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Business Studies Paper1 Questions and Answers - Wahundura Boys Mock Examination 2023

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INSTRUCTIONS 

  •  Answer ALL the questions

QUESTIONS

  1. Highlight four micro environmental factors that may cause business failure. (4marks)
    1. ………………………………………………………………………………………
    2. ………………………………………………………………………………………
    3. ………………………………………………………………………………………
    4. ………………………………………………………………………………………
  2. Indicate the level of production that relates to each of the following activities. (4marks)

    ACTIVITY

    LEVEL OF PRODUCTION

    Repairing shoes

    		  

    Construction of bridge

    		  

    Picking tea

    		  

    Milling coffee

    		  
  3. Musyoka has been self-employed since completion of university education. Outline four shortcomings of being self-employed. (4marks)
    1. ………………………………………………………………………………………
    2. ………………………………………………………………………………………
    3. ………………………………………………………………………………………
    4. ………………………………………………………………………………………
  4. ABC Company limited has been the only supplier of commodity X in the entire market. Highlight four possible sources of its power. (4marks)
    1. ………………………………………………………………………………………
    2. ………………………………………………………………………………………
    3. ………………………………………………………………………………………
    4. ………………………………………………………………………………………
  5. Outline four circumstances under which a business may prefer partitioned office layout over open office layout. (4marks)
    1. ………………………………………………………………………………………
    2. ………………………………………………………………………………………
    3. ………………………………………………………………………………………
    4. ………………………………………………………………………………………
  6. Indicate the business document to which each of the following description relate. (4 marks)

    Description

    Document

    Used to alert the buyer that the goods ordered are on the way.

    		  

    A reply to a specific enquiry about the goods sold by the trader.

    		  

    Used to request for payment before goods are delivered.

    		  

    Shows the transactions that have taken place between the business and the credit customer for a given period of time.

    		  
  7. Name the type of business organization described in the following. (4marks)
    1. Formed by an act of parliament…………………………………………………...
    2. Formed by between two to fifty partners………………………………………….
    3. Owned by a single trader…………………………………………………………..
    4. A business structure that is a separate legal entity from its owner………………..
  8. Internet marketing is the process of promoting a business or brand and its products or services over the internet using tools such as social media, emails and websites. State four benefits that Joan a trader may get from internet marketing. (4 marks)
    1. ………………………………………………………………………………………
    2. ………………………………………………………………………………………
    3. ………………………………………………………………………………………
    4. ………………………………………………………………………………………
  9. Highlight four reasons why trader may prefer to hire a warehouse rather than building his/her own warehouse. (4 marks)
    1. ………………………………………………………………………………………
    2. ………………………………………………………………………………………
    3. ………………………………………………………………………………………
    4. ………………………………………………………………………………………
  10. Study the diagram below and answer the question that follow:
    10 1
    Identify four ways that may have led to the shift. (4marks)
    1. ………………………………………………………………………………………
    2. ………………………………………………………………………………………
    3. ………………………………………………………………………………………
    4. ………………………………………………………………………………………
  11. Highlight four reasons why small scale businesses continue to thrive in Kenya, despite the high competition from the large scale firms. (4marks)
    1. ………………………………………………………………………………………
    2. ………………………………………………………………………………………
    3. ………………………………………………………………………………………
    4. ………………………………………………………………………………………
  12. A farmer’s house valued at Ksh 1,200,000 was insured against fire for ksh 900,000 under ‘with average clause’. Fire occurred and damaged the house causing loss of Ksh 500,000. Determine the value of compensation due to the farmer. (4marks)
  13. Highlight four limitations of using consumer-initiated methods in consumer protection. (4marks)
    1. ………………………………………………………………………………………
    2. ………………………………………………………………………………………
    3. ………………………………………………………………………………………
    4. ……………………………………………………………………………………
  14. List four sources of public finance. (4marks)
    1. ………………………………………………………………………………………
    2. ………………………………………………………………………………………
    3. ………………………………………………………………………………………
    4. ………………………………………………………………………………………
  15. Indicate whether the following transactions will cause increase, decrease or no effect on the balance sheet totals. Use (+) for increase, (-) for decrease and (N.E) for no effect. (4marks)
     

    TRANSACTION

    EFFECT ON BALANCE SHEET TOTALS

    i.

    Bought stock of goods worth sh. 45 000/- by cash

     

    ii.

    Sold an old computer for sh. 100 000/- on credit

     

    iii.

    Additional capital worth sh. 100 000/- introduced by the owner

     

    iv.

    Cleared a bank overdraft by depositing a cheque worth sh. 20 000/-

     
  16. The following figures relate to Mwembe Tayari Traders for the year ended 31st December, 2022.

     

    ITEM

    AMOUNT(Ksh)

    i.

    Capital (31st December, 2022)

    470 000/-

    ii.

    Net loss

    10 000/-

    iii.

    Monthly additional investments

    17 500/-

    iv.

    Drawings

    30 000/-
  17. The following information was extracted from jimmy traders for the year ending 31st Dec, 2020.
    1. Carriage on sales – 100 000/=
    2. Carriage on purchases – 50 000/=
    3. Stock (1.1.2020) – 200 000/=
    4. Purchases – 700 000/=
    5. Return outwards – 25 000/=
    6. Return inwards – 60 000/=
    7. Closing stock – 27 000/=
      Required:-
      Calculate net purchases. (4marks)
  18. Indicate the source document used to record the following transactions. (4marks)
     

    TRANSACTION

    SOURCE DOCUMENT

    i.

    Received payment worth shs. 50 000/- in cash from a debtor.

    		  

    ii.

    Sale of goods worth shs. 100 000/- on credit

    		  

    iii.

    Purchase of stock of goods worth shs. 179 000/=-on credit

    		  

    iv.

    Return of goods worth shs. 15 000/- to suppliers

    		  
  19. The following amounts to Lewis Retail business for the month of September, 2020.
    1. Sales – shs. 500 000/=
    2. Cost of goods sold – shs. 300 000/=
    3. Return inwards – shs. 50 000/=
    4. Expenses were 10% of sales
    5. Discount received – shs. 120 000/=
      Calculate:-
      1. Mark – up (2marks)
      2. Net profit (2 marks)
  20. In the spaces provided indicate by writing true or false whether each of the following statements is true or false about articles of association of a company. (4marks)
     

    Statement

    True/false

    (a)

    It contains the activities the company is engaged in.

    		  

    (b)

    It indicates the procedure to be followed in calling meetings.

    		  

    (c)

    It indicates the liabilities of the shareholders.

    		  

    (d)

    It contains the rights of each class of shareholders.

    		  
  21. The following balances were extracted from the books of Spring Valley traders on
    3oth April 2010.           Sh.
    Discounts received      7, 200
    Purchases                    89, 000
    Sales                           100, 000
    Opening stock             80, 000
    Capital                        160, 000
    Carriage on sales        30, 000
    General expenses        68, 200
    Prepare a trial balance as at 30th April 2020. (4 marks)
  22. State four measures that the government may put in place to reduce the amount of money in circulation. (4 marks)
    1. ………………………………………………………………………………………
    2. ………………………………………………………………………………………
    3. ………………………………………………………………………………………
    4. ………………………………………………………………………………………
  23. Highlight four categories of business activities. (4marks)
    1. ………………………………………………………………………………………
    2. ………………………………………………………………………………………
    3. ………………………………………………………………………………………
    4. ……………………………………………………………………………………
  24. List four characteristics of economic resources. (4marks)
    1. ………………………………………………………………………………………
    2. ………………………………………………………………………………………
    3. ………………………………………………………………………………………
    4. ………………………………………………………………………………………
  25. State the term represented by the following definitions. (4 marks)
    1. This is the value of the best next alternative foregone when acquiring something…………………………………………………………………………...
    2. This means limited or not adequate in supply………………………………………
    3. Selecting that human want to satisfy first based on the scale of preference…………………………………………………………………………...
    4. Use of a good or service to satisfy human want……………………………………

MARKING SCHEME

  1. Highlight four micro environmental factors that may cause business failure. (4marks)
    • Poor management
    • Insufficient capital/ inadequate financial resources
    • Use of out-dated technology by the business
    • Inappropriate labour/ unskilled labour/lazy employees
    • Inappropriate business culture
    • Poor decision making by owners/ uncommitted owners/reckless owners
    • Inadequate physical facilities e.g. buildings
    • Failure to carry out research
    • Inappropriate business culture
  2. Indicate the level of production that relates to each of the following activities. (4 marks)

    ACTIVITY

    LEVEL OF PRODUCTION

    Repairing shoes

    Tertiary level

    Construction of bridge

    Secondary level

    Picking tea

    Primary level

    Coffee milling

    Primary level
  3. Musyoka has been self-employed since completion of university education. Outline four shortcomings of being self-employed. (4marks)
    • There is no job security/ no guaranteed salary
    • Limited benefits and protection e.g. health care insurance, retirement plans, leave etc.
    • Increased work load and responsibilities/ long waiting hours.
    • Isolation and lack of collaboration.
    • Irregular income hence difficult to plan.
    • There are limited resources e.g. loan/limited capital/limited security to acquire loans.
    • High risk of uncertainty.
  4. ABC Company limited has been the only supplier of commodity X in the entire market. Highlight four possible sources of its power. (4marks)
    • Exclusive ownership and control of important input/resources in production.
    • Ownership of patent rights/copyrights/production rights.
    • Natural monopoly which results from the economies of scale.
    • Prohibitive/ high initial size and cost of capital/ high risk of entering into the industry.
    • Business combinations/ collusion/mergers/cartels which unite purposely to control of dominate the market.
    • Application of restrictive practices to limit other firms from joining.
    • Small market.
  5. Outline four circumstances under which a business may prefer partitioned office layout over open office layout.(4marks)
    • When the firm wants confers status to top level employees.
    • When there is need for privacy for confidential discussions.
    • When the firm wants to provide security for valuable and sensitive items such as documents and cash.
    • If the firm wants its employees to regulate their own air conditioning, lighting and heating in the room according to their needs.
    • If the business wants to maintain the good condition of the offices such as paints.
    • When the business wants to maintain less noise and disturbance from other office workers.
  6. Indicate the business document to which each of the following description relate. (4 marks)

    Description

    Document

    Used to alert the buyer that the goods ordered are on the way.

    Advice note

    A reply to a specific enquiry about the goods sold by the trader.

    A quotation

    Used to request for payment before goods are delivered.

    Pro-forma invoice

    Shows the transactions that have taken place between the business and the credit customer for a given period of time.

    Statement of account
  7. Name the type of business organization described in the following. (3marks)
    • Formed by an act of parliament……state corporation
    • Formed by between two to fifty partners….....partnership
    • Owned by a single trader……sole proprietorship
    • A business structure that is a separate legal entity from its owner…….company
  8. Internet marketing is the process of promoting s business or brand and its products or services over the internet using tools such as social media, emails and websites. State four benefits that Joan a trader may get from internet marketing. (4 marks)
    • A firm can advertise goods universally.
    • Access to word markets for increased sales/global market research.
    • Instant receipt of order from all over the world.
    • Safe payment through electronic fund transfer (EFT).
    • Reduced paper work on customer records.
    • Reduced cost of sales promotion is cost effective.
    • It’s easier to reach the target audience customers and respond to their queries.
    • It provides measurable results which allows the business to market driven decisions
    • Provide an interactive engagement as sales agent can respond to their target audience in real time/time saving
    • It has 24 hour availability thus increased marketing hours.
    • It’s flexible in terms of implementation and adjustments based on real time market trends.
  9. Highlight four reasons why trader may prefer to hire a warehouse rather than building his/her own warehouse. (4 marks)
    • Hiring a warehouse enables a trader to avoid or save on maintenance/repair cost.
    • Hiring a warehouse enables a trader to concentrate on their primary objectives.
    • When they don’t want to spend money on capital investment.
    • Hiring a warehouse enables a trader to access improved expertise.
    • Hiring a warehouse enables a trader to enjoy improved flexibility.
  10. Study the diagram below and answer the question that follow:
    Identify four ways that may have led to the shift. (4marks)
    • Unfavourable changes in consumer preferences.
    • Decrease in consumer income.
    • Availability of more attractive substitutes.
    • Negative changes in demographic e.g. decrease in population.
    • Negative/ unfavourable expectations or economics condition.
    • Unfavourable government policy/regulations
    • Natural calamities/disasters/economic crisis
  11. Highlight four reasons why small sake businesses continue to thrive in Kenya, despite the high competition from the large scale firms. (4marks)
    • Niche markets/market tailored to meet specific market demand.
    • Small scale businesses are flexible/they easily adapt to changes in market conditions.
    • They are able to offer personalised customer service and attention to their customers compared to large firms.
    • They are able to exploit local knowledge and connections hence creating customer base.
    • They are cost effective/ lower overhead cost compared to large firms/easy management.
    • Nature of the product/service some commodities can only be provided in small units e.g. barber shop.
    • Quick decision making.
    • Few legal formalities required in its formation.
  12. A farmer’s house valued at Ksh 1,200,000 was insured against fire for ksh 900,000 under ‘with average clause’. Fire occurred and damaged the house causing loss of Ksh 500,000. Determine the value of compensation due to the farmer. (2marks)
    Compensation = sum assured/value of the property × 100
    = 900,000/1,200,000 ×100
    = Ksh. 375,000
  13. Highlight four limitations of using consumer-initiated methods in consumer protection. (4marks)
    • Lack of proper registration on consumer protection.
    • Poor funding to undertake their operations.
    • Poor/inadequate/government support.
    • Ignorance by consumers on existence of avenues to follow to ensure they are not exploited.
    • Lack of adequate information by consumers about their rights.
    • Majority of consumers buy goods individually.
    • Emergence of vigilante groups.
    • Lack of strong bodies for collective bargaining.
  14. List four sources of public finance. (4marks)
    • Taxes.
    • Licenses.
    • Court fines.
    • Donor aid.
    • Fees.
    • Treasury bond and bills.
  15. Indicate whether the following transactions will cause increase, decrease or no effect on the balance sheet totals. Use (+) for increase, (-) for decrease and (N.E) for no effect. (4marks)
     

    TRANSACTION

    EFFECT ON BALANCE SHEET TOTALS

    i.

    Bought stock of goods worth sh. 45 000/= by cash

    N.E

    ii.

    Sold an old computer for sh. 100 000/= on credit

    N.E

    iii.

    Additional capital worth sh. 100 000/= introduced by the owner

    +

    iv.

    Cleared a bank overdraft by depositing a cheque worth sh. 20 000/=

    -
  16. The following figures relate to Mwembe Tayari Traders for the year ended 31st December, 2022.
     

    ITEM

    AMOUNT(Ksh)

    i.

    Capital (31st December, 2022)

    470 000/=

    ii.

    Net loss

    10 000/=

    iii.

    Monthly additional investments

    17 500/=

    iv.

    Drawings

    30 000/=

    Determine capital as at 1st January, 2022. (4marks)
    Initial capital = final capital +net loss +drawings – annual additional investments
    Initial capital = 470, 000 + 10,000 + 30,000 – (17,500 *12)
    Initial capital = 510, 000 – 210, 000
    Initial capital = shs. 300, 000/=
  17. The following information was extracted from jimmy traders for the year ending 31st Dec, 2020.
    1. Carriage on sales – 100 000/=
    2. Carriage on purchases – 50 000/=
    3. Stock (1.1.2020) – 200 000/=
    4. Purchases – 700 000/=
    5. Return outwards – 25 000/=
    6. Return inwards – 60 000/=
    7. Closing stock – 27 000/=
    8. Required:-
      Calculate net purchases. (4marks)
      Net purchases = Purchases + Carriage on purchases-Return outwards
      Net purchases = 700, 000 + 50, 000 – 25, 000)
      Net purchases = 725,000/=
  18. Indicate the source document used to record the following transactions. (4marks)
     

    TRANSACTION

    SOURCE DOCUMENT

    i.

    Received payment worth shs. 50 000/= in cash from a debtor.

    Outgoing receipt/ receipt issued

    ii.

    Sale of goods worth shs. 100 000/= on credit

    Outgoing invoice/invoice issued/sales invoice

    iii.

    Purchase of stock of goods worth shs. 179 000/= on credit

    Incoming invoice/purchases invoice

    iv.

    Return of goods worth shs. 15 000/= to suppliers

    Incoming credit note/credit not received
  19. The following amounts to Lewis Retail business for the month of September, 2020.
    1. Sales – shs. 500 000/=
    2. Cost of goods sold – shs. 300 000/=
    3. Return inwards – shs. 50 000/=
    4. Expenses were 10% of sales
    5. Discount received – shs. 120 000/=
      Calculate:-
      1. Mark – up (2marks)
        Mark – up = gross profit/COS x100
        Net sales = 500, 000 – 50, 000 = 450, 000
        Gross profit = net sales – COS/COGS
        Gross profit = 450,000 – 300, 000 = 150, 000/=
        MARK –UP = 150,000*100/300,000 = 50% or ½ or 1:2
      2. Net profit (2 marks)
        Net profit = gross profit – expenses
        Net profit = (150, 000 + 120, 000) – (10/100*500, 000) = 270,000 – 50, 000 = shs. 220, 000/=
  20. In the spaces provided indicate by writing true or false whether each of the following statements is true or false about articles of association of a company. (4marks)
     

    Statement

    True/false

    (a)

    It contains the activities the company is engaged in.

    False

    (b)

    It indicates the procedure to be followed in calling meetings.

    True

    (c)

    It indicates the liabilities of the shareholders.

    False

    (d)

    It contains the rights of each class of shareholders.

    True
  21. The following balances were extracted from the books of Spring Valley traders on
    3oth April 2010.            Sh.
    Discounts received         7, 200
    Purchases                      89, 000
    Sales                             100, 000
    Opening stock              80, 000
    Capital                          160, 000
    Carriage on sales         30, 000
    General expenses        68, 200
    Prepare a trial balance as at 30th April 2020. (4 marks)
    Spring Valley Traders
    Trial balance
    As at 30th April, 2010

    Accounts

    Dr

    Cr

    		 

    Discounts received

    Purchases

    Sales

    Opening stock

    Capital

    Carriage on sales

    General expenses

    89, 000

    80, 000

    30, 000

    68, 200

    Total

    267, 200

     

     

    267, 200

    		  
  22. State four measures that the government may put in place to reduce the amount of money in circulation. (4 marks)
    • Instructing commercial banks to only lend in priority areas/ selective credit control.
    • Sale of securities in the market/ open market operations.
    • Increasing interest rates on loans advanced by commercial banks / increasing bank rate.
    • Requiring that commercial banks maintain a cash ratio/ increasing the cash ratio.
    • Special / compulsory deposits.
  23. Highlight four categories of business activities. (5marks)
    • Provision of services.
    • Extraction
    • Processing of raw materials
    • Manufacturing
    • Construction
    • Trade.
    • Distribution of goods.
  24. List four characteristics of economic resources. (5marks)
    • Scarce in supply.
    • Have money value.
    • Have utility.
    • Are unevenly distributed.
    • Have alternative uses
    • Are complementary.
    • Can be combined.
    • Can change ownership.
  25. State the term represented by the following definitions. (4 marks)
    1. This is the value of the best next alternative foregone when acquiring something.
      • Opportunity cost
    2. This means limited or not adequate in supply.
      • Scarcity
    3. Selecting that human want to satisfy first based on the scale of preference
      • Choice
    4. Use of a good service to satisfy human want.
      • Consumption
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