Business Studies Paper 2 Questions and Answers - Mokasa 1 Joint Mocks Exams 2023

Instructions for candidates:

• This paper consists of six questions
• Answer any five questions.
• All questions carry equal marks.

1.  
   1. Explain five factors that promote entrepreneurial activities in a country. (10marks)
   2. Explain five measures that the Central Bank of Kenya can put in place so as to reduce the amount of money in circulation. (10marks)
2.  
   1. Explain five uses of national income statistics. (10marks)
   2. Explain five differences between public limited companies and partnerships forms of business units. (10marks)
3.  
   1. Explain five factors to be considered when selecting office equipment to buy. (10marks)
   2. On 1^st March 2016, Karani Traders had cash in hand sh.100,000 and cash at bank sh.150,000. The following transaction took place during the month.
      March 2^nd:  Bought goods in cash sh.15,000.
                 4^th:   Paid salaries by cash sh.75,000.
                 5^th:   Received the following cheques from debtors after allowing a 2% discount in each case Wamburi sh.9800 and Wang’ondu
                 8^th:   sh.19,600.
                         Paid the following accounts by cheque in each case deducting
                12^th:  a 5% discount Wang’ombe sh.30,000, Wanjohi sh.12,000.
                 20^th: Bought office machinery by cheque sh.50,000.
                25^th:  Took cash 10,000 for private use.
                28^th:  Cash sales sh.20,000.
                31^st:  Banked cash amounting to sh.10,000.
                          Received sh.30,000 cash from Wanjohi a debtor.
      Required: Prepare a three column cash book duly balanced. (10 marks)
4.  
   1. Explain five limitations of a trail balance. (10marks)
   2. Explain five benefits of insurance to business. (10marks)
5.  
   1. Explain five trends in product promotion. (10marks)
   2. Explain five methods of determining the price of a commodity. (10 marks)
6.  
   1. Explain five reasons for the popularity of shopping in hypermarket in the modern society. (10 marks)
   2. The trial balance given below was extracted from the books of Barsigan traders as at 31st Dec 2022.
      Details                         Dr.                      Cr.
      Stock 1/1/2022            35,000
      Sales                                                       395,000
      Carriage inwards        15,000
      Purchases                   270,000
      Returns                        8,000                   4,000
      Discounts                     3,000                   5,000
      Insurance                     10,000
      Advertising                    5,000
      Carriage outwards        7,000
      Premises                      400,000
      Machinery                     200,000
      Bank loan                                                  180,000
      Debtors                         45,000
      Drawings                       20,000
      Bank                                                          215,000
      Creditors                                                     50,000
      Salaries                         18,000
      Rates                             12,000
      Capital                          _______                 379,000  
                                              1,048                        1,048  
      Additional information; Stock on 31^st Dec, 2022 was sh.50,000.
      Required prepare:
      1. Trading profit and loss account for the year ended 31^st Dec 2022.
      2. A balance sheet.     (10marks)

MARKING SCHEME

1.  
   1. Five factors that promote entrepreneurial activities in a country. (10mks)
      • Positive cultures and belliefs that encourage people to engage in business
      • Favourable government policies that support or enhance the starting and running of trading activities.
      • Availability of adequate capital to start and expand the business
      • Availability of adequate and improved technology to produce the required quantity and quality
      • Availability of good infrastructure to access the market, raw materials and other inputs and move goods easily to the market.
      • Availability of adequate markets to sale finished products and get revenue to sustain operations
      • Presences of successful role models in the country who support, inspire and encourage new investors to venture into business. / positive entrepreneurial culture.
      • Fair competition that firms can easily cope up with and survive at the market.
      • Security and political stability that safeguards investors property and life from threats.
      • Training. To equip entrepreneurs with skills and knowledge to start business activities.
      • Political stability. To create a conducive environment to start and run a business.
   2. Monetary policies to reduce the amount of money in circulation
      1. Increase Bank rates.
         • In order to reduce the amount of money available for lending, the CBK increases the lending rates to the commercial banks
      2. Sell government securities through Open Market Operation (OMO)
         • As a way of mopping up liquidity, the CBK sells government securities such as the treasury bills and the treasury bonds
      3. Increase the Cash /Liquidity ratio requirement
         • The CBK may require the commercial bank to hold less money in liquid form hence lowering their ability to lend to the businesses and members of the public hence reducing the amount of money in circulation
      4. Increase Compulsory deposit requirement
         • The commercial banks are required to maintain a certain amount of deposits with the central bank which will be held in a special account where the money stays frozen. The amount is raised so as to reduces the amount of money that the commercial banks are holding for lending.
      5. Selective credit control
         • The central bank may issue special instructions to the commercial bank and other financial institution only to lend to particular sector(s) to control the amount of money reaching the economy.
      6. Directives
         • The central bank may issue a directive to the commercial banks to raise the interest rate they should charge on their lending so as to make it difficult for customers to obtain/take loans.
      7. Request and moral suasion.
         • The central bank may appeal to commercial banks and other financial institutions to exercise restraint in their lending activities to the public to help in controlling the money supply
2.  
   1. Explain five uses of national income statistics. (10mks)
      1. Used to measure the standards of living of people in a country. When per capita income is high the standards of living are high and vice versa.
      2. Used to measure the rate of economic development. When national income is high the rate of economic development is high.
      3. Used to compare the standards of living in various countries through the use of per capita income figures since when its high in one country than the other, the lifestyles are high in that country than the other.
      4. It helps the government in economic planning as it provides useful information on various sectors that is required by planners. / forresource allocation.
      5. Used to compare the living standards in one country in various years since a year with a high national income shows higher standards of living.
      6. Used to attract investors by providing useful information about different sectors
      7. Used to determine per capita income by dividing the National income by the total population.
   2. Difference between public limited companies and Partnerships
      

      Public limited companies	Partnerships
      All the shareholders have limited liabilities	Some partners have unlimited liabilities
      Capital is obtained through sale of shares to the shareholders	Capital is from partners contributions
      It is managed by a board of directors elected by the shareholders	It is managed by the active partners who must be limited, real and major partners
      Has a perpetual life meaning the death, exit or bankruptcy of a shareholder does not cause dissolution.	The death, exit, or even bankruptcy of a partner may lead to the dissolution of a partnership
      Formed by a minimum of seven shareholders	Formed by a minimum of two partners
      There is no set maximum number of sh

3. 1. Explain five factors to be considered when selecting office equipment to buy. (10mks)
      1. Cost of the machine. Affordable
      2. Durability. an organization will buy machines that have a long lifespan.
      3. Effects on staff morale. An organization will buy machines that will encourage workers to work hard.
      4. Adaptability an organization will buy machines that will help an organization cope up with future changes in an organization.
      5. Availability of personnel. An organization will buy a machine which it has workers to operate.
      6. Availability of complementary resources. an organization will buy a machine whose accessories required to operate are easily available.
      7. Security of the equipment. Consider if the organization has enough resources to offer security for the equipment.
      8. Availability of equipment. Consider if the organization has room to keep the equipment.
   2. 
                                                                                      Karanja Traders
                                                                                Three column cash book
      Dr                                                                                                                           Cr
      

      Date	Details	L,f	Disc. All	Cash	Bank	Date	Details	L.f	Disc rcvd	Cash	Bank
      2016  March  1     "        5     "        5     "        25     "        28     "        31        April       1	Balance  Wamburi  Wang'ondu  Sales  Cash  Wanjohi  Balance	b/  d  c  b/  d	200  400  ____  600	100,000  20,000  30,000  _______  150,000     40,000	150,000      9,800    19,600     10,000  _______  189,400   100,000	2016  March 2      "      3      "      8      "      8      "      12      "      20      "      28      "      31	Purchases  Salaries  Wang'ombe  Wanjohi  Machinery  Drawings  Bank  Balance	C  c/d	1,500     600   ______   2,100__	15,000  75,000  10,000  10,000  40,000    150,000	28,500  11,400  100,000   189,400

4.  
   1. Explain five limitations of a trail balance. (10mks
      1. Error of total omission. This occurs when a transaction takes place and nothing about it is recorded in the books of accounts. It is completely omitted such that neither a credit nor a debit entry is made in the ledgers.
      2. Error of original entry. This occurs where both the debit and credit entries are made using similar but erroneous figures. As the wrong amount is recorded in the two accounts.
      3. Error of commission. This occurs where the double entry is completed but in the wrong person’s accounts especially due to a confusion in names e.g a debit entry of shs 2000 was made in Otieno’s account instead of Atieno’ account.
      4. Compensating errors. these are errors whose effect cancel out. E.g over debiting debtors account by sh. 300 and under debiting cash account by sh 300
      5. Complete reversal of entries. This occurs where the account to be debited is credited and the account to be credited is debited.
   2. Explain five benefits of insurance to business. (10 marks)
      1. Creating confidence to investors – They are assured of compensation.
      2. Continuity of business – As the insured is compensation. He enables the insured to continue running the business.
      3. Enables spreading of risks – Each contribute a little, the few who suffer the loss are compensated from the pool.
      4. Provides finance in form of loans – To policy holders at low interest rates.
      5. Provide guarantee to policy holders – Wishing to obtain loans from other money lending institutions.
      6. Provide advisory services to businesses – On security measures to undertake to safeguard property.
5.  
   1. Trends in product promotion
      1. Use of website/internet to advertise product worldwide, which has increased the coverage
      2. Encouraging gender sensitivity, respect for the rights of the youth and those with special needs by involving them when carrying out advertisements
      3. Use of electronic billboards in advertisement to increase their visibility even at night
      4. Development of promotion convoys to move from one place to the other with music and dancers to attract more prospective customers
      5. Advertisement through mobile phones by sending them short messages to inform potential customers about the product
      6. Intensification of personal selling through exhibitions, showrooms for immediate feedback/close contact with customers.
         (any other relevant answer)
   2. Explain five methods of determining the price of a commodity. (10 marks)
      1. Bargaining/haggling – The prince is determined through negotiation between the seller and the buyer.
      2. Auction – The prince is determined through bidding buyers are given opportunity to suggest the price. The highest bidder sets the price of the commodity.
      3. Tendering – Buyers are invited to quote the price independently of each other. The buyer who quotes the highest price with favourable terms sets the price of the commodity.
      4. Price control by the government – The government sets the price beyond which a commodity should not be sold,
      5. Taxation/subsidies – when the government increases taxes, the price increase and vice versa. When the government increase, subsidies the price reduces and vice versa.
      6. Recommended retail price (RRP) – Where the manufacturer fixes the price of the commodity.
      7. Price mechanism/forces of demand and supply – Price is determined through interaction of demand and supply. Equilibrium price is taken to be the price of the commodity.
         n/b students should not write government intervention.
6.  
   1. Explain five reasons for the popularity of shopping in hypermarket in the modern society. (10 marks)
      1. One can access variety of goods – Under one roof, enabling them to have a wide choice.
      2. Use of debit/credit cards – relieving the customer the bother of carrying cash. / any advantage of a debit card.
      3. Prices of goods are relatively low – enabling a customer to save or buy more.
      4. One can save time – By shopping under one roof.
      5. Availability of parking space – For customers with vehicles
      6. One can avoid traffic jams – Since they are located in the outskirts of town.
      7. Open for long hours – Customers can obtain their goods or services anytime.
      8. Allow use of various means of payment - cash, mobile phone money transfer, cheque.
   2. The trial balance given below was extracted from the books of Barsigan traders as at 31st Dec 2022.
      Required prepare:
      1. Trading profit and loss account for the year ended 31st Dec 2022.
                                                               Barsigan Traders
                                                      Trading, Profit and loss account
                                                  For the Period ended 31^st Dec 2022
         

         Sh.                   sh. Opening stock                                        35,000 add purchases               270,000 Add carriage in               15,000 Less returns outwards      4,000             281,000 c.o.g.a.s                                                  316,000 less closing stock                                      50,000 Cogs                                                       266.000 Gross profit c/d                                       121,000                                                                 387,000 Expenses Discount allowed                                         3,000 Insurance                                                   10,000 Advertising                                                   5,000 Carriage outwards                                        7,000 Salaries                                                      18,000 Rates                                                          12,000 Net profit                                                     71,000                                                                   126,000

         Sh. Sales                       395,000 Less returns in           8,000 Net sales                 387,000                                  ________                                  387,000      Gross profit               121,000                Discount received         5.000                                    _________                                    126,000       Net profit b/d                71,000

      2. A balance sheet
         Barsigan Traders
         Balance sheet
         As at 31^st Dec 2022
         

         Sh. Fixed assets Premises                 400,000 Machinery                200,000 Current assets Stock                         50,000 Debtors                      45,000                                  _______                                  695,000

         Sh.  Capital                     379,000  Add net profit             71,000                                    450,000  Less drawings           20,000                                     430,000  STL  Creditors                     50,000  Bank overdraft           215,000                                     695,000