Business Studies Paper 1 Questions and Answers - Lainaku II Joint Mock Examination 2023

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Instructions to candidates

  • This paper consists of 25 questions.
  • Answer all the questions in this paper.
  • Non –programmable silent electronic calculator may be used.
  • Candidates must answer the questions in English.
  1. Give four features of Basic human wants. (4 marks)
  2. State four essential elements of effective communication. (4 marks)
  3. Outline four sources of government revenue. (4 marks)
  4. State four ways in which a good filing system may facilitate the operation of an office. (4 marks)
  5. Outline four circumstances in which the government may be involved in businesses.  (4 marks)
  6. Outline four reasons that may make a producer to by-pass the wholesaler when distributing goods. (4 marks)
  7. Highlight four ways in which inflation is beneficial to a country. (4 marks)
  8. Highlight four types of demand. (4 marks)
  9. Classify the following resources as natural, man-made or human. (4 marks)
     (a) Engineer  
     (b) Boat  
     (c) Boat  
     (d) Soda ash  
  10. The following trial balance was wrongly prepared by Shida Shida traders.
                                              Shida Shida Traders
                                                 Trial Balance
                                        For the year ended 31/12/2021
     Building  400,000  
     Return inward    5,400
     Carriage inward  4,000  
     Carriage outward    6,800
     Rent received  1,200  
     Creditor  10,100  17,900
     Return outward  800  
     Stock  8,000  
     Bank overdraft  19,500  
     Prepaid insurance    9,000
     Motor vehicle    200,000
     Capital    619,500
    Prepare the correct trial balance of Shida Shida Traders. (5 marks)
  11. Outline four differences between ordinary shares and preference shares. (4 marks)
  12. State the financial ratio described by each of the statement below. (4 marks)
     Statement  Ratio
     (a) Determine the rate at which goods move in and out of the Business.  
     (b) Determine whether it was worth investing in the Business.  
     (c) Compare current assets with current liabilities  
     (d) Gross profit expressed as percentage of net sales.  
  13. Highlight four causes of unemployment. (4 marks)
  14. Outline four characteristics of an open air market. (4 marks)
  15. Indicate the effect of each of the following transactions on assets, liabilities and capital by using increase, decrease or no effect. (4 marks)
     Transaction  Assets  Liabilities  Capital
     (a) Cashed a cheque for personal use.      
     (b) Bought premises on credit.      
     (c) Paid a creditor by cash.      
     (d) Converted a personal car into business use.      
  16. Outline four functions of an entrepreneur. (4 marks)
  17. State four reasons why flower exporter would transport their produce by Air rather than by sea. (4 marks)
  18. State four types of advertising. (4 marks)
  19. Give four basic features of a market. (4 marks)
  20. Highlight four factors that limit the growth of a country’s National income.(4 marks)
  21. List four books of original entry that may be used to record transactions affecting stock. (4 marks)
  22. Outline four services offered by commercial banks to their customers. (4 marks)
  23. Outline four goals of development in Kenya. (4 marks)
  24. Highlight four ways in which the balance of payment of a country may be improved.  (4 marks)
  25. The following balances were extracted from the books of Twain Traders on 30th April 2023.
    Premises            202,000
    Creditors             60,500
    Bank                    5,200
    Debtors               18,800
    Bank overdraft     52,200
    Determine the net worth of the business as at 30th April 2023. (3 marks)


  1. Features of Basic human wants.
    1. Necessary for survival.
    2. They are universal.
    3. They are felt needs.
    4. They cannot be postponed.
    5. They are satisfied before secondary wants.  (4 x 1= 4marks)
  2. Essential elements of effective communication.
    1. A sender who can encode the message.
    2. A clear message.
    3. Appropriate channel/medium.
    4. A receiver who can decode the message.
    5. Timely feedback.  (4 x 1= 4marks)
  3. Sources of government revenue.
    1. Grants and donations.
    2. Licensing fee.
    3. Government borrowing.
    4. Rent and rates paid for use of government property.
    5. Dividends and profits earned from government direct investments.
    6. Taxes.
    7. Proceeds from sale of government property.
    8. Fines charged from law offenders
    9. Escheats.   (4 x 1= 4marks)
  4. Ways in which a good filing system facilitates the operations of an office.
    1. Easy retrieval of information.
    2. Office is kept tidy.
    3. Information is preserved for future reference.
    4. Security of documents is enhanced.
    5. Facilitates quicker decision making.
    6. Ensures confidentiality of information by restricting access by unauthorized people.  (4 x 1= 4marks)
  5. Circumstances in which government may be involved in businesses.
    1. When business venture requires large sums of money which individuals enterprises may not provide.
    2. When goods and services to be provided are essential to the welfare of the citizens.
    3. When there is need to protect consumers from exploitation by private enterprises.
    4. When government desire to create employment for the citizens.
    5. When government needs to generate income.
    6. When government want to reduce foreign dominance in the economy.
    7. When government want to attract foreign investment  (4 x 1= 4marks)
  6. Reasons that make a producer to by-pass wholesaler.
    1. Having own retail outlet.
    2. Dealing in perishable goods which require shorter channels.
    3. Dealing in technical goods.
    4. Need to keep price of goods low.
    5. If it is a government policy.
    6. When production is in small quantity.
    7. When producer has enough storage facilities.
    8. When goods are produced on order.
    9. Limited geographical spread of the market.  (4 x 1= 4marks)
  7. Ways in which inflation is beneficial to a country.
    1. Workers have motivation to work hard.
    2. Sellers earn/make more profit.
    3. Debtors pay less.
    4. Leads to maximum utilization of resources.
    5. Increased production.  (4 x 1= 4marks)
  8. Four types of demand.
    1. Joint demand.
    2. Composite demand.
    3. Derived demand.
    4. Competitive demand.  (4 x 1= 4marks)
    1. Human.
    2. Man-made.
    3. Natural.
    4. Human.  (4 x 1= 4marks)

  10.                                             Shida Shida Traders
                                                    Trial balance
                                                    As at 31/12/2021✔
     Building  400,000✔  
     Return inward   5,400✔  
     Carriage inward   4,000✔  
     Carriage outward   6,800✔  
     Return outward     800✔
     Rent Received    1,200✔
     Creditor    10,100✔
     Debtor  17,900✔  
     Stock  8,000✔  
     Bank overdraft    19,500✔
     Prepaid insurance  9,000✔  
     Motor vehicle  200,000✔  
     Capital    619,500✔
     Total  651,100  651,100
    N/B; To score total mark, both totals must be correct. (15 x 13 = 5 marks)
  11. Differences between ordinary shares and preference shares.
     Ordinary shares  Preference shares
     Have voting rights  Have no voting rights
     Claim dividends after preference shares  Claim dividends before ordinary shares
     Are owners of the company  They are company creditors
     Have no fixed rate of Dividends  Have fixed rate of dividends
     If the company is being liquidated, they are paid after preference shares. Paid before ordinary shares, in case of liquidation of the company.
                                                                                                                                     (4 x 1= 4marks)
    1. Rate of stock turnover.
    2. Return on capital invested.
    3. Current ratio/working capital ratio.
    4. Margin     (4 x 1= 4marks)
  13. Causes of unemployment.
    1. Inappropriate education system.
    2. Rural to urban migration.
    3. Use of inappropriate technology.
    4. Rapid population growth.
    5. Inadequate co-operate factor input.
    6. Lack of product market.
    7. Seasonality in production.  (4 x 1= 4marks)
  14. Characteristics of an open air market.
    1. Traders pay entrance fee to sell goods in the market.
    2. It’s under the administration of the county council/town council.
    3. Open in particular days.
    4. Organized in a way that traders selling similar commodities are allocated specific areas.   4 x 1= 4marks)
       Assets  Liabilities  Capital
     (a)  Decrease✔  No effect✔  Decrease✔
     (b)  Increase✔  Increase✔  No effect✔
     (c)  Decrease✔  Decrease✔  No effect✔
     (d)  Increase✔  No effect✔  Increase✔
                                                                                                                            (12 x 13 = 4 marks)
  16. Functions of an entrepreneur.
    1. Starting the business.
    2. Controlling the business operations.
    3. Making business decision.
    4. Acquiring and co-coordinating other factors of production.
    5. Bearing all Business risks.
    6. Enjoys all the profit of the business.
    7. Paying for expenses e.g. water, electricity e.t.c.
    8. Rewarding/paying other factors of production.  (4 x 1= 4marks)
  17. Reasons why flower exporter would use air rather than sea.
    1. If the flowers are urgently required since air transport is fast.
    2. Flowers are perishable hence require faster means.
    3. Flowers have a very high per unit value hence require maximum security.
    4. Flowers are light in weight/not bulky.  (4 x 1= 4marks)
  18. Four types of advertising.
    1. Product advertising.
    2. Informative advertising.
    3. Institutional advertising.
    4. Persuasive advertising.
    5. Celebrity advertising.
    6. Reminder advertising.  (4 x 1= 4marks)
  19. Basic features of a market.
    1. Availability of buyers.
    2. Availability of sellers.
    3. Availability of goods and services.
    4. Availability of medium of exchange.
    5. A platform/place for conducting transactions.
    6. Freedom to buy and sell.   (4 x 1= 4marks)
  20. Factors that limits the growth of a country’s national income.
    1. Inadequate labor force/unskilled manpower.
    2. Political instability.
    3. Reduced foreign investment.
    4. Low entrepreneurial culture.
    5. Low value of exports compared to imports.
    6. Lack of aggressiveness of entrepreneurs.
    7. Lack of peace/ security.
    8. Low level of technology.
    9. Poor infrastructure development e.g. roads
    10. A lot of repatriation of incomes by foreign investors.
    11. High number of dependants.    (4 x 1= 4marks)
  21. Books of original entry used to record transactions affecting stock.
    1. Purchase journal
    2. Sales journal.
    3. Sales returns journal/return inward journal
    4. Purchase returns journal/return outwards journal.    (4 x 1= 4marks)
  22. Services offered by commercial banks to their customers.
    1. Safeguarding valuable items.
    2. Lending money.
    3. Receiving deposits.
    4. Trustee services.
    5. Transferring money.
    6. Advisory services.
    7. Referee services.
    8. Facilitate international payment through letter of credit.   (4 x 1= 4marks)
  23. Goals of development in Kenya.
    1. Alleviation of poverty and hunger.
    2. Provision of adequate health facilities.
    3. Alleviation of illiteracy.
    4. Environmental conservation.
    5. Alleviation of unemployment.
    6. Equitable distribution of incomes.   (4 x 1= 4marks)
  24. Ways in which the B.O.P of a country may be improved.
    1. Reduction of imports.
    2. Diversification of exports.
    3. Export promotion.
    4. Devaluation of a country’s currency.
    5. Encouraging foreign investment.
    6. Restricting outflow of capital.
    7. Deflation/reduce money supply.    (4 x 1= 4marks)
  25. Net worth = Total Assets – Total Liabilities
                     = (202,000✔ + 5,200✔ + 18,800✔) – (60,500✔ + 52,200✔)
                     = 226,000 – 112,700
                     = 113,300✔        (6 x 12 = 3marks)
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