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

Instructions to candidate

• Answer all questions.

1.  
   1. Discuss five demerits of government involvement in business activities. (10 marks)
   2. Outline five features of co-operatives Societies. (10 marks)
2.  
   1. Explain five types of unemployment found in Kenya today (10 marks)
   2. On 1^st October 2013, Nyati Traders Had shs.10 000 and shs.40 000 at the bank. During the Month, the following transactions took place.
      Oct 2       Bought goods worth shs3,100 by cheque
            3        Paid motor expenses shs.6000 in cash
            6        Sold goods worth 8200 cash
          10        paid a creditor shs.9500 by cheque after deducting a 5% cash discount
          12        Received a commission of shs.580 directly into the bank account.
          14        Shelby, a debtor, settled her account of shs.30,000 by cheque less a 2.5% cash discount
          15        The bank deducted shs. 850 from the business account for services rendered
          19        The owner took shs.1500 by cheque for personal use
          23        Paid Maboko traders shs.39,200 by cheque in full settlement of their account less 3% cash discount
          24        Withdrew shs.15,000 from bank for business use
          26        Received shs.8,200 cash from a debtor in full settlement of a debt of shs.8,500
          30        Took all the cash to the bank leaving only shs.1800 in the cash till
      Required:
      Prepare a duly balanced three column cash book       (10 marks)
3.  
   1. Discuss five measures the government can undertake to promote entrepreneurship practices in Kenya.
      (10 marks)
   2. Discuss six reasons why countries practice restrictions in trade. (12marks)
4.  
   1. Outline five factors that may cause a producer to reduce his output to the market   (10 marks)
   2. Explain five circumstances under which a credit note can be issued. (10 marks)
5.  
   1. Discuss five insurance policies a person can take to cover employee related risks.(10 marks)
   2. Explain five essentials of effective communication (10 marks)
6.  
   1. Explain five ways that the Government as an external environment factor can influence Business Activities
      (10 marks)
   2. The following is the trial balance of O.J as at 31-12-2011
      

      	DR	CR
      Purchases and Sales	700,000	1,600,000
      Returns	30,000	40,000
      Discounts	50,000	35,000
      Capital		862,000
      Commission	39,000	25,000
      Carriage inwards	28,000
      Carriage outwards	135,000
      Debtors and creditors	400,000	300,000
      Salaries	220,000
      Bank	266,000
      Cash	94,000
      Buildings	600,000
      Equipment	200,000
      Stock Jan. 1	100,000
      	2,862,000	2,862,000

      Additional information
      Stock Dec. 31 was valued at shs.94, 000
      Required
      1. Prepare Trading and Profit and Loss Account
      2. Balance sheet as at 31-12-2011

MARKING SCHEME

1.  
   1. Demerits of government involvement in business
      
      • It may lead to misappropriation and embezzlement of public funds and other resources due to lack of accountability.
        
      • Some public utilities are operated as monopolies and end up offering poor quality services
        
      • Losses made by public enterprises may require further refinancing from public funds thus overburdening the tax payers.
        
      • Some of the laws enacted may be punitive hence may discourage private investment
        
      • May create unfair competition to private investment since most of the government projects are expensive in terms of personnel training and equipment.
        
      • Some managerial posts in the businesses are filled by political appointees who are kept in such positions even when they are performing very poorly.
        
      • Are slow in adapting to market changes due to government bureaucracy
        (5 x 2=10 marks)
   2. Features of co-operatives
      • Membership is open and voluntary hence nobody should be denied entry if she/he qualifies and nobody should be forced to join.
        
      • All members are treated equally, so nobody is given preferential treatment because of high capital contribution
        
      • They enjoy limited liability status so their personal effects of property will be affected in case of dissolution.
        
      • Managed by a democratically elected management committee hence each member is given a chance of being elected to serve on the management committee.
        
      • All members must have common interests that pull them together.
        
      • They have perpetual continuity independent of that of its members
        
      • Are governed under the co-operative Act and by-laws which are drafted by members
        
      • Distribution of surplus is given to members in proportion to each member’s contribution.
        
      • Their principals are generally guided by the principle of co-operatives.
        (5 X 2 = 10 marks)
2.  
   1. Types of unemployment
      1. Disguised – or hidden – where withdrawal of some workers will not affect output
         
      2. General or open unemployment – arises there many people capable of working have no jobs.
         
      3. Structural - arises where the supply of a particular category of workers exceed demand.
         
      4. Frictional – where jobs may be available, but workers are not able to take them.
      5. Seasonal – arises as a result of variation in seasons which affect economic activities in sectors such as Agriculture
         
      6. Technological – arises as a result of adoption of new technologies that may replace labour.
         
      7. Urban – where supply of labour in urban areas outstrips available jobs.
         
      8. Casual – affects mainly casual labourers
         
      9. Target worker – where people work to attain a certain level of income then they withdraw their labour.
      10. Keynesian unemployment – where the level of demand in the economy is not sufficient enough to support production activities
      11. Cyclical – as a result of fluctuations in the economic activities over a period of time.
      12. Residual – due to the handicaps like mental disorder, blindness
          (5 x 2 = 10 marks)
   2.  
      

      Date	Details	Discount	Cash	Bank	Date	Details	Discount	Cash	Bank
      2013					2013
      Oct 1	Balance b/d		10,000✔	40,000✔	Oct 2	Purchases			3,100✔
      6	Sales		8,200		3	Motor expenses		6,000✔
      12	Commission			580✔	10	Creditor	500✔		9,500✔
      14	Shelby	750 ✔		29,250 ✔	15	Service charge			850✔
      23	Mobeke traders	176✔		38,024✔	19	Drawings			1,500✔
      24	Bank		15,000✔		24	Cash			15,000✔
      26	Debtors	300✔	8,200✔		30
      	Cash		25,400			Bank		25,400✔
      						Bal c/d		1,800✔	111,504✔
      		2,226.00✔	33,200✔	141,454✔			500✔	33,200✔	141,454✔

      30 x ⅓ = 10 marks
3.  
   1. Measures that the government can undertake to promote entrepreneurship in Kenya
      • Availing credit facilities so that those who would want to do business and lack capital can access it.
      • Availing good infrastructure to facilitate good business by entrepreneurs.
      • Availing market information and market to enable those who lack the two to do well.
      • To provide good pricing policy to enable business to thrive.
      • The taxation policy adapted should provide conducive environment for business.
      • Legal controls/restrictions /requirements applied should enable business to do well.
      • The prevailing political climate should be conducive for business to thrive.
      • Availing of technology to enable business to use modern technologies which are efficient and effective.
      • Availability of training /consultancy services to enable people access all the relevant information required to run business.
        (5 x 2 = 10marks)
   2. Reasons why countries practice restrictions in trade.
      • To prevent the inflow of harmful goods into the country, that would harm the citizens
      • To give a country a chance to exploit its natural resources as limited goods will be entering the country.
      • It minimizes dependency on goods from other countries since the country will be producing more of their goods as they import less.
      • Allows the growth of infant industries since they will not be threatened by the arrival of goods from outside.
      • To prevent dumping of low quality goods / services into the country as they will not be allowed to enter the country.
      • To correct balance of payments deficit by limiting imports as a country exports more.
      • Earn government revenue by imposing tariffs on goods and services
        (5 x 2 = 10 marks)
4.  
   1. Factors that may cause a producer to reduce his output to the market
      • Price of the commodity – Fewer goods are supplied when the price of the commodity falls.
      • Cost of production – fewer goods are supplied when the cost of producing them is high.
      • Changes in technology – when a firm does not change with technology- less goods are produced because of inefficiency hence supply will reduce.
      • Decision of suppliers – the supplier or producer may just make a decision to reduce supply due to his own reasons.
      • Price of other commodities – producers may choose to shift from supplying product whose prices are low to supplying those whose prices are high.
      • Natural factors – unfavorable weather conditions, pests and diseases, may lead to a reduction of the goods produced hence there will be less supply.
      • Government policy – unfavorable government policy may make producers to reduce their goods like increased taxes or reduction of subsidies..
      • Expectations of future changes in demand – if the producer anticipates that demand will decrease in future, he will decrease his supply
      • Anticipation of future changes in prices. If the supplier anticipates that prices will increase in future, he will reduce the production at the moment.
        (5 x 2 = 10 marks)
   2. Circumstances under which a credit note may be used.
      • Where the buyer has been overcharged due to overpricing or due to calculation errors in the invoice.
      • Where some goods have been returned due to damage.
      • Where the buyer was charged for goods not supplied hence it is to reduce the amount he is to pay.
      • Where goods not ordered for are returned.
      • Where the buyer returns empty packing /containers for which he had paid.
        (5 x 2 = 10 marks)
5.  
   1. Insurance policies a business person can take to cover employee related risks
      • Theft and Burglary – covers loss of property arising from stealing or through forceful entry or exit from a premise by violent or forceful means.
      • Contractor’ all risks insurance – covers all risks in respect of both permanent and temporary works in the course of construction.
      • Engineering Insurance – protects engineers against damage or loss of plant through breakdown or by an external cause.
      • Domestic package insurance – covers private houses, its contents, domestic servants and the owners.
      • Public liability insurance – means to protect third parties against accidental bodily injury, damage or loss to property as a result of connection with the insured business.
      • Personal Accident – to cover accidental death temporary or permanent disability medical expenses to specified amount due to the insured experiencing an accident.
      • Workmen’s compensation – to protect workers and domestic servants against injury, sickness or death arising out of their employments.
        (5 x 2 = 10 marks)
   2. Essentials of effective communication
      • Clarity in order to avoid any ambiguity.
      • Preparedness of the sender so that his ideas in form of words, symbols, gestures and signs are well understood.
      • Timely presentation of the message so that the message is sent and received at an appropriate time
      • Use of the appropriate channel to convey the information otherwise a wrong choice of medium will be a barrier to effective communication.
      • Knowledge of the attitude of the receiver by the sender. It is important that there exists a mutual feeling of trust, and respect between the parties concerned in order to avoid bias.
      • Accuracy of the message being sent to avoid ambiguity.
      • Brief but adequate to avoid the listener to be inpatient or lose his concentration span.
        (5 x 2 = 10 marks)
6.  
   1. Ways that the government as an external environment factor can influence business activities
      • Taxation – influences cost of operation
      • Provision of subsidies – motivates business people to engage in business.
      • Policy making - policies that determine activity
      • Enactment of the law – that govern business operations
      • Credit control – Availability of capital.
      • Provision of utilities – that boost operation.
      • Provision of infrastructure - boosts business activities
        (5 x 2 = 10 marks)
   2.    
      1. O J✔
                                      TRADING AND PROFIT AND LOSS ACCOUNT
                                       FOR THE PERIOD ENDED 31-DEC.2011
         

         Opening stock               100 000✔  Add: purchases             700 000✔                                        800 000     Add carriage inwards      28 000✔                                        828 000  Less returns outwards   40 000 ✔  Goods available            788 000  Less closing stock          94 000✔  Cost of sales                 694 000  Gross profit                  876 000✔                                      1,570,000  Discount allowed            50 000✔  Commission paid           39 000✔  Carriage outwards       135 000✔  Salaries                       220,000✔  Net profit                    492 000✔✔                                     936 000

         sales                                      1 600 000✔ Less returns inwards                 30 000✔                                               1,570,000                                                                                                               1,570,000     Gross profit b/d                       876 000✔ Discount received                     35 000✔ Commission received                25 000✔                                                                                                                   936,000

         30 x ⅓ = 10 marks
      2. O.J
                                            BALANCE SHEET✔
                                             AS AT 31/12/2011
         

         Fixed  Assets   Building                  600 000✔  Equipment             200 000✔                                800 000  Current Assets  Debtors                 400 000✔  Bank                     266 000✔  Cash                      94 000✔  stock                      94 000✔                                854 000                              1,654,000

         Capital                862,000✔  Add net profit      492 000✔                             1 354 000   Creditors            300 000✔                                                                          1,654,000✔

         30 x ⅓ = 10 marks