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

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



Candidates score
















    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)
    1. Outline Four reasons why mobile phones (cell phones) have become a popular means of communication . (8 marks)
    2. 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 :
      1. Trading, profit and loss Account for the year ending 31st Dec 2005. (8Marks)
      2. Balance sheet. (4Marks)


    1. 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)
    2. 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)
    1. 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 )
    2. Powermax Stores ledger Accounts.


      Cash A/C










      Balance b/d

      60,000 √



      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



      Balance b/d

      95,000 √



      75,000 √


      Balance c/d 20,000 √
          95,000     95,000
      30/6/2015 Balance b/d




      Creditors A/c




      59,000 √


      Balance b/d

       80,000 √



      1,000 √      


      Balance b/d 20,000 √      


            30/6/2015 Balance b/d 20,000


      KCB Loan  A/c



      Balance c/d

      130,000 √



      130,000 √
            30/6/2015 Balance b/d 130,000


      Land A/C




      200,000 √


      Balance c/d 217,000 √



      17,000 √



      30/6/2015 Balance b/d


    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.
        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)
      b zdzddaa
      Diagram 8 ticks =8 ×1=8mks
      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 Pe1
        Text= Four statements each half marks= 2 Marks
    1. 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
    2. 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
      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.
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