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

Instructions to Candidates:

1. Answer all questions
2. Non-Programmable silent electronic calculators may be used
3. Candidates should answer the questions in English

QUESTIONS

1. Identify the environmental factor affecting business operations as described by the following statements (4 marks)
   

   S.no	Statement	Factor
   a	Skills and methods used by workers in production.
   b	Affects buyer’s ability to buy products offered by a business
   c	Firms selling similar products trying to outdo each other in their efforts to maximize profits
   d	Formal arrangement of activities carried out by employees at various levels in an organization.

2. Give four items of information that can be found in an insurance policy (4 marks)
3. Highlight four factors considered when planning the location of an office (4 marks)
4. Outline four reasons for collapse of small scale business units (4 marks)
5. Many changes have taken place in the transport sector Identify any four of such changes (4 marks)
6. Mention four costs that are incurred by middlemen while distributing goods (4 marks)
7. For each of the following transactions indicate in the appropriate columns the source documents and the books of original entry in which the transactions should be recorded (4 marks)
   

   	Transaction	Source document	Book of original entry
   (a)	Goods returned by a customer
   (b)	Purchase of goods on credit

8. Outline four circumstances when high population is desired in a country (4 marks)
9. Globalization is a term often used to denote business ownership and spread Outline four merits of globalization of business units (4 marks)
10. Give the term that best suit each of the statements described below (3 marks)
    

    	Statement	Term
    a	List of wants starting from  most pressing to the least pressing
    b	Limited or not enough in supply of something
    c	Value of the best next forgone alternative

11. The following assets and liabilities belong to Longisa Traders as at 31.12.20
    Stock sh 90,000
    Equipment sh 130,000
    Creditors sh65,000
    1. Work out the net worth of Longisa Traders (1 mark)
12. The following balance were extracted from the books of Bomet East traders on 31st July 2022
    

    Items	Amount
    Capital Cash in hand Buildings Furniture Motor vehicle Creditor Debtors bank	500000 20000 20000 25000 137000 8000 36000 100000

    Required: Prepare Bomet East traders trial balance as at 31st July 2022 (5marks)
13. The following balances were extracted from the books of Suswa Traders on 31st December 2001
                            Shs
    Gross profit 400,000
    Salaries 160,000
    Returns outwards 4,500
    Telephone 40,000
    Commission received 16,000
    Sales 200,000
    Commission 30,000
    Repairs 15,000
    Prepare a profit and loss account for the period ended 31st December 2001 (4 marks)
14. Outline four essentials of a bill of exchange (4marks)
15. On 2nd November 2022 Ongengo received an invoice of Ksh 12000 Terms of payment were: Trade discount of 5% and cash discount of 10% If payment is made within 30 days Determine the amount paid if payment was made on 27th November 2022 (4 marks)
16. Identify the product promotion method described by each of the statement below (4 marks)
    

    	Statement	Method
    a	Selling a product below its market price so as to entice customers to enter the shop.
    b	Process of passing information with a view of creating and promoting a favourable image of the organization to the public
    c	Paid form of impersonal presentation of a product through mass communication media.
    d	Reduction in the sales price of a product by the seller so that the buyer ends up paying less.

17. Highlight any four services offered by commercial banks to their clients (4 marks)
18. State four emerging trends in communication (4 marks)
19. Give four characteristics of oligopoly market structure (4 marks)
20. The diagram below shows equilibrium price and quantity
    
    Draw a new demand curve on the diagram above showing a decrease in demand and the effect on: (4 marks)
    1. Equilibrium price (Pe)
    2. Equilibrium quantity (Qe)
    3. Equilibrium point (E)
21. Highlight four reasons why a country would rely more on primary level of production (4 marks)
22. State four importance of computing national income statistics in a country such as Kenya (4 marks)
23. From the transactions below, state the accounts to be debited and to be credited (4 marks)
    

    	Transactions	Debit	Credit
    i	Begun a business with Ksh 10,000 in the bank
    ii	Bought equipment by cheque for Ksh. 8,000
    iii	Transferred Ksh 60,000 to the bank from the cash till
    iv	Took cash Ksh.7,000 to pay hospital bill

24. Outline four advantages of a systematic arrangement of goods in a warehouse (4 marks)
25. Name four factors considered when determining size of the firm (4 marks)

MARKING SCHEME

1. Identify the environmental factor affecting business operations as described by the following statements. (4 marks)
   

   S.no	Statement	Factor
   a	Skills and methods used by workers in production.	Technology
   b	Affects buyer’s ability to buy products offered by a business	Economic environment
   c	Firms selling similar products trying to outdo each other in their efforts to maximize profits	Competitive environment
   d	Formal arrangement of activities carried out by employees at various levels in an organization.	Business structure

2. Give four items of information that can be found in an insurance policy. (4 marks)
   • Name of the insured (policy holder)
   • Policy number
   • Sum insured/assured
   • Risk(s) insured against
   • Period/duration of the policy
   • Amount of premium to be paid
   • Conditions for compensation
3. Highlight four factors considered when planning the location of an office. (4 marks)
   • Accessibility
   • Availability of space for future expansion
   • Security
   • Cost
   • Infrastructure
   • Auxiliary services
4. Outline four reasons for collapse of small scale business units. (4 marks)
   • Poor location
   • Insufficient capital
   • Stiff competition
   • Poor management
   • Unfavourable government policies e.g. high taxation
   • Due to insufficient capital they may not be able to employ skilled labour
5. Many changes have taken place in the transport sector. Identify any four of such changes. (4 marks)
   • Introduction of speed governors
   • Introduction of safety belts
   • Use of unleaded petrol and low Sulphur diesels
   • The effect of the ever rising global fuel prices
   • Outlawing of matatu cartels
   • Establishment of express way
   • Expansion of roads to dual carriage ways
   • Introduction of SGR
   • Introduction of electric vehicles
6. Mention four costs that are incurred by middlemen while distributing goods. (4 marks)
   • Cost of buying goods
   • Storage costs
   • Transport costs
   • Advertising costs
   • Insurance costs
   • Operation costs e.g. salaries
   • Preparation costs e.g. branding, packing etc.
7. For each of the following transactions indicate in the appropriate columns the source documents and the books of original entry in which the transactions should be recorded (4 marks)
   

   	Transaction	Source document	Book of original entry
   (a)	Goods returned by a customer	Outgoing credit note	Purchases returns journal
   (b)	Purchase of goods on credit	Incoming invoice	Purchases journal

8. Outline four circumstances when high population is desired in a country (4 marks)
   • In case of need to increase labour supply
   • When there is need for increased market demand
   • If there is need to advance technology
   • When there is need to have varied talents
   • In case there is need to enhance proper utilization of resources
   • When there is need to increase competition in production for quality goods
   • Incase there is need to increase security due to numerical strength.
9. Globalization is a term often used to denote business ownership and spread. Outline four merits of (4 marks)
   • Globalization of business units.
   • Encourage formation of multinational corporations
   • Earns revenue to the government
   • Enables integration of important function e.g. production
   • Unification and integration of industrial activities across the countries
   • Opens opportunities for business ownership by people in various countries
   • Enable collaboration of firms in different countries in respect to trade areas
   • Facilities applications of better technology for improved and cheaper products.
10. Give the term that best suit each of the statements described below. (3 marks)
    

    	Statement	Term
    a	List of wants starting from most pressing to the least pressing
    b	Limited or not enough in supply of something
    c	Value of the best next forgone alternative

11. The following assets and liabilities belong to Longisa Traders as at 31.12.20
    Stock sh. 90,000
    Equipment sh. 130,000
    Creditors sh.65,000
    1. Work out the net worth of Longisa Traders (1 mark)
       • Capital = Assets - Liabilities = 220,000 - 65, 000
         = sh 155, 000√ (1)
       • Longisa Traders
         Balance sheet√
         As at 31/1/21
         

         Equipment	130, 000√	Capital	155, 000√
         Stock	47, 000√	Add net profit	6, 300√
         Cash	49, 300√		161, 300
         		Creditors	65, 000√
         	226, 300		226, 300

         8 x ½ = 4 marks
12. The following balance were extracted from the books of Bomet East traders on 31st July 2022
    

    Items	Amount
    Capital Cash in hand Buildings Furniture Motor vehicle Creditor Debtors bank	500000 20000 20000 25000 137000 8000 36000 100000

    Required: Prepare Bomet East traders trial balance as at 31st July 2022. (5marks)
    Bomet East
    Trial Balance
    As at 31st July 2022
    

    Capital		500000
    Cash in hand	20 000
    Buildings	200 000
    Furniture	25 000
    Motor vehicle	13 7000
    Creditors		18000
    Debtors	36000
    bank	100000
    	518000	518000

13. The following balances were extracted from the books of Suswa Traders on 31st December 2001
    Suswa Traders
    Profit and loss Account
    For period ended 31st Dec, 2001
    

    Salaries	160, 000√	Gross profit b/d	400, 000
    Telephone	40,000√	Commission received	16, 000
    Commission	30, 000√
    Repairs	15, 000√
    Net profit c/d	171, 000√
    	416, 000		416, 000

    Net profit b/d 171, 000 (8 x ½ = 4mks)
                           Shs.
    Gross profit 400,000
    Salaries 160,000
    Returns outwards 4,500
    Telephone 40,000
    Commission received 16,000
    Sales 200,000
    Commission 30,000
    Repairs 15,000
    Prepare a profit and loss account for the period ended 31st December 2001. (4 marks)
14. Outline four essentials of a bill of exchange. (4marks)
    • Payee must be named
    • Date for payment must be determined
    • Should be unconditional
    • Amount of money should be clearly indicated
    • Should bear a revenue stamp
    • Should be signed by the drawer
15. On 2nd November 2022 Ongengo received an invoice of Ksh. 12000. Terms of payment were: Trade discount of 5% and cash discount of 10%. If payment is made within 30 days. Determine the amount paid if payment was made on 27th November 2022. (8 x ½ =4 marks)
    • Invoice price 12000
    • Less trade discount 12000x5% = 600√
    • 11400√
    • Less cash discount 11 400x10% = 1140√
    • 10260√
16. Identify the product promotion method described by each of the statement below. (4 marks)
    

    	Statement	Method
    a	Selling a product below its market price so as to entice customers to enter the shop.	Loss leader
    b	Process of passing information with a view of creating and promoting a favourable image of the organization to the public	Public relations
    c	Paid form of impersonal presentation of a product through mass communication media.	Advertising
    d	Reduction in the sales price of a product by the seller so that the buyer ends up paying less.	discount

17. Highlight any four services offered by commercial banks to their clients. (4 marks)
    • Accepting deposits
    • Lending money
    • Providing financial advice to customers
    • Safe custody of valuable items
    • Transfer of money services
    • Offer forex services
    • Acting as trustees
    • Acting as guarantors and referees
    • Issuing letters of credit
18. State four emerging trends in communication. (4 marks)
    • Use of internet
    • Use of E-mail
    • Use of mobile phone
    • Transformation of language
    • Increase use of paperless office
19. Give four characteristics of oligopoly market structure. (4 marks)
    • Differentiated products are close substitute
    • Firms face kinked demand curve/price rigidity
    • There is a high competition for buyer
    • Barriers to entry into the market
    • Existence of non-price competition
    • There are few large scale sellers
    • Possible price discrimination
    • Firms rivalry where each firm tries to outdo each other
20. The diagram below shows equilibrium price and quantity.
    Draw a new demand curve on the diagram above showing a decrease in demand and the effect on: (4 marks)
    1. Equilibrium price (Pe)
    2. Equilibrium quantity (Qe)
    3. Equilibrium point (E)
       
21. Highlight four reasons why a country would rely more on primary level of production. (4 marks)
    • If the country is endowed with a lot of natural resources
    • If it lacks sufficient production skills to venture in to manufacturing
    • Where the natural resources raw materials attracts high prices at the international market
    • Incase it has good trade relationship with partners
    • If a strong indigenous culture exists favouring local extraction industries
    • Where climatic factors favour a certain product.
22. State four importance of computing national income statistics in a country such as Kenya. (4 marks)
    • Measures the income per capital e.g. living standards of its citizens
    • Planning purposes by the government
    • Basis of investment decisions
    • Means of inter-country comparisons
    • Basis for equitable distribution of income
23. From the transactions below, state the accounts to be debited and to be credited. (4 marks)
    

    	Transactions	Debit	Credit
    i	Begun a business with Ksh 10,000 in the bank	Bank a/c	Capital a/c
    ii	Bought equipment by cheque for Ksh. 8,000	Equipment a/c	Bank a/c
    iii	Transferred Ksh 60,000 to the bank from the cash till	Bank a/c	Cash a/c
    iv	Took cash Ksh.7,000 to pay hospital bill	Drawings a/c	Cash a/c

24. Outline four advantages of a systematic arrangement of goods in a warehouse. (4 marks)
    • Breakages of goods would be minimized
    • Pilferage of goods would be reduced
    • Space available would be reduced
    • Easy to do stock taking
    • Contamination of goods would be reduce
    • Accessibility would be enhanced
25. Name four factors considered when determining size of the firm. (4 marks)
    • Amount of capital invested
    • Number of workers
    • Volume/quantity of raw material
    • Size of plant/ ground area covered
    • Volume level of output
    • Size of market/number of clients/buyers