Business Studies Paper 2 Questions and Answers - Asumbi Girls Highschool Pre-Mock Exams May-June 2022

INSTRUCTIONS TO CANDIDATES

This paper consist of six questions
Answer any FIVE questions
All questions carry equal marks
Write your answers in the booklet provided

FOR EXAMINER’S USE ONLY

Question	Candidates score
1
2
3
4
5
6
TOTAL SCORE

QUESTIONS

1. Explain Five factors that management of a business should consider before buying an office machine. (10Marks)
2. Outline five differences between a public corporation and a private limited company. (10 Marks)
1. Explain Five reasons why a country may experience balance of payments disequilibrium . (10Marks)
2. The following information was obtained from the books of Powermax Stores for the month of June 2015.Post the information to the relevant ledger accounts and balance them off. (10Marks)
  June 1 : Balance in Cash shs. 60,000 , Bank shs 220,000 , Debtors shs 95,000 and Creditors shs 80,000
  June 5 : Received a cheque of shs. 75,000 from debtors.
  June 10 : Drew a cheque of shs 59,000 in respect of creditors.
  June 15 : Obtained a loan from KCB shs 130,000 ,money was deposited directly to the account.
  June 24 : Bought land for shs 217,000 ,paying shs 200,000 by cheque and the rest In cash.
  June 28 : Paid creditors in cash shs 1,000.
  June 30 : Deposited all cash into the bank except shs 4,000.
1. State and explain Five guidelines that governs a good tax system. (10Marks)
2. The type of advertising largely depends on the objectives to be achieved. Explain Five types of advertising. (10Marks)
1. Highlight Five ways in which the Kenyan government may increase the amount of money in circulation. (10Marks)
2. Discuss Five factors that determine the amount of premiums charged in a life Assurance cover. (10 Marks)
1. Explain Five factors that hinders entrepreneurial practices in Kenya today. (10Marks)
2. With a well labeled diagram, explain the effect of an increase in demand on the equilibrium price and quantity. (10 marks)

Outline Four reasons why mobile phones (cell phones) have become a popular means of communication . (8 marks)

The following Trial balance was extracted from the books of Mwakio Traders on 31st
Dec 2005.
Mwakio Traders
Trial Balance
As at 31st December 2005

Name of Account	Dr (Shs)	Cr (Shs)
Purchases and Sales	70,000	95,000
Carriage outwards	4,000
Stock (1/1/2005)	12,500
Fixed Assets	82,000
Debtors and Creditors	10,500	8,500
Salaries	16,800
Bank overdraft		10,300
Returns	1,500	12,400
Cash in hand	2,500
General expenses	5,200
Capital		88,800
	205,000	205,000

Additional information:
Closing stock was valued at shs 6,500.
Prepare :

Trading, profit and loss Account for the year ending 31st Dec 2005. (8Marks)
Balance sheet. (4Marks)

MARKING SCHEME

Factors considered when buying an office machine. (10Marks)
- Cost-initial, maintenance and running costs of the machine should be Relatively cheap/affordable.
- Durability-should have along lifespan/able to last /serve the business for a long time.
- Availability of manpower/labour-staff should be readily available who can operate/handle/run the machine
- Availability of room-there should be a room available to keep the machine.
- Security of the machine-there should be available resources to provide adequate safety/protection from theft, misuse, mishandling, vandalism
- Availability of complementary resources –accessories for the machine to run should be readily available eg. Power ,spare parts
- Adaptability- ability to cope with future changes and development/fit into the changing environment
- Effect on staff morale-staff should have a positive attitude towards the machine/accept its impotance
- Possibility of hiring other than buying-cost benefit analaysis whether buying or hiring which is cheaper in the long run
- Work to be performed by the machine-the machine should not lie idle/should have maximum usage.
  (Any 5×2=10mks)

Outline Five differences between public corporations and private limited companies. (10Marks)

Public corporations

Private limited company

a) Managed by a board of directors appointed by government

b) Initial capital is provided by the government

c) Formed through an Act of parliament

d) Owned by government

e) Profits belong to the government

f) Main objective is to provide essential goods and services

g) Losses are occasionally subsidized by the government/borne by government

h) Audited by government auditors

a) Managed by directors appointed by shareholders

b) Initial capital comes from shareholders

c) Formed through company’s Act

d) Owned by shareholders

e) Profits belong to shareholders

f) Main objective is to make profit

g) Losses are borne by shareholders/may lead to collapse of business

h) Audited by private auditors

NB: No splitting of marks
(ANY 5×2=10MKS)

Five reasons why a country may experience balance of payments disequilibrium. (10Marks)
- Fall in volume of exports-reducing earnings from exports , (leading to deficit.)
- Deteriorating in countries terms of trade-making her payments higher than receipts
- Increasing in volume of imports –where exports are not increasing at the same rate,it will import more than it exports.
- Restriction by trading partners-thus reducing volume of exports.
- Less capital inflow as compared to outflow-leading to a deficit in capital account.
- Over valuation of domestic country- making exports expensive compared to imports/exports lose market.
- Devaluation of currency by trading partners-making imports cheap thus encouraging importation.
  ( Any 5×2= 10mks )

Powermax Stores ledger Accounts.

Dr	Cash A/C				Cr
Date	Details	Amount	Date	Details	Amount
1/6/2015	Balance b/d	60,000 √	24/6/2015	Land	17,000 √
			28/6/2015	creditors	1,000 √
			30/6/2015	Bank	38,000 √
			30/6/2015	Balance c/d	4,000 √
		60,000			60,000
30/6/2015	Balance b/d	4,000
Bank A/C
1/6/2015	Balance b/d	220,000 √	10/6/2015	Creditors	59,000 √
5/6/2015	Debtors	75,000 √	24/6/2015	Land	200,000 √
15/6/2015	KCB loan	130,000 √	30/6/2015	Balance c/d	204,000 √
30/6/2015	Cash	38,000 √
		463,000			463,000
30/6/2015	Balance b/d	204,000
Debtors A/C
1/6/2015	Balance b/d	95,000 √	5/6/2015	Bank	75,000 √
			30/6/2015	Balance c/d	20,000 √
		95,000			95,000
30/6/2015	Balance b/d	20,000
Creditors A/c
10/6/2015	Bank	59,000 √	1/6/2015	Balance b/d	80,000 √
28/6/2015	cash	1,000 √
30/6/2015	Balance b/d	20,000 √
		80,000			80,000
			30/6/2015	Balance b/d	20,000
KCB Loan A/c
30/6/2015	Balance c/d	130,000 √	15/6/2015	Bank	130,000 √
			30/6/2015	Balance b/d	130,000
Land A/C
24/6/2015	Bank	200,000 √	30/6/2015	Balance c/d	217,000 √
24/6/2015	Cash	17,000 √	30/6/2015
		217,000			217,000
30/6/2015	Balance b/d	217,000

(30×1/3=10Mks)

1. State and explain Five guidelines that govern a good tax system. (10Mks)
  - Equitable-should ensure fairness in payment of tax/tax burden be distributed in a fair manner horizontally and vertically/people with same income pay same amount as tax
  - Certain-payable tax be clear in terms of amount payable, time and manner/Government know amount expected as tax for planning purposes.
  - Economical-cost of collection/administering should not exceed the revenue collected/cheap to collect and realize maximum revenue possible.
  - Convenient-should be levied when the contributor have money/should not be cumbersome to collect tax
  - Flexible-tax system should readily adapt to the changing economic circumstances such as income levels/price levels.
  - Simplicity-easy for taxpayers to understand/calculate/know how much they are paying.
  - Diversified-tax system should accommodate a variety of taxes to enable many citizens to pay.
  - Ability to pay- should be designed in a way that the amount charged is not too high to the extent that the contributor is unable to pay.
    NB: Stating must be there to score.
    ( Any 5×2=10 Mks)
2. Explain Five types of advertising (10Marks)
  - Celebrity advertising-used to encourage people who identify themselves with the personality used in the advertisement to buy the product
  - Competitive advertising/persuasive advertising-used to convince customers that the product is the best in the market in order to cope with the competition
  - Institutional advertising-aims at popularizing a firm/business enterprise hence the name of the firm appears prominently
  - Product advertising-aims at increasing the sales of a particular product and thus the brand name of the product appear prominently.
  - Informative/primary demand advertising-aims at popularizing anew product in the market to potential customers.
  - Reminder advertising- used to remind the customers about the continued existence of the product.
  - Corrective advertising- aims at correcting /rectifying some misleading information about a product/a firm.
    NB: CORRECT NAME OF ADVERTISING MUST BE STATED TO SCORE.
    Any (5×2=10Mks)
1. Highlight five ways in which the Kenyan government may increase amount of money in circulation.
  - Lowering bank rate- to make loans cheap/affordable thus encourage borrowing by citizens.
  - Reducing taxes-this makes the citizen to retain much of their gross receipts.
  - Reducing compulsory deposits/reducing minimum reserve requirements-leaving commercial banks with a lot of funds to lend.
  - Moral suasion/persuasion -requesting/appealing to commercial banks to increase lending.
  - Increasing government expenditure-thus releasing more money into the economy.
  - Lowering interest rates on savings-thus discouraging people from saving.
  - Directing or instructing banks to increase lending-(thereby increasing accessibility of money)
  - Buying/redeeming government securities/stock-(in open market operations) to release more money into the economy.
  - Reducing cash /liquidity ratio-making commercial banks to have abundant cash to lend/give back to depositors. (Any 5×2=10)
2. Discuss Five factors that determine the amount of premiums charged in life assurance cover. (10Marks)
  - Age of the assured-older people are required to pay higher premiums as they are more susceptible to infections/sicknesses than younger people.
  - Health of the assured-the healthier the assured the lower the premiums and vice versa. NB: The vice versa must come out to score.
  - Duration of the contract-higher premiums are charged for short contracts while if the contract is long term lesser premiums are charged
  - Sum assured –the higher the sum assured the higher the premiums and the lower the sum assured the lower the premiums.
  - Occupation of the assured-those engaged in risky/unsafe jobs/occupations is required to pay while those working in safe low risk jobs pay lower premiums.
  - Residence of the assured-those living in areas with conflicts/wars/high crime areas/areas known for natural calamities are charged high premiums, while those in otherwise safe areas pay less premiums.
  - Frequency of occurrence of risks assured-where assured risk is more prevalent to the assured or in an area more premiums will be charged while if the risks occurrence is low then lower premiums are charged.
  - Incidences of pandemics/outbreaks-during times of disease/pandemics higher premiums are charged than when such incidences are not in existence.
    (Any 5×2=10Mks)
1. Explain Five factors that hinders entrepreneurial practices in Kenya today. (10Marks)
  - Poor infrastructure e.g poor roads network-making it difficult to transport raw materials/finished products to the market. NB :Accept examples of infrastructure as a mention).
  - Unhealthy/stiff/cut throat competition-forces some business to close down/discouraging new investors from venturing into businesses.
  - poor/lack of entrepreneurial skills-due to low levels of education/inappropriate education system/ hinders /people shy away from starting businesses.
  - Inadequate markets-discourage existing businesses and ner ventures
  - Unfavorable political climate/political instability/insecurity-which do not provide a conducive environment for business activities.
  - Negative cultures/negative religious beliefs-not favorable for certain businesses eg. Pork selling not viable in a muslim community/cultures that favours direct production
  - Inadequate resources/capital-required in production such as raw materials power ,labour, capital making it difficult to start businesses.
  - Unfavourable government policies /high taxes/high licence fees/unfair legislations/unfair regulations-which discourages investments/scare away investors.
  - Natural calamities –such as floods which discourage investments in some areas.
    (Any 5×2=10Mks)
2. Effect of an increase in demand on the equilibrium price and quantity. (10Marks)
  
  Diagram 8 ticks =8 ×1=8mks
  Explanation:
  1. The demand curve shifts to the right from D₀D₀ TO D₁D₁.
  2. The equilibrium point shifts to the right from E₀ to E₁
  3. The equilibrium quantity increases from Q₀ to Q₁.
  4. The equilibrium price increases from Pe₀ to Pe₁Text= Four statements each half marks= 2 Marks

Outline Four reasons why mobile phones have become a popular means of communication. (8Marks)
- Portable/convenient to carry around and so one can make and receive calls at any time or anywhere as long as he/she have it.
- Information can be stored in written form/audio/audio-visual/provide evidence.
- One can easily access information from the internet/websites.
- Mobile phones have other functions such as games , calculators, clocks ,calendars, foreign exchange convertors which makes access easy.
- Diverse types of messages can be sent and received like pictures , graphs, texts, animations, illustrations .
- They are trendy and fashionable thus alluring masses to own/possess them.
  NB: No splitting of marks. 2×4=8mks

Mwakio Traders
Trading ,profit and loss Account
For the year ending 31st December, 2005 √

Dr			Cr
Opening stock	12,500 √	Sales	95,000 √
Add: Purchases	70,000 √	Less: Return inwards	1,500 √
	82,500	Net sales	93,500 √
Less:return outwards	2,400 √
CGAFS	80,100 √
Less: Closing stock	6,500 √
Cost of sales	73,600 √
Gross profit c/d	19,900 √
	93,500		93,500
General expenses	5,200 √	Gross profit b/d	19,900 √
Carriage outwards	4,000 √	Net loss	6,100 √
Salaries	16,800 √		26,000
	26,000

Mwakio Traders
Balance Sheet
As at 31st December,2005 √

Fixed Assets	82,000 √	Capital	88,800√
Current Assets		Add: Net Loss	6,100√
Stock	6,500 √	Net/new capital	82,700 √√
Debtors	10,500 √	Current Liabilities
Cash in hand	2,500 √	Creditors	8,500 √
		Bank Overdraft	10,300 √
	101,500 √		101,500 √

NB: To score double ticks one must state - New/Net capital
Single tick where totals are correct , on the same line/level and double underlined.
12×1/3=4Marks

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