Business Studies Paper 1 Questions and Answers - MECS Pre Mock Exams 2023

INSTRUCTIONS TO CANDIDATES

• Answer all the questions
• Candidates should answer the questions in English 

FOR EXAMINERS USE ONLY

QUESTIONS

1. State four banking services offered by Central Bank of Kenya to the Kenyan Government(4mks)
2. State the term used to describe each of the following disciplines(4mks)
   1. Study of the process of identifying and acquiring necessary resources to start and operate a business
   2. Study of how human beings strive to satisfy their endless wants using the scarce resources
   3. Study of trade and aids to trade
   4. Study of the systematic way of recording business activities and using the records for decision making
3. For each of the following types of accounts, state in the spaces provided whether you debit (Dr) or credit (Cr) increase or decrease in the account(3mks)
   

   Type of account	To increase	To decrease
   Asset
   Capital
   Liability

4. Outline four benefits of using social media such as Whatsapp groups for office communication(4mks)
5. The following balances were extracted from the books of Ufanisi enterprises on 31st December 2022
   Fixed asset 3,000,000
   Current assets 500,000
   Creditors 700,000
   4-year loan1,500,000
   Calculate the net worth of the above business as at 31st Dec 2022(4mks)
6. Highlight four features of direct production (4mks)
7. State four reasons for observing ethical practices in product promotion(4mks)
8. Outline four reasons why human beings make choices when satisfying their wants(4mks)
9. State four disadvantages of concentrating industries in one area within a country(4mks)
10. Highlight four external business environment that may positively affect the operations of a business(4mks)
11. Ahadi Ltd had the following book balances as at 31st December 2022
                 Shs
    Sales 500,000
    Stock 1/1/2022 20,000
    Returns inwards 5,000
    Purchases300,000
    Stock 31/12/2022 40,000
    Returns outwards 10,000
    Prepare Ahadi Ltd Trading Account for the year ended 31st December 2022(5mks)
12. Outline four circumstances under which a trader may prefer to start a small firm (4mks)
13. State four errors which may affect the agreement of a trial balance totals(4mks)
14. Highlight four features of a bonded warehouse(4mks)
15. State the reward for each of the following factors of production(4mks)
    

    Factors of production	Reward
    Land
    Capital
    Entrepreneurship
    Labour

16. Outline four negative effects of an ageing population in a developing country (4mks)
17. Highlight four ways in which a government participate in business activities(4mks)
18. The diagram below represents the demand and supply of commodity x
    
    State four possible consequences of selling commodity x at price higher than the equilibrium price P (4mks)
19. State four features of an insurable interest(4mks)
20. Identify the source document from which the information given below would be obtained from(4mks)
    

    Information	Source Document
    Money received from a debtor
    Credit purchases
    Increasing amount a debtor is required to pay
    Credit sales

21. Highlight four characteristics of an entrepreneur(4mks)
22. Outline four ways through which firms contribute to national income of a country (4mks)
23. State the meaning of the following terms as used in Business (4mks)
    1. Mergers
    2. Holding companies
    3. Franchising
    4. Cartel
24. State four ways the central bank of a country may use to reduce money in circulation within a country(4mks)
25. The information below relates to RS LTD
                        sh
    Sales 20,000
    Cost of sales15,000
    Average stock 6,000
    Expenses 10% of sales
    Calculate
    
    1. Gross profit markup(1mk)
    2. Gross profit margin(1mk)
    3. Rate of stock turn over(1mk)
    4. Net profit(1mk)

MARKING SCHEME

1. State four banking services offered by Central Bank of Kenya to the Kenyan Government. (4mks)
   • Accepts money deposits
   • Make payment on behalf of the government
   • Manage government borrowing i. borrows and make payments
   • Advisory services on financial matters.
   • Intervenes in foreign currency market.
   • Guarantor to government loans.
   • Lender to a government.
2. State the term used to each of the following disciplines. (4mks)
   1. Study of the process of identifying and acquiring necessary resources to start and operate a business
      • Entrepreneurship
   2. Study of how human beings strive to satisfy their endless wants using the scarce resources.
      • Economics
   3. Study of trade and aids to trade.
      • Commerce
   4. Study of the systematic way of recording business activities and using the records for decision making
      • Accounting
3. For each of the following types of accounts, state in the spaces provided whether you debit or credit increase or decrease in the account. (3mks)
   

   Type of account	To increase	To decrease
   Asset	Debit	Credit
   Capital	Credit	Debit
   Liability	Credit	Debit

4. Outline four benefits of using social media such a whatsapp groups for office communication.
   • Reduced cost of communication
   • Provides unlimited space for filing
   • Fast means of communication
   • Facilitates quick decision making/feedback
   • Reduced paper work and need for paper files
   • Accord, convince while communicating/easy to use
   • Communication – can take place all time
   • Wide coverage/communication can be passed to many people at different places at the same time.
5. The following balances were extracted from the books of Ufanisi enterprises on 31st December 2022.
   Fixed assest 3,000,000
   Current assets 500,000
   Creditors 700,000
   4 year loan 1,500,000
   Calculate the networth of the above business as at 31st Dec 2022. (4mks)
   • C = A- L
     Fixed assets 3,000,000
     Current assets 500,000
     Total assets 3,500,000
     
     A 3,500,000
     L - 2,200,000
     C 1,300,000
     
     Creditors 700,000        net worth 1,300,000
     4 year loan 1,500,000
     Total liabilities 2,200,000
6. Highlight four features of direct production (4mks)
   • Production is for own use/subsistence production
   • Low levels of technology is used in production
   • Goods produced are often of low quality
   • Goods are produced in small quantities/ no surplus produced
   • The producer is involved in all stages/no division of labour
   • The producer earns no extra income
   • The producer’s living standards is low for lack of variety
   • The producer strives to produce a variety of commodities/lack of specialization
7. State four reasons for observing ethical practices in product promotion. (4mks)
   • Ensures fair competition
   • To protect consumers.
   • Ensures business comply with the law
   • To protect environment
   • To promote social responsibility
   • Improve/ maintain positive image
   • Maintain morality in society
   • Maintain suppliers’ trust
8. Outline four reasons why human beings make choices when satisfying their wants.(4mks)
   • Because goods and services have different prices.
   • Due to influence from many advertisements/ media campaigns.
   • Since resources are scarce/ inadequate to satisfy all wants.
   • Due to differences in tastes, fashions and preferences.
   • Some needs are more urgent than others.
   • The need to be different from others.
   • To be trendy.
9. State four disadvantages of concentrating industries in one area within a country. (4mks)
   • It would lead to congestion/ slums
   • It would cause pollution
   • It would land to unbalanced regional development.
   • May result in social evils.
   • May be target during wars/terrorism activities
   • May lead to widespread unemployment due to decline in demand.
10. Highlight four external business environment that may positively affect the operations of a business. (4mks)
    • Reliable suppliers
    • Fair competition
    • Favourable social cultural environment
    • Availability of advanced technology
    • High demand/availability of many customers
    • Increasing population
    • Conducive economic environment.
    • Favourable legal political environment/ enhanced security.
    • Availability of raw materials.
11. Ahadi ltd had the following book balances as at 31st December 2022
    

    Shs
    Sales 500,000
    Stock 1/1/2022 20,000
    Returns inwards 5,000
    Purchases 300,000
    Stock 31/12/2022 40,000
    Returns outwards 10,000
    Prepare Ahadi Ltd Trading Account for the year ended 31st December 2022. (5mks)

    Ahadi Ltd
    Trading Account
    For the year ending 31/12/2022 

    Opening stock	20,000	Sales	500,000
    Purchases	300,000	Return inwards	(5,000)
    Return outwards	(10,000)	Net sales	495,000
    COGAS	310,000
    Closing Stock	(40,000)
    COGS	270,000
    G.P C/D	225,000
    	495,000		495,000

12. Outline four circumstances under which a trader may prefer to start a small firm (4mks)
    • When little capital is available
    • When there is need of easy management
    • When flexibility is required
    • Where legal requirements to start are few
    • When the government encourages small firms
    • Where one want to lower the risks
    • Where there is need to maintain personal touch
    • Where one want to reduce the cost of operation
    • Where there is need to maintain business secret
    • When there is need to make decisions fast
13. State four errors which may affect the agreement of a trial balance totals. (4mks)
    • Partial omission
    • Posting a wrong balance
    • Failing to post a balance
    • Partial reversal of entry
    • Arithmetical mistakes
    • Transferring wrong balance
14. Highlight four features of a bonded warehouse. (4mks)
    • Goods are bonded until duty is paid.
    • Located at a point of entry to a country
    • Manned by government officials
    • Deals mainly in imported goods
    • Goods can be re-exported
    • Storage charges are paid.
15. State the reward for each of the following factors of production. (4mks)
    

    Factors of production	Reward
    Land	Rent /royalties/rates
    Capital	Interest
    Entrepreneurship	Profit
    Labour	Wages/salaries/fees/commission/ honoraria

16. Outline four negative effects of an ageing population in a developing country (4mks)
    • Decline in labour supply
    • Fall in quality of labour
    • Decline in demand for goods for the young population
    • Increased expenditure on welfare benefits
    • High dependency ratio.
17. Highlight four ways in which a government participate in business activities. (4mks)
    • Regulation
    • Training
    • Trade promotion
    • Provision of services
    • Creating an enabling environment.
    • Consumer of goods/services.
18. The diagram below represents the demand and supply of commodity x.
    State four possible consequences of selling commodity x at price higher than the equilibrium price P (4mks)
    • Increasing in quantity supplied
    • Decreases in demand
    • Excess supply,
    • Excess supply force sellers to reduce prices towards equilibrium/long run
    • Wastage
19. State four features of an insurable interest. (4mks)
    • Presence of property rights
    • Presence of insurable risk
    • Property must have monetary value
    • There should be possibility of suffering financial loss
    • Insurable risk must be legal
20. Identify the source document into which the information given below would be recorded. (4mks)
    

    Information	Source document
    Money received from a debtor	Duplicate receipt
    Credit purchases	Incoming invoice
    Increasing amount a debtor is required to pay	Debit note
    Credit sales	Outgoing invoice

21. Highlight four characteristics of an entrepreneur. (4mks)
    • Creative/ imitative
    • Hardworking/committal
    • Goal oriented
    • Self-confidence/optimistic
    • Risk taker
    • Decision maker
    • Good networker
    • Good communication skills
    • Ethical
    • Flexible
    • Persistent/patient
    • Independent
    • Desires feedback
22. Outline four ways through which firms contribute to national income of country.(4mks)
    • Provision of goods and services
    • Payment of taxes
    • Provision of goods and services
    • Payment of factor services (labour, capital)
    • Provision of savings/capital for investment
23.                  
    1. Merger- Two or more companies combine to form one big company.
    2. Holding company- A company acquires at least 51% of shares in another company called subsidiary.
    3. Franchising- Is where a company gives permission to another company to produce and distribute its brand.
    4. cartel- Companies that come together in formal agreement to control output, price and marketing of their goods and services
24. State four ways the central bank of a country may us e to reduce money in circulation within a country. (4mks)
    • Directives increase lending/interest rate/ only land to printing
    • Increasing bank rates
    • Increasing liquidity ratio
    • Increasing cash ratio
    • Increasing compulsory deposit
    • Moral persuasion to reduce lending/interest rate
    • Selling government security in the open market.
25. The information below relates to R.S LTD
    sh
    Sales 20,000
    Cost of sales 15,000
    Average stock 6,000
    Expenses 10% of sales
    Calculate
    
    1. Gross profit markup (1mk)
    2. Gross profit margin (1mk)
    3. Stock turn over (1mk)
    4. Net profit (1mk)
       1. Sales 20,000
          COS 10,000
          G.P 10,000
          Mark up = G.P x 100
                          COS
          5,000 x = 33.33%
          15,000
       2. Margin G.P x 100
                     sales
          5,000 x 100 = 25%
          20,000
       3. R.O.S.T.O =      COS   
                                 Av.Stock
       4. Net profit = G.P – expenses
          5,000 – ( ¹⁰/₁₀₀ x 20,000) = 3,000