Business Studies Paper 2 Questions and Answers - Royal Exam Series Post Mock Trial Exams 2022

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  • This paper consists of 6 questions.
  • Answer any five questions.
  • Write your answers in the spaces provided in pages
  • All questions carry equal marks.


    1. Highlight four disadvantages of advertising to consumers. (8 marks)
    2. Explain six problems that may be experienced at the implementation stage of a development plan. (12 marks)
    1. The following balances were obtained from the books of Nzioka Traders on 1st January, 2012.
      Cash in hand
      Five year loan
      The following transactions took place in the first week of January 2012.
      • Jan 2nd: Received from debtors sh. 1000 by cheque.
      • Jan 3rd: Sold goods worth Shs 2000 for Shs 4000 and
                      Deposited the money in the business bank account.
      • Jan 4th: Paid Sh 1000 in cash part of the five year loan.
      • Jan 5th: Deposited Sh 2500 in bank account from cash till.
        1. Prepare Nzioka Traders balance sheet as at 5th January, 2012 after the transactions took place. (10 marks)
        2. Explain five measures that can be taken to curb the problem of unemployment in Kenya. (10 marks)
    1. Explain any five measures a country may adopt to increase its volume of exports.(10 marks)
    2. Kenya has experienced a lot of loses through road carnage. Explain five measures the government has taken to reduce further loss of lives. (10 marks)
    1. The following information relates to Kalondu Traders for the year 2010.
      Rate of stock turnover
      6 times
      From the above information, determine:
      1. Gross profit (3 marks)
      2. Cost of goods sold (2 marks)
      3. Net profit (2 marks)
      4. Average stock (3 marks)
    2. Explain five monetary tools that the central bank may adopt to curb inflation in Kenya. (10 marks)
    1. Explain any five benefits that a public limited company enjoys. (10 marks)
    2. With the aid of a diagram, explain the effect of a decrease in the supply of a commodity while its demand remains constant. (10 marks)
    1. Explain five sources of monopoly power to a firm. (10 marks)
    2. Explain five methods and legislations which the Kenyan government has put in place to protect consumers. (10 marks)

Marking Scheme

    1. Disadvantages of advertising to a consumer
      • the cost of advertising is passed on to the consumers through increased prices of goods/services
      • Adverts concentrate mostly on the advantages and very little on the side effects of the products.
      • Some adverts are misleading/misguiding to consumers e.g. beer/cigarettes adverts
      • Some adverts leads to extra expense /unnecessary expenses/impulse buying as a consumer buys what he/she does
        not want.
      • Some adverts can lead to moral decay of the society/consumers
        4 points x 2 = 8marks

    2. Six problems experienced at the implementation stage of a development plan
      • Inadequate domestic resources-to support the implementation of the plan
      • Natural calamities-resources set aside for implementation of the plan are diverted to curb the calamity.
      • Lack of political will to support the development plan
      • Inflation –Prices of goods and services go up hence finances set aside for implementation may not be enough
      • Over ambitious plan-Over ambitious plans become difficult to implement since are not realistic.
      • Lack of co-operation among the executing parties e.g. treasury may not release funds for implementation of plan/some projects
      • Failure to involve the local people in the plan formulation stage. These people may not support the development plan during implementation stage.
      • Reliance on donor funding which may not be released in time/not released at all.
        6 points x 2 = 12 marks

      • Stock 5000 – 2000 =3000
        Debtors2000 – 1000 = 1000
        Cash 4000 – 1000 – 2500 =500
        Premises 80,000
        Capital 66,000 + 2000 = 68000
        Machinery 18000
        Bank -66000 + 1000 +4000 +2500 =1500
        Creditors 12,000
        Loan 25,000 – 1000 =24,000
        AS AT 5TH JAN 2012
        F.A sh sh   Liabilities sh sh
        Add:net profit

        C.A       L.T.L    
          5 yr loan   24000✓
                Creditors    12000✓
            104000         104000
        10 x 1 = 10marks

    2. Five measures that can be taken to curb the problem of unemployment in Kenya
      • Adopting a relevant education system that emphasizes on the skills required in the labour market
      • Encouraging employment creation in the private sector to create more job opportunities.
      • Adopting policies that encourage the use of labour intensive methods of production
      • Rural development to curb rural-urban migration
      • Increasing government expenditure on projects that would create more job opportunities
      • Diversification of economic activities incase of seasonal unemployment
      • Population control to prevent over population that causes unemployment/make sure the population is in balance with the resources.
      • Encourage the use of local resources in production to create more job opportunities
      • The government should encourage more direct foreign investment to create more job opportunities
      • Encourage the use of locally made products to create market for local products
      • Ensure that the available resources are used effectively to avoid wastage which could lead to shortage hence unemployment
        5 points x 2 = 10 marks

    1. Measures a country may adopt to increase its volume of export
      • Engaging in international trade fair/exhibition to promote the home products
      • Devaluation its own currency to make export cheap
      • Lowering taxes on exports to make them cheap
      • By diversifying on its exports to increase the market.
      • Offering subsidies to firms that involved in production of export goods
      • Reducing the length /procedure for acquiring licenses for exporting products
      • Adopting modern technology to export products to make them fashionable/High quality/more attractive to customers
      • Offering customs drawbacks – The government refunds either in full or part of custom duty paid on imported raw materials if finished product is exported.
      • Lobbying/Negotiate with trading partners for removal of trade restrictions placed on the country’s exports
        5 points x 2 = 10 marks

    2. Measures the government has taken to reduce further loss of lives
      • Removal of unroad-worthy vehicles which may cause accidents.
      • Installation of bumps to reduce speeds which may cause accidents
      • Heavy penalties to motorists who disobey traffic rules.
      • Limit number of passengers in vehicles to avoid overloading
      • Ensuring that public service vehicles have speed governors to limit the speed
      • Making sure that passengers have safety belts to minimize casualties incase of an accident.
      • Construction of duo carriage roads and bypass to ease congestions which may cause accidents.
      • Making sure that public service vehicles/all vehicles are driven by qualified drivers.
      • Restriction on travelling hours/ensure drivers have ample time to rest before driving e.g public service vehicles not allowed to travel at night.
        5 points x 2 = 10 marks

      1. Gross profit
        • Margin = G.p/Sales
          40/100 = G.P/ Sales(270,000)
          GP = 40 x 270,000 = 108,000

      2. Cost of goods sold (2mks)
        • Cost of goods sold = Sales - G. P✓
          = 270,000 - 108,000 =162,000✓

      3. Net profit (2mks)
        • Net profit = G. P – Expenses✓
          = 108,000 – 40,000
          = 68,000✓

      4. Average stock (3mks)
        • ROSTO=    Cost of sales   
                          Average stock
          6 =        162,000          
                  Average stock
          Average stock = 162,000 = 27,000✓

    2. Five monetary tools that the central bank may use to curb inflation (10mks)
      • Increase the cash liquidity ratio that the commercial banks should have so as to reduce the lending rate. This reduces money supply hence controlling demand pull inflation.
      • Increase the bank rate/ interest rates to commercial banks which in turn increase interest rates to borrowers – This discourage borrowing hence controlling demand pull inflation
      • Sell of government securities such as treasury bills and bonds to the public. People will withdraw money from commercial banks leaving them with little for lending
      • Increasing the commercial bank compulsory deposit with the central bank. The commercial banks will be left with little for lending
      • Give out directives to commercial banks to restrict lending so as to reduce money supply.
      • Apply the selective credit control measures – instruct commercial banks to lend only to a few sectors.
      • Persuade/appeal to commercial banks to restrict lending in order to reduce money supply
        5 points x 2 = 10 marks

    1. Benefits enjoyed by Public Ltd Company
      • Large capital base – Public Ltd Liability Company has access to a wide source of capital through sale of shares and debentures to the public. It can also borrow loans from banks using its assets as security.
      • Transfer of shares – Shares can be transferred freely from one person to another without any effect on the continuity or ownership of the company.
      • Continuity – The Company will continue to exist regardless of the death, insanity or bankruptcy of the shareholders.
      • Specialized professional management. Its wide sources of capital enable a public ltd liability company to employ qualified/skilled staff.
      • Economies of scale – its size enables the company to operate on large scale, hence reducing the costs while maximizing on profits
      • Encouragement and motivation of employees to work harder for higher profits incase where the company has share schemes for its employees.
      • Accountability – There exists transparency and accountability since it’s a legal requirement for the company to publish its accounts and discuss them during AGM.
        5 x 2 = 10mks

    2. Effect of a decrease in supply on the equilibrium (10mks)
      A decrease in supply will lead to decrease in equilibrium✓ quantity and an increase✓ in equilibrium price.
      The initial supply curve✓ S1S1 and the demand ✓curve is D1D1. As a result of decrease in supply, the supply curve shifted to the left from S1S1 to ✓S2S2. As a result the equilibrium quantity decreased from Qe1✓ to Qe2 while the equilibrium price increased from Pe1✓ to Pe2. The equilibrium point moved from E1 to E2
      20 Ticks x 1/2 = 10 marks
    1. Sources of monopoly power
      • Government intervention that favours only one firm/Government creating a monopoly in an area of interest.
      • Sole control of a certain raw materials hence deny other firms access to them
      • Acquisitions of patent rights from the government/other firms are excluded from production/supply of the product.
      • Internal economies of scale that makes the firm to lower its cost of production thus putting off other firms.
      • High capital required such that its only one firm can afford to raise such capital
      • Possession of a certain technology/knowhow on production of a certain product where other firms do not have
      • Where other firms incur extra expenses such as transport costs in order to sell in the market. The existing firm remains the only supplier in the market.
      • Where several firms form cartels and operate as only firm
        5 points x 2 = 10 marks

    2. Five methods and legislations which the Kenyan government has put in place to protect consumers
      • Weights and measures act- The government ensures that all equipment used for measuring products are accurate.
      • Food and drugs act- Government ensures that traders do not add harmful ingredients in the processing of their products
      • Sale of goods act/trade description act – This legislation ensures that traders do not give wrong description of their products regarding usage or quality.
      • Public health act – This legislation ensures that hygienic conditions are followed in the production of goods and provision of services.
      • Rent and tribunal act- This legislation ensures that landlords do not exploit their tenants by charging them unreasonable rates.
      • Licensing- Through issuance of licenses, the government is able to know the type and nature of business activities carried out by traders (protect consumers from harmful and illegal products).
      • Price control- Refers to a situation where the government set a price on certain product especially essential products, within which no trader can exceed.
      • Setting standards- The government through KEBS ensures that quality standards are adhered to by producers and sellers.
      • Consumer safety act – Ensures and prohibits traders from selling harmful products to consumers

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