Business Studies Paper 2 Questions and Answers - Mangu High School Mock Exams 2023

1.  
   1. Explain five methods used by central bank to increase money supply in the economy.    (10mks)
   2. Explain five principles of insurance.      (10mks)
2.  
   1. Explain five negative effects of inflation.       (10mks)
   2. The following trial balance was extracted from the books of Carson Traders on 31 December 2005 after preparing the trading account.
                                                     Dr                            Cr
      Capital                                                                130,000
      Drawings                             27,000
      Debtors and creditors          25,350                     22, 500
      Stock 31 Dec. 2005             25,000
      Wages and salaries             31,650
      Gross Profit                                                           58,920
      Discount                                3,540                         3,300
      Advertising                            3,130
      Bad debts                              1,100
      General expenses                 5,100
      Rates                                     2,750
      Cash in land                             800
      Cash at bank                        3 ,300
      Motor vehicles at cost          11,000
      Premises.                            75, 000                                           
                                                  214,720                         214 720    
      The following additional information is provided.
      1. Wages due shs. 5,400
      2. Rates paid in advance shs 650
      3. Motor vehicles to be depreciated 20% on cost.
         You are required to prepare
         1. Profit and loss account for the year ended 31 Dec. 2005 (6mks)                   
         2. Balance sheets as at 31^st Dec. 2005 ( 4mks)
3.  
   1. Discuss any five documents used in recording transactions in books of original entry
   2. Discuss five factors that may influence entrepreneurial practices positively  in the country.    (10mks)
4.  
   1. Explain five benefits of matatu reforms in transport sector.       (10mks)
   2. Using a well labeled diagram, explain shift in demand and supply curve respectively
5.  
   1. Muema is planning to construct a warehouse for renting. Explain five measures that he may take to ensure its smooth operation.
      (10 Marks
   2. Outline five measures that the Kenya government may take to reduce unemployment. (10 Marks)
6.  
   1. Explain five methods used to distribute imported manufactured goods.      (10mks)
   2. The following transactions relates to Konate Traders for the month of December 2010.
      Dec 1^st    Started a business with sh. 200,000 in the Bank account.
             2^nd   Bought furniture for sh, 50,000 and paid by cheque
             3^rd    Sold goods on credit to Tila shs, 20,000; Katu 10,000
             4^th    Bought goods on credit from Kahama sh 30,000; Kanga shs. 40,000
             5^th    Returned faulty goods to Kahama sh 5,000
             6^th    Paid Kahama on account by cheque less 10% cash discount.
             7^th    Received faulty goods from Katu shs. 2000
             8^th    Received payment due from Tila and Katu by cheque less 5% cash  discount.
             9^th    Cash sales shs. 100,000
            10^th   Paid for wages shs. 20,000 by cash and electricity shs.10,000 by cheque.
            11^th   Deposited  all the cash in hand into the bank account.
            Required: 
      Prepare a three column cash book duly balanced (10mks)

MARKING SCHEME

1.  
   1. Methods used by central bank to increase money supply
      • Reducing bank rates
      • Reducing liquidity ratio
      • Buying government securities
      • Reductions on compulsory deposits
      • Opening credit to all sectors in the economy
      • Directives to increase credit lending
      • Moral persuasions to banks to increase credit lending
   2. Principles of insurance ​
      1. Principle of indemnity​ - Insurance aims at restoring the insured to the financial position he/she was in before the loss occurred and not benefit him/her.
      2. Insurable interest - ​The insured must prove that the occurrence of the risk will cause him/her financial loss.
      3. Utmost good faith (uberrima fidei) - The insured must disclose all materials and relevant information that may affect insurance contract it subsequently comes to light.
      4. Proximate cause. - ​There must be a fairly close connection between the cause of the loss and the risk insured.
      5. Subrogation. - In case of total loss and full compensation the insurer, assumes the rights that insured had on the property destroyed.
      6. Contribution - In case of property being insured by more than one insurance firm, all the insurers share the burden of compensation in the proportion of coverage of the risk.
2.  
   1. Negative effects of  inflation
      1. Lowering standard of living
      2. Discouraging savings
      3. People loose confidence in the currency
      4. Leads to balance of payments problems
      5. Leads to high unemployment 
          
   2.  
      1.                                                                            Carson Traders
                                                        Profit and Loss A/C for the year ended 31st Dec. 2005.
         

         Expenses                                  sh.                    Sh. Wages and salaries                                         31,650√ Add:  Accrued wages                5,400√                                                     37,050 Rates                                         2750√ Less: Prepaid rates                      650√                                                        2100 Depreciation net veh.                  2200√ Discount allowed                        3540√ Advertising                                  3130√ Balance debts                              1100√ General expensed                       5100√ Net profit                                      8000√                                                            62220

         Gross profit                                 58920√  Discount received                          3300√  62220

      2.                                                                        Carson Traders
                                                                 Balance sheet as at 31st Dec. 2005.
         

         Fixed Assets                 sh.                          Sh. Premises                                                   75000√ Motor vehicles             11000 Less: depreciation        2200                     8,800                                                                      83,800 Current Assets Stock                            25000√ Debtors                         25350√ Prepaid rates                 650√ Cash at bank                 3300√ Cash at hand                   800√                   55100                                                                      138,900

         Sh.                    Sh. Capita                                                      130 000 Add: Net profit                                             8000√                                                                  138000 Less: Drawings                                           27000√                                                                   111,000 Current Liabilities Creditors                          22500√ Accrued wages                 5400√                                              27900                                                                  138900

         12 ticks x 1/3  
3.  
   1. Documents used in recording transactions 
      1. Invoice 
      2. Debit note 
      3. Credit note 
      4. Statements of accounts
      5. Receipts 
      6. Bank statements 
   2. Factors that influence entrepreneurial practices 
      • Positive/ good societal attitude
      • Government support 
      • Good peer influence 
      • Proper education and training 
      • High number of successful entrepreneurs
      • High number of financial institutions 
         
      • High level of personal motivations 
4.  
   1. Benefits of matatu reforms  
      • Less congestions 
      • Reductions in accidents 
      • Adequate insurance
      • Passengers confidence and safety 
      • More revenue to the government 
      • Order in the terminals as illegal touts evacuated 
      • Less pollutions 
   2. to be drawn 
5.  
   1.  
      • Suitable location to receive and issue goods
      • Proper buildings suitable to the type of goods to be stored
      • Equipment and facilities for handling goods such as forklifts
      • Safety equipment for protection of goods against water and sunshine and personal protection
      • Accessibility to its users near transport system
      • Enough space for easy movement and accommodation of goods
      • Well trained staff for proper management
      • Requirement of the law
   2.  
      • Increase government expenditure to stimulate aggregate demand, hence the level of         production
      • Encourage local private investment to increase productivity
         
      • Diversify the Kenyan economy
      • Protect local industries from foreign competition in order to maintain employment level
      • Find market for locally produced goods through aggressive export promotion in order to expand production capacities of local industries
6.  
   1. Five channels for distribution of imported manufactured goods . 
      1. Foreign manufacturer  → local consumer
      2. Foreign manufacturer  →  Foreign agent/exporter → local consumer.
      3. Foreign manufacturer  → Foreign agent → local agent → local consumer.
      4. Foreign manufacturer  → local agents/importers → local consumer.
      5. Foreign manufacturer    → Foreign agent → local agent/import merchant → local wholesaler → local consumer.
      6. Foreign manufacturer  → Foreign agent → local agent→ local wholesaler → local retailer →local consumer.
      7.  
         Foreign manufacturer  → local agent/import merchant → local wholesaler → local retailer → local consumer.
      8. Foreign manufacturer  → local retailer → local consumer.
      9. Foreign manufacturer  → local wholesaler→ local consumer.
      10. Foreign manufacturer  → local wholesaler → local retailer→ local consumer. 
      11. Foreign manufacturer  → foreign agent → local wholesaler → local consumer.
      12. Foreign manufacturer  → Foreign agent → local wholesaler→ local retailer → local consumer.
      13. Foreign manufacturer  → own retail outlet → local consumer.
   2.                                                                   Konate Traders 
                                                                Three column cash book
                                                                     As at 31^st Dec 2010
      

      Date

      Details

      L.F

      D.A

      Cash

      Bank

      Date

      Details

      L.F

      DR

      Cash

      Bank

      1st/12    3/12    8/12      9/12   31/12

      Capital   Tila   Katu   Sales   Cash

      c

      1000  400     1400

      100000    100000

      200000  19000    7600  80000    306660

      1st/12    2/12      6/12   10/12   11/12   31/12   31/12

      Furniture  Purchases  Kahama  Wages  Electricity  Bank  Balance

      c  c/d

      2500  2500

      20000  80000  100000

      50000  40000  22500  10000  184100  306600