Business Studies Paper 1 Questions and Answers - Kapsabet Pre Mock Exams 2021/2022

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  • Write your name and Adm Number in the spaces provided above.
  • Answer ALL the questions.
  • All answers must be written in the spaces provided.
  • Candidates should answer all the questions in English.
  1. Highlight four external factors that may positively influence the operation of a business. (4mks)
  2. Outline four reasons why choice is crucial in satisfaction of human wants. (4mks)
  3. Labour is one of the key inputs in production. List down four possible rewards of labour. (4mks)
  4. There a are many developments in business environments which have promoted entrepreneurs to adopt new management policies to operate effectively. Highlight four new management policies that every entrepreneur/business need to adopt. (4mks)
  5. State any four factors that may influence the choice of filing equipment’s. (4mks)
  6. Outline five new trends in the office organization today. (4mks)
  7. Highlight four advantages of hire-purchase to a buyer. (4mks)
  8. Outline four limitations of consumer associations. (4mks)
  9. The following are examples of various terminologies used in transport. Name the elements associated with each example. (4mks)
    Examples Elements
    Bus stop  
    Animal power  
  10. Write four reasons why mobile phones have become very popular. (4mks)
  11. State four examples of a private warehouse that traders may use to store their goods. (4mks)
  12. Highlight four circumstance under which an insurance company may re-insure.(4mks)
  13. Outline four demerits of personal selling. (4mks)
  14. The diagram below show normal demand and supply curves of maize in Kitale market. On the diagram show the new equilibrium point, equilibrium price and equilibrium quantity as a result of negative change of consumer taste and preference towards maize.(4mks)
  15. Outline four diseconomies of scale which an expanding firms may experience.(4mks)
  16. Give four disadvantages of long-chain of distribution of goods to a buyer. (4mks)
  17. With the help of a diagram show the circular flow of income in a two sector economy. (4mks)
  18. Kenya power and lighting company is the only company that distributes power in Kenya. Highlight four characteristics of the type of market structure in which the firm operates. (4mks)
  19. On 1st February 2018, Bonet traders had Kshs 3250 in the bank and Kshs 1240 cash in hand. During the week the following transaction took place. (4mks)
    Feb 2: Bought stock ksh 2500 paying by cheque
    Feb 3: Cash sale shs 15,000 were made.
    Feb 7: Bought stock worth kshs 2000 on credit.
    Feb 8 : Took all the money in cash box to the bank leaving balance of Kshs 1000 only
    Prepare a two column cash book.
  20. Outline four importance of a trading, profit and loss account in a business. (4mks)
  21. The following information relates to Iten traders for the year ended 31/12/2017. Gross profit margin was 20%
    Fixed assets 5,000,000/=
    Current assets 650,000/=
    Net profit 300,000/=
    Capital 4,700,000/=
    Current liabilities 650,000/=
    Sales 2,000,000/=
    Closing stock 100,000/=
    Opening stock 200,000/=
    1. Calculate current ratio (1mk)
    2. Gross profit mark-up (1mk)
    3. Rate of stock turnover. (1mk)
    4. Return on capital. (1mk)
  22. Highlight four characteristics of money. (4mks)
  23. Explain the following terns as used in international trade. (4mks)
    1. F.O.R (Free on Rail)
    2. F.O.B (Free on Board)
    3. Freight note
    4. Import license
  24. State four canon (principles) of government expenditure. (4mks)
  25. Highlight four indicators of economic development in a country. (4mks)


      • Favourable legal-political environment 
      • Favourable health competition
      • Favourable socio-cultural environment
      • Favourable physical environment
      • Advanced /modern technology
      • High population demanding the products
      • Sold by the business
      • Favourable economic growth of a country
      • Due to limited resources
      • Government policy on goods
      • Goods in the markethave different prices
      • Consumers have different taste/ preference / fashion
      • Human wants are unlimited/ endless wants
      • religious beliefs and taboos may dictate.
      • Goods in the market have different qualities
      • Wages
      • Salaries
      • Commission
      • Fees
      • Royalties.
      • HIV/AIDS awareness among the members of staff
      • Automation use- kepping up with dynamic technology eg computers
      • Restructuring of business operations eg reducing cost of production
      • Use of suggestion boxes.
      • Being social responsible taking part in community services
      • Employing senior management staff on performance contracts.
      • Initial price/ cost of acquiring the machine
      • Availability of spare parts in case machine break down
      • What effect it has on staff morale 
      • Durability
      • Suitability- If it is suitable for the required purpose
      • Adaptability
      • Availability of operators incase of technical difficulty.
      • Computerisation
      • Use of modern method of technology eg email, website, mobile phone and internet
      • Introduction of customer care department
      • Introducing identification badges to be worn by all employees within the organization
      • Use of landscape office layout
      • Use of the mobile phones in the office
      • Adaption to teleconferencing
      • Merging duties of staff members eg clerk, messenger or secretary
      • Contracting non-core activities to other firms(outsourcing)eg cleaning services
      • Buyers can afford to buy a wide variety of goods at the same time
      • Buyers can use goods while paying for them
      • Goods bought on hire-purchase can be used to secure loans
      • Buyer can purchase expensive goods which they could otherwise not afford
      • It is convenient to pay in instalment.
      • Lack of adequate finances to sponsor their activities effeciently due to low membership
      • Lack of sufficient information from consumer
      • Lack of adequate support from the government
      • The organisation lacks authority to enforce cases brought to its attention
      • Ignorance on the part of consumers about in rights and the avenues to follow
      Examples Elements
      Bus stop  Terminal
      Bicycles   Unit of carriage
      Canals  The way
      Animal power  Method of propulsion
    10. It facilitates the sending of short messages for communication
      • People can be contacted anytime (24hrs) in mobile phones       
      • It is portable
      • It also provides money transfer services
      • People can make calls or receive calls anywhere with network.
      • Cheaper to operate mobile phones than landlines
      • Both sender and the receiver can identify each other in the mobile phones
      • Facilitate the use of e-mail. 
      • Producers/ manufacturers warehouse
      • Wholesalers & warehouse
      • retailers warehouseConsumer warehouse
      • When the company covers very many risks
      • When the government policy demands so
      • When the possibility of the risks ocurring are very high
      • When the value of the property insured by the company is very high
      • When there is need to spread risks insured by the company
      • when the firm wishes to win the confidence of clients
      • It requires a lot of labour hence making the method to be costly.
      • Some sales people may not be very committed to their tasks making the firm not achieve their goal.
      • It is tiresome when a sales person keeps demonstrating one thing.
      • It is time consuming as the sales persons keep on repeating the same thing to different customers
      • Some sales persons misuse company's resources allocated to them such as transport facilities
      • This method incoviniences prospective buyers' time             
      • Financial economies
      • Buying economies
      • Research economies
      • Marketing economies
      • Welfare economies
      • Risk bearing economies
      • technical economies
      • There will be increase in prices of products in the long-run
      • Chances of damage to goods due to handling are high
      • Likelihood of delay
      • Perishable goods may go bad
      • There will be shortage of products
      1. Provision of factors of production
      2. Payments to factors of production
      3. Sale of goods and services
      4. Payments / expenditure on goods and services.
      • There is only one supplier (seller) for the entire market
      • There is a barrier to enter the industry
      • Prices are fixed by the suppliers / sellers
      • The product sold has no close substitute
      • The monopolist practice  price discrimination
      • There are huge promotional and selling cost incurred
      Dr                                                                                                                    Cr
      Date Details LF Cash Bank   Date Details LF Cash Bank
      1 Feb
      3 Feb
      8 Feb





      2 Feb
      8 Feb
      10 Feb





            16,240  18 490         16 240 18 490
      10 feb Balance b/d  1000  15 990            
      • It discloses whether the business has made a net profit or not.
      • It reveals the various expenses and income of a business
      • The government is able to determine how much tax it will b epaid from these accounts
      • It is used for comparison purposes with different periods or similar businesses.
      • Current ratio: 
           current assets        =           650,000            = 1:1
        current liabilities                     650,000

      • mark up= gross profit/ cost of sales x 100 
        20/40 = 1/5 = gp/2,000,000
        cogs= sales- gp
        = 2,000,000 - 400,000= 1,600,000
        Margin 20/200= gp/ sales = 400,000/1,600,000
        = 25%

      • rate of stock turnover
        = cogs/ average stock
        = 100,000 + 200,000/2
        average stock= 150,000
        1,600,000/150,000 = 10.67 

      • Return on capital=
        net profit x 100,000
           300,000    x 100%
        = 6.38%
      • General acceptability
      • Scarce in supply
      • Divisibility
      • Portability
      • Stability
      • Homogenity
      • Cognazability
      • Malleability
      • Durability
      • F.O.R( Free on rail)- The price quoted covers expenses of transporting the goods from the premises up to the railway station. All other charges are met by the importer
      • F.O.B(Free on board)- Teh quoted price includes all the expenses which are incurred from the premises of the exporter to the ship plus loading expenses or expenses such as freight and insurance are met by the importer.
      • Freight note - This document is drawn up by the shipping company indicating the charges for shipping goods
      • Import license - It is a document issued by the governement to the  importer allowing his/her permission to import or bring goods into the country.
      • maximum social benefits
      • Good financial management
      • Economical in spending funds
      • Sanction by the relevant authority
      • Elasticity - possible to increase/ decrease the expenditure depending on the revenue
      • Productivity
      • Equitable
      • Increase in the num ber of firms or industries
      • Increase in incomes
      • Increase in output
      • Increase in rates of employment
      • Increase in investments, both local and foreign
      • Increase in consumer spending.
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