Business Studies Paper 1 Questions and Answers - Momaliche Post Mock 2020 Exam

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  • Attempt ALL questions in the spaces provided.
  1. State four challenges that a business without a plan will encounter in its operations. (4mks)
  2. An entrepreneur may spot a gap in the market which may be converted into a business idea. Identify four such gaps. (4mks)
  3. List down four trends in business ownership (4mks)
  4. Outline four differences between Direct production and Indirect production (4mks)
  5. The following balances were extracted from the books of Kariuki traders on 31st March 2018
    Fixed assets              300,000
    Current assets           123,700
    Creditors                   84,500
    5 year bank loan        125,000
    Determine the networth of the business as at 31st March 2018 (4mks)
  6. Highlight four similaritiess between a bill of exchange and a promissory note. (4mks)
  7. Indicate the type of journal in which each of the following transactions would be recorded.(4mks)
             Transaction                                                                    Type of journal
    1. Goods previously sold on credit were returned                    …………………….
    2. Goods bought on credit                                                     …………………….
    3. Goods sold for cash                                                          ……………………..
    4. Motor vehicle sold on credit                                               ………………………
  8. Outline four ways of solving unemployment. (4mks)
  9. Outline four ways in which commercial attachees may promote trade between their country and other countries. (4mks)
  10. On 1st January 2017 Mr. Nyachae started a business with Ksh. 10,000 in cash. The following transactions took place during the first week of his business commencing
    2nd January     Deposited Sh. 5,000 in the bank
    3rd January      Purchased stationery worth Sh. 1,000 in cash.
    4th January      Bought goods worth Sh. 2,000 by cheque
    Enter the above transactions in the relevant “T” accounts. (4mks)
  11. Outline four differences between insurance and assurance. (4mks)
  12. Give four ways in which consumers benefit from advertising (4mks)
  13. State four features of monopolistic competition (4mks)
  14. Outline four requirements for one to start a limited liability company as one of the forms of business units. (4mks)
  15. State four characteristics of chain stores type of retail business. (4mks)
  16. Identify the type of communication described below. (4mks)
    Description  Type of communication 
    Principal addressing students on assembly   
    Rumuors going round that the most hardworking employee will be awarded  
    Student group discussion in a class  
    An employee seeking for permission   
  17. Highlight four reasons why E-mail is increasingly becoming popular as a means of communication. (4mks)
  18. Give four implications of a declining population (4mks)
  19. Highlight four items that affect the asset stock. (4mks)
  20. Classify the following accounts into personal, private, real or nominal (4mks)
     Account   Type of account 
     Office equipment   
  21. Name what the letters a, b, c and d represent in the circular flow of income. (4mks)
  22. Omolo insured his house worth sh. 5,000,000 for sh. 4,000,000. His house was damaged by fire to the tune of sh. 3,000,000. Calculate how much Omolo was compensated. (4mks)
  23. Identify any four Trade malpractices that consumers need protection against. (4mks)
  24. Outline four functions of commercial banks (4mks)
  25. State four types of capital in a business. (4mks)


  1. Challenges faced by a business without a business plan
    1. Workers will not be motivated.
    2. Since financiers need this document, it will be difficult to access more finances.
    3. There will be very many mistakes
    4. It will not be able to identify strengths and weaknesses
    5. It will be difficult to know the finances required.
    6. Allocation of resources will be difficult.
    7. Potential investors will not have a reference document
  2. Gaps in a business
    1. Poor quality goods and services
    2. High prices of products
    3. Low quantities
    4. Unavailability of a given product in the market
    5. Lack of after sales services
    6. Lack of varieties of goods and services
  3. Trends in business ownership
    1. Privatization
    2. Globalization
    3. Amalgamation/merger
    4. Franchising
    5. Internet
    6. Absorptions/take overs
    7. Holding companies
    8. Cartels
    9. Multinationals
    10. Front Office Savings Account
  4. Differences between direct production and indirect production.
     Direct production    Indirect production 
    Production is meant for one’s own consumption  Production is meant for sale 
    Production is done on small scale Production is done on large scale 
    Poor quality produce High quality produce
    Simple methods of production used i.e no use of machines Modern technology extensively used
    No specialization  There is specialization 
    No surplus production  There is surplus production for the market 
  5. Determining the networth
    Assets = Capital + Liabilities
    Capital = Assets - Liabilities
    Total Assets                             Total liabilities
    Fixed assets    300,000             creditors              84,500
    Current assets 123,700             5 year bank loan 125,000
                          423,700                                      209,500
    Networth = 423,700 – 209,500
  6. Similarities between a bill of exchange and a promissory note
    1. Both can be discounted before maturity
    2. Both are acknowledgement of a debt
    3. Both are negotiable from one person to another
    4. Both allow debtors time to organize for payment.
  7. Types of journal
    1. Sales returned journal
    2. Sales journal
    3. Cash receipt journal
    4. General journal
  8. Methods of solving unemployment
    1. Encouragement of local and foreign investment to increase production activities
    2. Use of appropriate technology
    3. Adoption of a relevant education system
    4. Population control
    5. Encouraging informal sector in order to encourage self-employment
    6. Transforming rural sector in order to reduce rural-urban migration.
    7. Increased government expenditure
    8. Diversification of the economy
  9. Ways in which commercial attatches may promote trade between their country and other countries
    1. Assist in organizing trade fairs and exhibitions
    2. Advise exporters on standards and legal requirements
    3. Carrying out market research
    4. Provide information about business opportunities
    5. Aid in facilitating payments
  10. Preparation of ledger accounts. (Title must exist)
  11. Differences between insurance and assurance
    Insurance  Assurance 
    Has no surrender value  Has a surrender value 
    The insurance contract is renewed yearly  Insurance contract is for life and does not require renewing 
    Has no maturity date  Has maturity date 
    There must be proof of insurable interest  There is no proof of insurable interest 
    Risk insured may or may not happen  Risk insured against must happen 
    Principle of subrogation/ Indemnity applies  Principle of subrogation/Indemnity does not apply 
    Cannot be used as a saving scheme  Can be used as a saving scheme 
    Protection is offered to property Protection is offered to life
  12. Ways in which consumers benefit from advertising
    1. Consumers get entertained from the adverts
    2. It informs consumers about offers in the market
    3. Consumers are guided on where to get the products
    4. Consumers enjoy a variety of products
    5. Competitions lead to quality products
    6. Consumers are made aware of the products in the market
    7. Consumers get cheaper prices due to competition
  13. Features of monopolistic competition.
    1. Firms set similar prices
    2. There is free entry and exit
    3. Factors of production are not controlled
    4. There is perfect knowledge in the market
    5. Sellers sell differentiated products
    6. There are many buyers and sellers
    7. Actions of one firm are closely monitored by other firms
  14. Requirements for one to start a limited liability company as one of the business units
    1. Memorandum of association
    2. Article of association
    3. List of directors
    4. Declaration of compliance
    5. Statement of share capital showing the total amount of capital that the company wishes to raise and it’s division into shares
  15. Characteristics of a chain store
    1. Similar shop appearance and name
    2. Sell similar types of products
    3. Charge standard prices for their products
    4. All purchases are centralized
    5. Goods are freely transferable from one branch to another
    6. Administration is done from the head office
    7. Operate several branches in the country
    8. Sales are decentralized
  16. Types of communication
    1. Downward communication
    2. Informal communication
    3. Horizontal/lateral
    4. Upward
  17. Reasons why E-mail is increasingly becoming popular as a means of communication
    1. It is relatively cheap
    2. It is fast
    3. It can be used for future reference
    4. There is easy access to information
    5. There is easy retrieval of information
    6. It is confidential in nature
    7. It has immediate feedback
    8. It is used worldwide
    9. One can send detailed information through attatchment of documents.
  18. Implications of a declining population(Both positive and negative)
    1. Less government expenditure on social amenities
    2. Increased job opportunities in a country
    3. Less pressure on economic resources
    4. Leads to even distribution of income in a country
    5. Improved standards of living of the people
    6. Less man power
    7. Less market/ demand
    8. Under utilization of resources
  19. Items that affect the asset stock
    1. Sales
    2. Sales retuns
    3. Purchases
    4. Purchases returns
  20. Types of accounts
    1. Real account
    2. Personal account
    3. Private account
    4. Nominal account
  21. Causes of shift of the demand curve to the right ( Must qualify)
    1. increase in the level of consumer incomes
    2. Increase in the price of substitute goods
    3. Decrease in price of a complimentary good.
    4. Population increase
    5. Future expectation of an increase in price
    6. Favorable government policies e.g low taxation in consumers income
    7. Favorable change in taste/preference/fashion
  22. Insurance compensation
    Compensation= Value of Policy x  Loss
                                  Value of property
    400,000 x 3, 000, 000
             5 000 000
    = 2,400,000
  23. Trade malpractices that consumers need protection against
    1. False advertisement
    2. Overpricing
    3. False measurements
    4. Misleading advert
    5. Poor hygienic standards
    6. Unhealthy structures
    7. Hoarding
    8. Breach of contract
  24. Functions of commercial banks
    1. Accepting deposits
    2. Transfer of money
    3. Lending money
    4. Collecting payments on behalf of customers
    5. Remitting payments on behalf of customers
    6. Facilitating trade
    7. Providing safe custody of valuables
    8. Acting as trustees
    9. Provide foreign exchange services
    10. Acting as referees for their clients
  25. Types of capital in a business
    1. Working capital
    2. Borrowed capital
    3. Capital owned
    4. Capital employed
    5. Fixed capital
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