Business Studies Paper 2 Questions and Answers - Kangundo Subcounty Pre Mock Exams 2021/2022

Instructions

1. Answer any Five questions
2. All questions carry equal marks

1.    
   1. Explain five reasons that make an insurance company to refuse to compensate the insured in the event that a risk occurs. (10mks)
   2. Discuss any five weaknesses of using per capital income to measure the standard of living of people in a country. (10mks)
2.    
   1. Explain five factors that may promote entrepreneurship in Kenya. (10mks)
   2. Explain five benefits that a private limited company may enjoy by changing to a public limited company. (10mks)
3.    
   1. Explain five functions rendered by wholesalers to retailers. (10mks)
   2. The following information relates to Zawadi Enterprises for the year ended 31st. August 2018
                                            Kshs.
      Stock 1.8.2017            80,200
      Purchases              1,120,000
      Sales                      1,880,000
      Returns inwards            5,800
      Returns outwards        20,800
      Carriage Inwards         40,000
      Discount received          7,500
      Discount allowed           4,000
      Salaries and wages   230,000
      Rent                             15,000
      General Expenses      56,700
      Electricity bill             250,000
      Stock 31.8.2018        120,000
      Required
      Prepare Zawadi Enterprises Trading and Profit and Loss Account for the year ended 31st August 2018. (10mks)
4.    
   1. Unemployment has been major problem that the Kenyan government has been trying to solve . Explain any five measures that the Kenyan government has taken to solve this problem. (10mks)
   2. On 1st September 2015, Kakamega Traders had shs. 55,000 in hand and shs. 250,000 in Bank.
      During the month, the following transactions took place. (10mks)
      Sept.
      2: Cash sales were banked Shs. 35,260.
      3: Bought ribbons in cash Shs. 4,500
      8: Paid Wangila creditor Shs. 94,000 by cheque in full settlement of his account after deducting 6% cash discount.
      12: Received a cheque for shs. 59,800 from Macharia after allowing him cash discount of shs. 1.200
      15: Paid salaries of Shs. 34,000 in cash.
      25: Withdrew shs. 50,000 from bank for office use.
      28: Wanjiku a debtor paid her account of Shs. 75,000 by cheque less 10% cash discount.
      30: Deposited all the cash into the bank except Shs. 13,700
      Required: Prepare Kakamega Traders 3 – column cash book and balance it off. (10mks)
5.    
   1. Explain five principles of a good tax system. (10mks)
   2. Explain five measures the government is taking to encourage delocalization of firms in Kenya. (10mks)
6.    
   1. Explain any five sources of monopoly power. (10mks)
   2. Outline five advantages of a large population to a country. (10mks)

MARKING SCHEME

1.      
   1. Explain five reasons that make an insurance company to refuse to compensate the insured in the event that a risk occurs.
      
      • When the insured had no insurable interest in the property destroyed as he’ll not suffer financial loss.
      • When the insured did not disclose all relevant material facts when filling the proposal or claim forms i.e. called utmost good faith.
      • When the loss / destruction of property was caused by uninsurable risks / act of God.
      • When the policy was not in force at the time of loss as premiums had not been paid.
      • When the loss was deliberately carried / negligence by the insured.
      • When the insurance company is insolvent / bankrupt / under receivership hence cannot be able to meet financial obligations.
      • When the principal of proximate cause does not apply.
      • When the insured claims very late after stipulated period.
      • When the insured fails to follow the laid down procedure when claiming.
        Note: Answers must Not start with a circumstances /word (Any 5x2=10mks)
   2. Discuss any five weakness of using capital income to measure the standard of living of people in a country.
      
      • Inaccurate pop data especially in countries like Kenya, hence gives inaccurate per capital income figure
      • Inaccurate national income data which may be overstated or understated giving a wrong value of per capital income
      • Inequality in income distribution with few people enjoying very high income/better standard of living while majority suffering in poverty yet per capita income may be high.
      • The Government may tilt its expenditure pattern towards military hardware and capital goods which do not add to welfare of citizens.
      • The high national income may be obtained by citizens straining which affects their health and little is left for enjoyment.
      • Different groups of people may have different tastes in a country where better life vary with tastes
      • Different price structure makes comparison of standard in living between countries difficult /ineffective.
      • The size of unmarketed output (subsistence) differs in countries / regions and this affects the per capita income. (Any 5x2=10mks)
2.    
   1. Factors that may promote entrepreneurship in kenya
      
      • Government support / favourable government policies / regulation that may encourage the emergence of the business ventures
      • Training / education on entrepreneurship i.e with relevant skills to start and run a business
      • Entrepreneurial culture the encourage entrepreneurship
      • Presence of role models who may inspire entrepreneurship and create interest in business ownership
      • Availability of capital for starting and expanding business
      • Political stability that create conducive environment for starting and running a business
      • Availability of market where they can sell their goods and services
      • Good infrastructure that facilitates access to the market and movement of input to the firms
      • Availability of security for safety of business property and owners
      • Fair competition that the business can withstand
      • Good governance that ensure transparency and accountability in conducting business activities
      • Availability of appropriate technology leading to production of desired quality and quantity
      • Need for self reliance / independence
      • Need to create employment for self and others
      • Need to exercise power by having people working for him
      • Need for recognition by peers / society
      • Need for individual security against old age / sickness
      • Need for self actualization by giving back to the society(Any 5x2=10mks)
   2. Explain benefits that a private limited company may enjoy by changing to a public limited company.
      
      • Ability to raise larger amount of capital by selling shares to the public through stock exchange market.
      • Easy transferability of shares without any restriction
      • Increased transference as shareholders must approve company’s annual audited accounts which are published
      • Increased public confidence due to increased exposure to the public
      • Freedom from interference by owners as owners has not direct managerial contra love the activities of the company
      • Increased professionalism since the company can afford professional managers to run the business
      • Higher chances of continuity since shares can be transferred freely without affecting the business.
      • Can enjoy economics of scale due to increased scale of production
      • The company can be quoted in the stock exchange market leading to sound management
      • Can advertise sale of shares to the public in the media which attract new investors
      • Enhanced ability to borrow funds by selling debentures
      • Better management since it is run by competent board of directors /professionals. Any 5x2=10
3.    
   1. Functions rendered by wholesalers to retailers are:-
      
      • Availing a variety of goods from different manufactures.
      • Bulk breaking by selling to retailers in smaller quantities which meets their needs and financial capacity.
      • Offer transport facilities to retailers premises
      • Offer storage facilities relieving retailers need to hire or construct own warehouse.
      • Provide goods on credit to creditworthy retailers acting as a source of finance to run their businesses
      • Preparing goods for sale which retailers receive ready to sell
      • Carry out product promotion thus relieving retailers that cost. (Any 5x2=10mks)
   2. Zawadi Enterprises
      trading and profit Loss A/c
      for the Year ended 31st August 2018
      

      kshs            kshs Opening stock                       80,200 + Purchases    1,120,000  - Returns out      20,800  + Carriage in      40,000 T.G.A                               1,139,200 - Closing stock                    120,000 C.O.G.S                           1,019,200 Gross profit C/d                  855,000                                         1,874,200  Less Expenses  Carriage out           12,700  Discount allowed     4,000  Salaries & wages   230,000 Rent                       15,000 General expenses  56,700 Electricity              250,000                                             568,400 Net profit c/d                       294,100                                             862,500

      kshs sales                     1,880,000 - returns in                   5,800 net sales               1,874,200 1,874,200 Gross Profit b/d       855,000 + Discount received     7,500                                 862,500                                 862,500 Net profit b/d            294,100

      (20 ticks x ½ = 10mks)
   3. Benefits private LTD company get by changing to public Ltd Company
      • Ability to raise larger amount of capital by selling shares to the public through stock exchange market
      • Easy transferability of shares without any restriction
      • Increased transparency as shareholders must approve company’s annual audited accounts which are published
      • Increased public confidence due to increased exposure to the public
      • Freedom from interference by owners has no direct managerial control over the activities of the company
      • Increased professionalism since the company can afford professional managers to run the business
      • Higher chances of continuity since shares can be transferred freely without affecting the business
      • Can enjoy economies of scale due to increased scale of production
      • The company can be quoted in the stock exchange market leading to sound management
      • Can advertise sale of share to the public in the media which attract new investors
      • Enhanced ability to borrow funds by selling debentures
      • Better management since it is run by competent board of directors/professionals
        (Any 5x2=10mks)
4.        
   1. Measures to curb unemployment
      • Diversifying of the economy/establishment of different industries to create more employment opportunities
      • Transforming education/ training sector to improve on skills
      • Establishing employment policies by the government to make it easy for people to get jobs
      • Lending/setting up funds to assist unemployed to start up income generating activities
      • Encouraging informal /jua kali sector to promote self employment
      • Exporting labour/assisting unemployed people to get jobs/countries with labour force deficiency
      • Delocalization for balanced regional development /to reduce rural-urban migration
      • Population policy to control growth and have labour force that the economy can absorb
      • Improved infrastructure in order to stimulate economic activities
      • Increase government expenditure to increase the size of the economy
      • Effective use of natural resources to increase production activities
      • Reviving collapsed industries by injecting funds
      • Attract foreign investment through incentives to grow the economy
      • To protect local infant industries from unfair competition from foreign established firms
      • Transforming agricultural sector to curb rural-urban migration
        (Any 5x1=10mks)
   2. Three column cash book
      

      Date	Details	F	Discount Allowed	Cash	Bank	Date	Details	F	Discount Received	Cash	Bank
      2015 Sept 1 2 12 25 28 30 30	Bal Sales Macharia Bank Wanjiku Cash Bal	b/d C1 C2 b/d	1200 7500 8700	5500 50000 105000 13700	250000 35260 58800 67500 52800 464360 320260	2015 Sep 3 8 15 25 30 30	Ribbons Wangila Salaries Cash Bank	C1 C2	6000 6000	4500 34000 52800 13700 105000	94000 50000 320360 464360

      20 x ½ =10mks
5.    
   1. Principles of a good tax system
      • Equitable – Equity tax burden is distributed according to the payers ability to pay e.g. PAYE/ payers should be taxed according to their level of income i.e tax high income earners more than the lower income earners.
      • Certain / certainity – Tax payers should know how much to pay when, where and how to pay tax collectors should also know where, how, when and how much to collect from the payers.
      • Economical – Cheap to collect and administer i.e tax revenue should be higher than collection costs.
      • Flexible/flexibility – Adaptable to all economic circumstances / subject to revision or adjustment depending on economic changes.
      • Simplicity / simple – Easy to understand by the payer and administer by the collector.
      • Convenient to the tax payer – Suited to the programs or activities of the payer e.g. paid when the payer earns income.
      • Elastic / elasticity – The proceeds should be capable off expanding / contracting with changes in income or population.
      • Diversity / wide base – There should be a wide variety to net many tax payers.
      • Difficult to evade – All evasion points (loopholes) should be zealed / not create a loophole for payers to evade paying taxes.
      • Should have maximum social benefit to the tax payers – Through the government providing quality goods and services to encourage people to pay taxes e.g. infrastructure construction and maintenance. (Any 5x2=10mks)
        Mention -1mk
        Explain -1mk
   2. Explain five measures that the government is taking to encourage delocalization of firms in Kenya.
      • Development of rural services e.g. rural access roads, rural electricity e.t.c which will attract investors to rural areas.
      • Tax exemptions to those who want to locate industries in rural areas.
      • Providing free land / cheap land to potential industrialists in rural areas
      • Providing loans for firms willing to be located in rural areas
      • Establishing training institutions in rural areas to provide skilled labour
      • Providing a duty free allowance for the importation of raw materials and equipment to be used by delocalized industries /firms.
      • Adopting the policy of industrial decentralization
      • Adopting the policy of District focus for rural development(Any 5x2=10mks)
6.      
   1. Sources of monopoly power
      • Ownership by the firm of secretive production techniques which denies other firms use of the technique
      • Control by the firm of strategic input/raw materials that make it have sole access to the input/raw material
      • Ventures which require large capital such that other firms may not be able to raise such capital
      • Enjoyment of economies of scale by a firm which enables them to produce at lower cost than others
      • State monopoly with exclusive legal right of production which shut other competitors
      • Amalgamation/merger of firms which eliminates competition
      • Presence of market that can only be served by one firm
      • Ownership of patent right/copyright by a firm barring other firms from producing
        (Any 5x2=10mks)
   2. Outline five advantages of a large population to a country
      • High population will increase aggregate demand thus stimulating investment and employment
      • A large population will provide the economy with various workers (skilled & semi skilled) and make specialization possible.
      • A high population will lead to full exploitation of resources in a country hence assist in creation of wealth
      • A large population will lead to invention and innovation to sustain the large population
      • A large population will lead to low cost per head in provision of essential services / social amenities
      • Foreign trade will be boosted with a view to sustaining the population
        (Any 5x2=10mks)