Business Studies Paper 2 Questions and Answers - MECS Pre Mock Exams 2023

INSTRUCTIONS TO CANDIDATES

• Answer any five questions
• Candidates should answer the questions in English.

FOR EXAMINERS USE ONLY

QUESTIONS

1.                              
   1. Explain five reasons why people prefer to start a partnership business. (10 marks)
   2. Explain the importance of business studies to the society. (10 marks)
2.                    
   1. Illustrate using a diagram the circular flow of income in a two-sector economy and give three assumptions (10 marks)
   2. Explain five distinguishing features between a current account and a savings account (10 marks)
3.                  
   1. Explain five reasons why hypermarkets are becoming popular in Kenya today (10 marks)
   2. On 1st May, 2020, Kihenjo Limited had cash in hand sh. 178,000 and a bank overdraft of sh. 23,400. During the month, the following transactions took place.
      2020
      May 3: Cash sales sh. 16,500 paid direct to the bank
      4: Bought goods for sh. 15,000 and paid by cheque
      6: Cash sales sh.50, 000
      9: Received a cheque sh. 76,500 from Mwikali
      12: Bought goods sh.10, 000 on credit from Juma
      13: Paid insurance premium sh.16, 000 in cash
      14: Paid Otieno by cheque sh. 9, 700 in full settlement of his account having deducted a 3% cash discount
      16: The owner took sh. 1,000 cash from the business to pay hospital bill for spouse
      20: Withdrew sh. 30, 000 for office use.
      23: Received a cheque of sh. 23, 750 from Kim in full settlement of his account less 5% cash discount
      25: Paid wages of shs. 20, 000 cash
      26: The cheque received from Kim was dishonoured
      30: Banked all the cash except sh. 3, 000
      Required: A duly balanced three-column cash book (10 marks)
4.                      
   1. Describe five channels that can be used when exporting Agricultural products. (10 marks)
   2. Explain any five circumstances under which a business may prefer open office layout (10 marks)
5.                    
   1. Describe the procedure of making an insurance claim. (10 marks)
   2. Kenya has been experiencing a challenge of unemployment. Explain five measures that the government has taken in her effort to curb the unemployment problem. (10 marks)
6.                
   1. Ouma is a businessman who is intending to increase his volumne of sales through promoting his products. State and explain any four factors that he must put into consideration before deciding on the method that he should use. (8 marks)
   2. The following trial balance relates to Uchumi Traders as at 31st December, 2022.
      Uchumi Traders
      Trial Balance
      As at 31st December, 2022
      

      Particulars	Dr. (Shs)	Cr. (Shs)
      Stock on 1st Jan. 2022	60,000
      Purchases and Sales	400, 000	580, 000
      Returns	20, 000	50,000
      Debtors and creditors	65, 000	40,000
      Premises	540, 000
      Machinery	200, 000
      Fixtures and fittings	100, 000
      Carriage outwards	8,000
      Wages and salaries	30,000
      Discounts	25,000	32, 000
      Commissions	16, 000	14, 000
      Cash in hand	70,000
      Capital		818, 000
      	1, 534,000	1,534,000

      Additional Information: Closing stock was valued at sh. 70, 000
      Required:
      1. Trading profit and loss account for the period ended 31st December, 2022 (8 marks)
      2. Balance sheet as at 31st December, 2022 (4 marks)

MARKING SCHEME

1.                  
   1. Reasons why people prefer to start a partnership business
      • Partnerships can raise more capital- People prefer partnership form of business because unlike in sole proprietorship, the partners will be able to raise high amounts of capital
      • Distribution of work- Work is distributed among the partners and this reduces the workload for each partner.
      • Combination of talents and skills- Different talents and skills are combined such that each partner is assigned the responsibility which he/she can perform best.
      • Sharing of losses and liabilities- Unlike a sole proprietor who bears losses and liabilities alone, the liabilities and losses in partnership are shared among the partners. This eases the burden for an individual.
      • Few legal formalities- There are few legal formalities required in the formation of a partnership in comparison to a limited liability company.
      • Sharing of ideas- Consultation and sharing ideas among partners may lead to better decisions in the business.
        Any other relevant point.
   2. Importance of business studies to the society
      • Equips members of the society with knowledge and skills to start and run a business
      • Assists individuals in appreciating the role of business in provision of goods and services
      • Assists individuals to acquire self-discipline and positive attitude towards work
      • Enables the individuals to understand the role of government in business
      • Assists members to relate the knowledge, skills and attitude acquired to day to day business activities.
      • Makes the members to appreciate the need of good business management practice.
      • Equips individuals with abilities to promote cooperation
      • Helps members to develop positive attitude towards the environment.
      • Equips individuals with abilities to understand role of communication and modern technology to business management.
      • Equips individuals with knowledge and skills required to evaluate business performance
        (Any 5 well elaborated point 5×2marks)
2.                    
   1. The circular flow of income in a two sector economy.
      
      Assumptions:
      • There are only two sectors, i.e. households and firms
      • Firms use all their incomes to acquire factors of production
      • There is no government intervention
      • The economy is closed
      • Households use their incomes on goods and services
        NB: A tick for every correct box and a tick for every correct arrow= 14×1/2=7 marks
        Any three assumptions (3×1mark)
   2. Distinguishing features between a current account and a savings account
      

      Current Account	Savings account
      No minimum balance is maintained	A minimum balance must be maintained
      No restriction on the maximum amount can withdraw at any time	There is restriction on the maximum amount one can withdraw at any time without notice
      No restriction on frequency of withdraws	Frequency of withdrawals may be regulated by the bank policy
      Money on this account does not earn interest	Amount in the account may earn interest
      Payments on the account are made easy through the use of cheques	Account holder must personally visit the bank to make withdrawals/payments
      Holder can negotiate for overdraft facilities	It does not offer overdraft facilities
      Holder is issued with regular monthly statements of account	No regular statement of account, statements only issued under the holder request

      NB: No splitting of marks
3.                            
   1. Reasons why hypermarkets are becoming popular in Kenya today
      • They are usually open for long hours- As such, people are able to access them for long even after attending to their other duties
      • Offer extensive parking facilities to the customers since they are located away from town centres
      • Have variety of goods under one roof- As such customers can do their shopping in one building and thus saving time.
      • They provide credit facilities by accepting credit cards- This attracts more customers
      • They save on space- This reduces rents and rates thus more entrepreneurs will be willing to start this kind of business.
        (Any 5 well elaborated point 5×2marks)
   2.                            
      Kihenjo Limited
      Three column cash book
      For the month ended 31st May, 2020
      

      Date	Details	LF	Disc. Allowed    Shs.	Cash Sh.	Bank Sh.	Date	Details	LF	Disc rec Shs	Cash Sh.	Bank Sh.
      2020						2020
      May 1	Bal	b/d		178,000		May  1	Bal	b/d			23,400
      3	Sales				16,500	4	Purchases				15,000
      6	Sales			50,000		13	Insurance			16,000
      9	Mwikali				76,500	14	Otieno		300		9,700
      20	Bank	C		30,000		16	Drawings			1,000
      23	Kim		1250		23,750	20	Cash	C			30,000
      30	Cash	C			218,000	26	Kim				23,750
      						30	Bank	C		218,000
      						31	Bal	cld		3,000	232,900
      			1250	258000	334,750				300	258000	334750
      	Bal	b/d		3,000	232,900

      NB: A tick for every correct amount entered. No tick for totals (20×1/2 marks= 10marks)
      • If no dates on either sides at all, deduct a maximum of 2 marks
      • Details must be correct to award
      • Balances must be specified i.e. bal c/d or bal. b/d
4.                            
   1. Channels that can be used when exporting Agricultural products
      • Local producer(farmer) →  Foreign consumer
      • Local producer →  Retailer  →  Foreign consumer
      • Local producer →   Wholesaler →   Retailer →   Foreign consumer
      • Local producer →   Marketing board →   Retailer  →  Foreign consumer
      • Local producer →   Marketing board →   Wholesaler →   Retailer  →  Foreign Consumer
      • Local producer →   Cooperative →   Marketing Board →  Wholesaler →   Foreign consumer
        NB: The arrow must be used
        Must start with local producer (farmer) and end with foreign consumer
   2. Circumstances under which a business may prefer open office layout
      • When the business wants to reduce wastage of time- In an open office layout, there is no wastage of time as people move from one place to another to get documents or passing information
      • When the business wants to curb the problem of absenteeism- In an open office layout, there is less absenteeism because there is close supervision/monitoring of members of staff
      • When the business wants to control misuse of office facilities/resources- In an open office layout, members of the staff may not use the office resources for their own personal work
      • When the business wants to reduce on the cost of construction and maintenance
      • When the business wants to encourage team work
      • When the business wants to save on the space
5.                  
   1. Procedure of making an insurance claim.
      • Notifying the insurer- Immediately the risk insured against occurs, the insured should notify the insurer within the stipulated time
      • Filling a claim form- After notification, the insurer issues the insured with an official claim form to be filled. The insured is expected to give all the details relating to the occurrence of the risk. The fully filled claim form is returned to the insurer.
      • Investigation of the claim- On receipt of the filled claim form, the insurer launches an investigation concerning the cause of the occurrence of the risk.
      • Preparation of the assessment report- Once it is established that the claim is valid, insurance uses assessors to prepare report concerning the extent of the loss suffered.
      • Payment of the claim/Compensation- On receiving the assessors report, the insurance company makes arrangements to pay the insured. The payment marks conclusion of the contract between the insurer and the insured.
   2. Measures that the government has taken in her effort to curb the unemployment problem.
      • Encouraging employment creation in the private sector.
      • Adopting policies that encourage the use of labour-intensive methods of production.
      • Adopting a relevant education system which instills the relevant skills
      • Increasing government expenditure- Government projects will increase the chances of jobs in the country
      • Developing rural areas- This will discourage rural-urban migration.
      • Encouraging direct foreign investment
      • Diversification of economic activities
      • Encouraging youths to seek employment in foreign countries
        (Any 5 well elaborated point 5×2marks)
6.                            
   1. Factors to consider when choosing a method of product promotion
      • Cost- If cost is the only factor to be considered, one should choose the most affordable method.
      • Nature of the product- The nature of the products determines the type of product promotion. For example, products that require demonstration are best promoted through personal selling.
      • Target group- The product promoter should try as much as possible to reduce wastage. This can be done by ensuring that the method chosen reaches only the targeted group.
      • Objectives of the promoting firm- The objective of product promotion determine the method of product promotion.
      • Methods used by competing firms- In a competitive market, a firm will tend to use a method of product promotion that will make it compete favourably with the other competing firms.
      • The Law- A firm should use only those methods that are allowed by the law.
      • Availability of physical, financial and human resources
      • Efficiency of the method in passing specific message
      • Level of demand for the product
   2.                
      1. Trading, profit and Loss Account
         Uchumi Traders
         Trading, Profit and Loss A/c 
         For the period ended 31st December, 2022
         

         Dr					Cr
         	shs	shs		shs	shs
         Opening Stock		60,000	Sales		580,000
         Add: Purchases	400,000		Less: Sales returns		20,000
         Less: Purchases returns	(50,000)	350,000
         Cost of goods for sale		410,000
         Less: Closing stock		70,000
         Cost of goods sold		340,000
         Gross Profit c/d		220,000
         		560,000			560,000
         Carriage outwards	8,000		Gross profit b/d		220,000
         Wages & Salaries	30,000		Add: Revenues
         Discount Allowed	25,000		Discount received	32,000
         Commission Allowed	16,000	79,000	Commission received	14,000	46,000
         Net profit c/d		187,000
         		266,000			266,000
         			Net profit b/d		187,000

      2. Balance Sheet
         Uchumi Traders
         Balance Sheet 
         As at 31st December, 2022 
         

         	Shs.	Shs.		Shs.	Shs.
         Fixed Assets			Capital	818,000
         Premises	540,000		Add: Net profit	187,000
         Machinery	200,000				1,005,000
         Fixtures& fittings	100,000	840,000	Current Liabilities		40,000
         Current Assets
         Stock	70,000
         Debtors	65,000
         Cash	70,000	205,000
         		1,045,000			1,045,000