Business Studies Paper 2 Questions and Answers - Lainaku 1 Joint PreMock Exams 2023

• This paper consists of 6 questions.
• Answer any five questions
• All questions carry equal marks
• Non –programmable silent electronic calculator may be used.
• Candidates should check the question paper to ascertain that all pages are printed as indicated and that no questions are missing.
• Candidates must answer the questions in English.

1.  
   1. Explain five sources of business ideas.                                              (10 marks)
   2. Outline five circumstances under which a high population growth may be desirable to a country.         (10 marks)                 
2.  
   1. Highlight five benefits that are likely to accrue to a firm due to its own expansion.  (10 marks)
   2. Explain five documents required for the formation of a limited liability company. (10 marks)
3.  
   1. Explain five insurance policies that an investor will find useful for the operation of a supermarket. (10 marks)                                     
   2. Explain five ways in which division of labour enhances performance of a business.  (10 marks)                                             
4.  
   1. Explain five characteristics of land as a factor of production.           (10 marks)
   2. Highlight five factors to consider when choosing a distribution channel.   (10 marks)
5.  
   1. Explain five factors that determine amount of money held for precautionary motive.   (10 marks)                                                         
   2. The following information relates to Chenka Enterprises for the period ended 30th April 2018.
      Gross profit                           800,000
      Buildings                            1,600,000
      Debtors                                  200,000
      5 year loan                          1,000,000
      Creditors                                400,000
      Stock                                      650,000
      Bank                                       250,000
      Cash                                       100,000
      Discount received                    10,000
      Carriage outwards                 150,000
      Electricity                                50,000
      Interest on loan                        40,000
      Rent income                             20,000
      Commission received              10,000
      Required:
      1. Prepare a profit and loss account for the period ended 30th April 2018. (5 marks)
      2. Calculate return on capital employed.     (3 marks)
      3. Determine capital owned.        (2 marks)
6.  
   1. Highlight five problems associated with road transport in Kenya.     (10 marks)
   2. On 1st September 2020, Sefa traders had Shs. 55,000 in hand and Shs. 250,000 at bank. During the month the following transactions took place:
      September  2     Cash sales directly banked sh 35,260.
                         3      Bought stationery in cash sh 4,500.
                         7      Paid Lucy, a creditor sh 94,000 by cheque in full settlement of his account after deducting 6% cash discount.
                        15     Paid electricity Sh 34,000 in cash.
                        20     Withdrew sh 50,000 from bank for office use.
                        25     Lupita, a debtor paid her account of sh 75,000 by cheque less 10% cash discount.
                        28     Deposited all the cash into bank leaving no balance.
      Required: Prepare a three column cash book and balance it off.  (10 marks)

                                                                                   MARKING SCHEME

1.  
   1. Explain five sources of business ideas.                            (10 marks)
      1. Attending trade fairs/shows/exhibitions exposes people to activities/products that can generate a new production idea.
      2. (Accessing information through) print/electronic media (such as reading news paper/magazines/journals/radio/television) on unmet needs/available opportunities to be exploited in the market.
      3. Spotting/identifying a market gap/niche e.g. on unsatisfied consumer needs/complaints, (which can generate idea of satisfying the need)
      4. Exploiting/commercializing one’s hobbies by developing them into a business enterprise.
      5. Recycling/using waste products (such as scrap metals) in order to generate a useful/ new/unique product.
      6. Exploiting personal skills/knowledge/vocational training/experience by a generating a business idea along one’s line of specialization/occupation.
      7. Conducting/Carrying out market research/survey on what product consumer requires most.
      8. Brainstorming enables sharing of ideas that gives rise to a business enterprise.
      9. Internet resources such as websites/face book/twitter.
         (Naming 1, otherwise well explained point 2 marks)          (Any 5 x 2 = 10 marks)
   2. Outline five circumstances under which a high population growth may be desirable to a country.   (10 marks)             
      1. When the resources available are many hence need of a large population to utilize the resources fully.
      2. When supply of products/goods/services is high hence need to have a large population to create/ increase market/demand for products.
      3. If there is need to create a pool of labour due to increased production activities/investments.
      4. If it is accompanied by technological innovation/advancement as many ideas are generated as population grows.
      5. Where the country is under populated hence need to achieve optimal population.
      6. In case there is need to promote diverse talents since number of talents are likely to be too many as population grows.
         Marking notes:  
         • Answer must start with the words: if/when/where/in case.
           (Naming 1, qualification 1 mark)                               (Any 5 x 2 = 10mrks)
2.  
   1. Highlight five benefits that are likely to accrue to a firm due to its own expansion.      (10 marks)                                
      1. Financial economies - due to growth of its asset base which can be used as security to acquire a loan.
      2. Risk bearing economies - since the firm will be able to diversify its production activities/take insurance cover.
      3. Managerial/staff/organizational economies - since the firm will be able to hire /employ specialized/professional personnel.
      4. Technical economies - due to use of modern technology/ machinery/ specialized labour.
      5. Marketing economies/buying and selling economies - such as receiving discounts as a result of large scale purchase.
      6. Research economies - resulting to better methods of production/marketing.
      7. (Staff) welfare economies - such as providing recreation facilities/ housing/ education/wide range of allowances to its employees.
      8. Inventory economies - since the firm will be able to establish warehouses to stock raw materials.
      9. Transportation economies - since transport cost will be lowered by large volume of raw materials transported at once.
         (Naming 1, otherwise well explained point 2 marks)     (Any 5 x 2 = 10 marks)
   2. Explain five documents required for the formation of a limited liability company.                  (10 marks)
      1. Memorandum of association - which defines relationship between company and outsiders.
      2. Articles of association - which gives rule/regulations to govern internal operation of the business.
      3. A list of directors - giving their names/occupations/qualification/contacts.
      4. A declaration statement - stating that registration requirements as laid down in law have been met/necessary registration requirements have been complied with fully.
      5. A statement signed by directors - stating they have agreed to act as directors.
      6. Certificate of incorporation/registration - issued by the registrar of companies to certify the registration of the company.
      7. Prospectus. - Issued by public limited companies to describe how capital is to be raised.
      8. Certificate of trading/trading license - which is issued to authorize the company to start operations.
         (Naming 1, otherwise well explained point 2 marks)  (Any 5 x 2 = 10 marks)
3.  
   1. Explain five insurance policies that an investor will find useful for the operation of a supermarket.              (10 marks)
      1. Workmen's compensation cover: It will cover employees who may suffer injuries while on official duty.
      2. Cash/goods in transit cover: It will provide cover for loss of cash/ goods while being transported.
      3. Theft and Burglary cover: which covers losses arising from activities of robbers/ thieves.
      4. Public liability: that covers losses/injuries/damages caused accidentally by a business/ its employees to the members of public.
      5. Fidelity guarantee policy: which will provide cover against activities of his/her dishonest employees.
      6. Consequential Loss Policy: which will cover the Supermarket due to loss of profit caused by interruption of business activities/as a result of fire
      7. Sprinkler Leakage Policy: which will provide cover against loss/damage caused to goods/ premises by accidental leakages from fire fighting sprinklers.
      8. Fire and Related Perils Policy /Material Damage Policy: which will cover the building and its contents.
         (Naming 1, otherwise well explained point 2 marks)    (Any 5 x 2 = 10 marks)
   2. Explain five ways in which division of labour enhances performance of a business.                           (10 marks) 
      1. Saves time - since there is less movement/as one concentrates in one activity.
      2. Promotes creativity/innovation - as one does one activity repeatedly (thus devising new methods of production).
      3. Makes it possible to use machinery - since production is in stages hence a machine for each stage can be made.
      4. Goods/services are of high quality - since one works in a area/ stage he/she is best at.
      5. Increases the rate of output/quantity - due use of machinery (which increases the rate of production).
      6. Promotes easy supervision - since a manager /administrator will be in charge of monitoring only one stage/ few stages.
      7. Improves the skills of the worker - thus one spends less mental/physical energy in a task.
      8. Makes production less tiresome - due to workers being used to one routine job/ making them use less energy.
         (Naming 1, otherwise well explained point 2 marks)  (Any 5 x 2 = 10 marks)
4.  
   1. Explain five characteristics of land as a factor of production.           (10 marks)
      1. Supply of land is fixed - thus one cannot increase/decrease the supply of land.
      2. Productivity of land can be varied/ improved - by use of fertilizer/adding manure.
      3. Land is not equally productive e.g. land in arid areas is not as productive as land in places with good climatic condition.
      4. It is geographically immobile - hence cannot be moved from one place to another.
      5. It is occupationally mobile - since can be put into different uses
      6. It is a natural resource - since man plays no part in its creation.
      7. Land is basic factor of production - since one cannot carry out production process without use of land.
      8. It is subject to law of diminishing returns - Productivity increases at a decreasing rate.
         (Naming 1, otherwise well explained point 2 marks)               (Any 5 x 2 = 10 marks)
   2. Highlight five factors to consider when choosing a distribution channel.   (10 marks)
      1. The (geographical) spread of customers. If the customers are spread over a wide area, then a longer channel would be preferable / use of intermediaries / middlemen.
      2. Nature of the products. If the products are not easily spoilt/ durable, long channel can be used in their distribution.
      3. Level of competition. Shorter channels should be used if competition is so stiff.
      4. Government policy. Firms must adhere to government regulation on the distribution of its products.
      5. Marketing risks. Where marketing risks are higher, more middlemen should be involved to spread such risks.
      6. Availability of intermediaries, only use intermediaries which are available.
      7. Pricing. Shorter channels will be preferred where the prices are to be kept low by avoiding the intermediaries.
      8. Cost of channel. Should choose / use channel that is affordable / cheap.
      9. Volume / quantity of output; if large use a long channel.
      10. Profitability.  Use a short channel to maximize / get higher profits.
      11. Resources / size of the firm. If the firm has limited resources / small in size, then a longer channel is ideal
      12. Size of market. Where it is small use direct / short channel.
          (Naming 1, otherwise well explained point 2 marks)             (Any 5 x 2 = 10 marks)
5.  
   1. Explain five factors that determine amount of money held for precautionary motive.  (10 marks)                              
      1. Level/size of income; the higher the income the higher the amount of money held (for precautionary motive).
      2. Family status; high class families tend to hold more money (for precautionary motive) than low class families.
      3. Age of the individual; the aged tend to hold more money (for precautionary motive) than the young (since they have more uncertainties than the young).
      4. Number of dependant; the more the dependants one has, the more the money they are likely to hold (for precautionary motive).
      5. Individual’s temperament; pessimists tend to hold more money than the optimists (because they normally think things will go wrong).
      6. Duration/interval between incomes; those who earn money after a short time are likely to keep less money (than those who earn money after a long time). 
         (Naming 1, otherwise well explained point 2 marks)             (Any 5 x 2 = 10 marks)
   2.  
      1.                    
                                                    Chenka Enterprises
                                                    Profit & loss account
                                   For the period ended 30th April 2018✔ 
         

         Carriage outwards       150,000✔ Interest on loan              40,000✔ Electricity                       50,000✔ Net profit c/d                600,000✔✔                                       840,000

         Gross profit b/d           800,000✔ Rent income                  20,000✔ Discount received          10,000✔ Commission received    10,000✔                                        840,000 Net profit b/d                 600,000

                                                                                                                                  (10 x ½ = 5 marks)
      2.   Capital employed = Total Assets – Current liabilities
                                        = 2,800,000✔ – 400,000✔
                                        = 2,400,000✔
         Return on capital employed = Net profit      ×100% 
                                                     Capital employed
                                                    
                                                      =  600,000 ×100%✔✔
                                                          2,400,000
                                                      = 25%✔                             (6 x ½ = 3 marks)
         N/B; Return on capital employed must be expressed in % form.
      3. Capital owned = Assets – Liabilities
                                 = 2,800,000✔ – 1,400,000✔
                                 = 1,400,000✔✔
                                                                                                 (4 x ½ = 2 marks)
6.  
   1. Highlight five problems associated with road transport in Kenya.  (10 marks)
      1. Heavy traffic jams/ congestion - especially in urban areas making road transport inefficient/causing delays.
      2. The poor state of Kenyan roads - leads to frequent breakdown of vehicles/makes maintenance of vehicles expensive/ reduces speed of vehicles.
      3. High rate of accidents - which leads to loss of life/property.
      4. Poor construction of roads - leading to their damage/wearing out very fast.
      5. Over loading of vehicles - leading to destruction of roads.
      6. Poor enforcement/corruption - of the traffic act allows unroadworthy vehicles to be used on roads (resulting to frequent accidents).
      7. Use of impolite language by drivers/touts - especially in matatu sector making road transport unattractive to users.
      8. Most of the Kenyan roads are seasonal/ not tarmacked - hence many areas are not accessible during rainy season.
      9. High cost of fuel - making road transport expensive.
              (Non-split, award zero or 2 marks)            (Any 5 x 2 = 10 marks)
   2. 
                                                                                 Sefa traders
                                                                       Three column cashbook
                 Dr                                                 For the month of Sept 2020✔                                                           Cr       
      

      Date	Details	LF	Disc allowed	Cash	Bank	Date	Details	LF	Disc received	Cash	Bank
      01/09/20	Bal b/d✔			55,000✔	250,000✔	03/09/20	Stationary✔			4,500✔
      02/09/20	Sales✔				35,260✔	07/09/20	Lucy✔		6,000✔		94,000✔
      20/09/20	Bank(C1)✔			50,000✔		15/09/20	Electricity✔			34,000✔
      25/09/20	Lupita✔		7,500✔		67,500✔	20/09/20	Cash(C1)✔				50,000✔
      28/09/20	Cash(C2)✔				66,500✔	28/09/20	Bank(C2)✔			66,500✔
      						28/09/20	Bal c/d✔				275,260✔
      28/09/20 Bal b/d			7,500	105,000✔	419,260✔				6,000	105,000✔	419,260✔
      					275,260✔

                               
                                                                                                                                                           (30 ticks x ¹/₃ = 10 marks)
      Marking notes
      • For wrong format, award zero mark.
      • Mark even where there is no folio column.
      • To award marks for totals- all entries in that column must be correct.
      • Omissions of dates completely, subtract a maximum of 2 marks (1 mark either side).
      • Where columns have not been labelled, don’t mark entries in those columns.