Business Studies Paper 1 Questions and Answers - Form 3 Mid Term 2 Exams 2021

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Instructions to candidates:

  • Answer ALL the questions 
  1. State four feature of a perfectly competitive market. (4mks)
  2. Draw four channels of distribution for imported vehicles (4mks)
  3. In Kenya there is a gap between the rich and the poor Highlight four factors that contribute to this disparity in income distribution.  (4mks) 
  4. Outline four characteristics of land as a factor of production.  (4mks)
  5. Highlight four circumstances under which downward communication may become appropriate in an organization (4mks)
  6. Outline four functions of a profoma invoice. (4mks) 
  7. The following information relates to Jokam business Determine the missing figures represented by letters X, Y, W and Z (4mks)
     Capitals (sh)   Assets (sh)   Liabilities (sh) 
     (i) 1,500,000         X  300,000
     (ii) Y  2,200,000  1,600,000
     (iii) 3,300,000   4,000,000        W
     (iv) Z   6,400,000    800,000
  8. Outline four ways of improving the efficiency of a warehouse.  (4mks)
  9. State four reasons why credit cards are becoming more popular in Kenya today (4mks)
  10. Highlight four factors that make a health business environment.  (4mks)
  11. The following balance sheet was incorrectly prepared
                                          Balance sheet
                                  As at 31st December 2012
                              Ksh                                                                Ksh
    Stock                  5,000                                    Furniture            50,000
    Bank overdraft     5,000                                    Debtors              7,000
    Cash                   9,000                                    Capital               66,000
                            19,000                                                             123,000
    Prepare a correct balance sheet    (4mks)
  12. State four areas of study covered in business studies. (4mks)
  13. Highlight four features of life-insurance cover.   (4mks)
  14. Highlight four reasons why there is need for ethical practices in business 
  15. On 22nd April 2014 Moses received an invoice for sh 400,000. Terms of payment were trade discount 2% and cash discount 5%,3% and 1%. If payment was to be met within 1.2 or 3 months respectively.Calculate the amount paid if the payment was made on 16 July 2014 (4mks)
  16. Highlight four circumstances under which it would be advisable for a trader to sell goods directly to the consumers  (4mks) 
  17. Nyotandogo Traders had an initial capital of Ksh. 160.000. At the end of the year the following date was provided. 
    1. During the year proprietor surrendered his private car valued at sh.400000 to the business
    2. During the year,the proprietor had taken goods worth sh 13500 per month for his own use
    3. The business made a profit of sh 102,000
      Calculate the owner's equity at the end of the year  (4mks)
  18. The diagram below shows a graphical representation from given demand and supply schedule.
    F3 MT2 BS PP1 Q18 2021
    1. Name the curves labeled (a) and (b)   (2mks)
    2. In the above the new equilibrium price (Pl) equilibrium Quantity (Q1) and equilibrium point (El) assuming the supply fall as demand remains constant (2mks)
  19. State the term given to each of the following activities when traders prepare goods for sale (4mks)
    1. Putting goods in groups of similar qualities to make it easier to price them_______
    2. Mixing different grades to achieve desired taste.color and other qualities ________
    3. Giving a product a name by which it will be sold __________
    4. Dividing the product into smaller quantities for the convenience of the buyer _____
  20. State four reasons for privatizing public corporations (4mks) 
  21. State the kind of utility created under the following situations
    1. processing sugarcane to sugar............
    2. Buying fruits from the market.............
    3. Keeping gumboots for the rainy season...........
    4. Going abroad for further studies.........
  22. Below are some of the factors that influence the operations of business Indicate with a tick in appropriate column, the business environment associated with each of the factor.(4mks)
     Factor   Internal environment   External environment 
     (iii)Goals and Objectives     
     (iv)Human resources    
  23. State four characteristics of economic resources.   (4mks)
  24. Outline four unethical issues in product promotion       (4mks)
  25. State four advantages of hire purchase to seller  (4mks)


  1.  Features of perfect competition market
    • there are large number of buyers and sellers
    • homogeneity (uniformity] of the product
    • each buyer and seller has a perfect knowledge of the market
    • the buyers and sellers have the freedom to enter and leave the market
    • there is no government interference
    • there is no excess supply or demand
    • there is perfect mobility of factors of production
    • there is no transport costs incurred as its assumed the buyers and sellers are located in one area
  2. Channels of imported vehicles
    • Foreign producer -wholesaler-retailer-local consumer
    • foreign producer-agent-wholesaler-retailer-local consumer
    • Foreign producer-manufacturer's representativewholesaler-retailer-local consumer
    • foreign producer-wholesaler-local consumer -foreign producer-retailer-local consumer
    • Level of education
    • inheritance-corruption
    • nepotism in employment
    • disparity in access to education /unequal education opportunities
    • disparity in natural resources
    • Its a basic factor of production i.e. production cannot take place without it
    • its supply is fixed
    • it's a natural resource
    • Its subject to the law of diminishing returns it has occupational mobility
    • it lack geographical mobility
    • quality is not homogeneous
    • productivity of land can be increased by increasing quantity and quality of capital 
    • When training juniors
    • when evaluating the performance of employees
    • when delegating duties from managers to the juniors
    • when giving rewards
    • When solving problems facing workers
    • when dealing with those involved in misconduct
    • Polite request for payment before goods are sent to the buyer
    • when the seller does not want to give credit to the buyer 
    • Its issued to an agent who sell goods on behalf of the seller
    • used by importers to get customs clearance before goods are sent
    • serves as quotation
    • sent to the buyer to show what he would pay if he bought the goods
  7. A=C+L    X=1800,000
    C-A-L       Y-600,000
    L=A-C      W =700,000
    C=A-L      Z=6400,500-800,000=5600,500
    • proper storage facilities
    • adequate communication within and outside the business
    • adequate transport
    • proper handling equipment
    • well trained staff
    • provision of safety facilities
    • proper inventory and stock control system
    • Enables the holder to get goods and services from specified sellers without paying immediately
    • convenient to carry around
    • Enables the holder to get money from specified banks
    • Increases credit rating of an individual.
    • Its safe to carry the card around than to carry cash
    • Some cards are internationally acceptable
    • clean air
    • clean water
    • safe buildings
    • proper landscaping
    • political goodwill
    • Availability of auxiliary services
    • favorable economic environment
    • Reliable and efficient legal system
    • No noise within accepted limits
                                          Balance sheet
                                  As at 31st December 2012
                               Shs.                                                                  Shs.
    Furniture             50,000                                    Capital                 66,000
    Stock                    5,000                                    Bank overdraft       5,000
    Debtors                 7,000                                    
    Cash                     9,000                                                              ______
                              71,000                                                              71,000
    • commerce
    • Accounting
    • office practice
    • Entrepreneurship
    • Economics
    • Its a saving plan
    • has surrender value
    • Not indemnitiable
    • Does not require annual renew
    • can be assigned to beneficiaries
    • can be used as security for loans
    • cover for life until death or for a specified period
    • To ensure fairness in business no discrimination in business
    • To promote honesty and integrity in business
    • To create good working relations
    • To ensure that business complies with the laws of the land
    • To ensure that there is no degradation and pollution of the environment
    • To ensure that the business is socially responsible to the community
    • creates fairness in competition
    • Avoids consumer exploitation
    • Eliminates use of unfair means of achieving business objectives
  15. Trade discount 2/100 x 400,000=8,000
    400,000 − 8000=392,000
    cash discount 1/100 x 392,000=3920
    Amount paid 392,000 −3920=sh.388,080.00
    • If the goods are fragile
    • If the consumers are concentrated in one area
    • If the goods are technical
    • If the goods don't require the role of intermediaries
    • If it's a government policy that a trader sells the goods directly
  17. cc=oc+p+I−d
    =662,000−162,000 sh.500,000 
    F3 MT2 BS PP2 ANS18 2021
    1. Grading
    2. Blending
    3. Branding 
    4. Breaking bulk
    • reduces goverment expenditure
    • leads to efficiency in management
    • Attracts foreign investors
    • promotes invention and innovations
    • Reduces political interference in the economy
    • promotes accountability and reduce corruption
    • Helps the government to raise revenue
    • leads to production of high quality goods and services
    • Leads to the production of a variety of goods and services
    1. form utility
    2. possessive utility
    3. time utility
    4. place utility
    1. Internal or external
    2. External
    3. Internal
    4. Internal
    • have money value
    • unevenly distributed
    • scarce in supply
    • have utility
    • have alternative uses
    • can change ownership
    • can be combined
    • Can be complimentary
    • Not disclosing the side effects of the product
    • cheating on the performance of the product
    • false pricing
    • advertising that has negative effect on environment
    • making offers that cannot be fulfilled
    • Promoting products as genuine but selling their counterfeits
    • social cultural conflicts
    • Increase in sales volume
    • Higher profit margins are realized
    • goods can be repossessed if the buyer defaults payment
    • ownership of the goods is retained until the payments is completed

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