deducting 4% cash discount
      24th Deposited sh 10,000 in the bank from office cash till
      25th Purchased stock worth sh 8950 on credit from Ngumo distributors
      26th Cash sales banked directly sh 38,000
      27th A cheque received on 5th from debtor was dishonored. The bank charged him sh 500
      29th Settled creditors account sh 6000 by cheque less 5% cash discount
      31st Banked all cash except sh 20,000
      Required: Prepare a three column cash book dully balanced (10 marks)
    1. Apart from selling shares explain five sources of finance for a public limited company (10 marks)
    2. Inflation has been on the rise in the Kenyan economy, explain five monetary policies that can be used by the government to curb inflation (10 marks)
    1. Explain five reasons for differences in terms of trade between countries (10 marks)
    2. Jayden enterprises had the following trial balances for the year ended 2021.
      Trial Balance
      As at 31st December 2021

      Details DR CR
      Bad debts
      Carriage inwards
      Carriage outwards
      Commission received
      Stock ( 1/1/2021)





      Additional information: Stock as at 31St December 2021 was Sh. 250,000
      Prepare a Trading Profit and Loss account for Jayden Enterprises for the year ended 31st December 2021 (10 marks)
    1. State and explain five benefits of using computers in an office (10 marks)
    2. Explain five reasons for which traders observe ethical practices in product promotion (10 marks)


      1. The profit margin to be earned from the investment. There should be a reasonable profit from the investment in order to cover all the operational expenses and get surplus.
      2. Existing attitudes, practices and beliefs of the target market. The new product, service or business idea must be in line with the people’s attitudes, practices and beliefs if it has to be accepted and hence marketed.
      3. Availability of appropriate technology. The technology to be used in producing the product or offering the service should be efficient and cost effective.
      4. Size and availability of the market.
      5. Possibility of pre-testing (trial use).It should be affordable to allow customers to try out the new product first without having to purchase it and get feedback from them.
      6. Availability of an effective channel of distribution. This will ensure the product is available in the market do that customers buy it when they decide to.
      7. Ability of the product to satisfy the immediate need of the buyer. The new product must be of tangible or felt benefit to the buyer hence making it very attractive.
      8. Ease of usage. The new product or service should be easy for the buyers to understand and use since they may fail to buy the product if it is complex and difficult to use.
      9. The level of competition. The entrepreneur should look at the systems used by the competitors and strategize accordingly.
      10. The payback period. This should be reasonable to allow the investor break even and recoup the capital invested.
      11. The risks involved. These should be manageable and minimal to avoid unnecessary losses.

    2. Whole life policy Endowment Policy
      *Compensation paid after the death of the assured.
      *Premiums are usually lower
      *Premiums paid virtually throughout the assured’s life
      *Benefits go to the nominees.
      *Aims at financial security of the dependants.
      *Qualifies for surrender value later than endowment policy.
      *Usually minimum of 4 years. 
      *Compensation paid after the expiry of the contract period or at death whichever comes first.
      *Premiums are usually higher.
      *Premiums paid during the agreed period
      *The assured may get the benefits if the contract period expires before he dies.
      *Aims at financial security of the assured and dependants.
      * Qualifies for surrender value earlier than whole life policy.
      *Usually minimum of 2 years.
      1. Increased availability of variety of goods and services as a result of new businesses in the area.
      2. Availability of auxiliary services - citizens would enjoy more and better auxiliary services like transport.
      3. Increased job opportunities - there will be more jobs available that would reduce unemployment.
      4. Increased utilization of locally available resources - locally available factors of production will be used and the citizens would earn rewards associated with them.
      5. Improved standard of living as development of the rural areas increases the quality and variety of goods and services.
      6. Reduced congestion in towns - this would benefit the few citizens remaining in the city.
      7. Balanced economic development as economic activities are spread throughout the country.
      8. Transfer of technology to rural areas which leads to production of better quality goods/services.
      9. Creation of market for goods/services produced in rural areas.
      1. Enhancing security against theft by for instance employing guards, installing CCTV cameras, erecting perimeter fence.
      2. Ensures that users take physical care of the property assigned to them.
      3. Keep proper records of physical assets and track their whereabouts.
      4. Conduct regular stock taking of all physical assets.
      5. Assign individuals to take care of equipment so that they can be personally reliable.
      6. Having records of visitors entering and leaving the premises of the business.
      7. Have the property properly insured.
      8. Do regular repairs, servicing and maintenance.
      9. Have the property well registered, where necessary e.g land to deter grabbers.
      1. Decline in consumer incomes: This may reduce their purchasing power hence less able to afford the furniture.
      2. Fall in the price of substitutes: Furniture made from other materials like plastic and metal may be cheaper.
      3. Increase in the price of wooden furniture: This nukes the furniture to be out of reach for most consumers
      4. Government policy: The government may have increased rates on timber products hence making the furniture more expensive
      5. Unfavourable change in tastes and preferences: Consumers may be purchasing more plastic and metallic furniture.
      6. Decline in population: A decrease in population will lead to reduced numbers of potential and actual customers
      7. Expectations of a future fall in price: Consumers may be anticipating a fall in price in the future hence currently suspend buying.
    2. Fadhili Traders
      Three Column Cash Book

      Date Details Disc Allowed Cash Bank Date Details Disc Rec Cash Bank
      Jan 1


      Bal b/d










      Bal b/d
      Dishonoured cheque
      Bank charges
      Bal c/d






      1. Borrowing from financial institutions in the form of loans, bank overdraft and mortgage.
      2. Trade credit: Buying goods for re-sale on credit so as to pay at a later date
      3. Hire purchase: Buying goods and paying for them on instalment basis.
      4. Debentures: Borrowing from members of the public for which interest is paid at a fixed rate and over a predetermined period of time.
      5. Sale and leaseback: Selling an asset like a building and then hiring it back for a specified period of time.
      6. Retained profits: Profits made are not shared out as dividends but ploughed back into the business.
      7. Discounting bills of exchange: Receiving payment from financial institutions at a discount against bills of exchange before their maturity.
      8. Use of reserves / provisions: The company may make use of funds set aside for depreciation, tax and bad debts to finance its day to day operations.
        (5 x 2= 10 total Marks)
      1. Increase the rate of interest on lending to commercial banks.
        -The central bank can raise the interest rate on money borrowed by commercial banks such that they also increase their lending interests rates.
      2. Using open market operations (OMO) to mop up excess liquidity from the economy.
      3. Increase commercial banks liquidity ratio.
        -Liquidity ratio is the proportion of money held by commercial banks, if this ratio is increased, the lending ability of commercial banks will have reduced.
      4. Increasing compulsory deposits.
        -The CBK can call for special deposit from commercial banks hence reduce amount of money in circulation.
      5. Institution of selective credit control measures.
        -The CBK may instruct the commercial banks on the sectors that they can lend money to and not others.
      6. Directives to commercial banks.
        -CBK may direct commercial banks on interest rates to charge on lending where high interest would discourage borrowing of loans.
      7. Morals suasion(Requests to commercial banks)
        -CBK may appeal to commercial banks to willingly exercise control on moral on their lending with a view of controlling inflation.
      1. Elasticity in demand for a countries exports.
        -A country with exports whose demand is less elastic compared with her demand for imports is likely to have favourable terms of trade.
      2. Nature of commodity being exported.
        -A country whose main export is raw materials is likely to experience unfavourable terms of sale unlike a country exporting finished products.
      3. Nature of commodity being imported
        -A country that imports expensive products such as manufactures goods is likely to face adverse terms of trade than one that imports cheap raw materials.
      4. Existing world economic order favouring products from more developed countries,
        -This results to favourable terms of trade to the developed countries while the less developed countries experience unfavourable terms of trade.
      5. Total quantities supplied. A country that relies on exportation of a product that is high in supply may experience unfavourable terms of trade than a country exporting a commodity that is in short supply in the world market.
      6. Trade restrictions by trading partners. The less trade restrictions a country has,The more favourable terms of trade it is likely to have due to increased exports than a country with more trade restrictions.
    2. Jayden Enterprises
      Trading, Profit and Loss A/C
      For the year ended 31 Dec 2015.

      Opening Stock 100,000
      Purchases 1000,000
      Carriage In 50,000
      Returns Out 200,000

      Net purchases 750,000
      C.O.G.A.S 850,000
      Closing stock ( 250,000)
      Cost of sales 600,000
      Gross profit c/d 410,000
      Insurance 20,000

      Bad debts 30,000
      Carriage out 20,000
      Discount Allowed 100, 000
      Rent 40, 000
      Net profit 350,000
      Sales 1160,000
      Returns 150,000
      Net Sales 1,010,000

      Gross profit b/d 410,000

      Commission Received 100,000
      Discount Received 50,000

      • Reduces cost of communication.
      • Provides unlimited space for filling.
      • A fast means of communication
      • Provides a source of information for research.
      • Facilitates quick decision making/ quick feedback
      • Reduce paperwork and the need for paper files.
      • Accords for convenience while communicating/ easy to use.
      • Communication can be passed to many people in different places at the same time.
      • Ensures fair competition among businesses hence good business relations with other competing firms
      • Ensures consumer’s interests are protected e.g. false advertisement, overpricing.
      • Ensures that businesses comply with the law hence avoid litigation costs and business disruption.
      • It protects the environment from degradation to ensure sustainable economic development.
      • improves the image of the business thus attracting more customers/investors /employees.
      • Maintain morality in the society/cultural values to minimize social evils and crimes (accept relevant examples as explanations)
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