Business Studies Paper 1 Questions and Answers - Form 3 End Term 2 Exams 2023

INSTRUCTIONS TO CANDIDATES:

• Answer ALL the questions

FOR EXAMINERS USE ONLY

QUESTIONS

1. Identify four factors that influence the level of capital of a business enterprise. (4 marks)
2. Give four features of economic resources (4 marks)
3. Indicate with a tick(√) in the appropriate column the business environment associated with each of the factors mentioned below. (4 marks)
   

   	FACTOR	INTERNAL	EXTERNAL
   i)	Government policy
   ii)	Technological environment
   iii)	Financial resources
   iv)	Firm structure

4. State four reasons why people engage in business activities. (4 marks)
5. Outline four tools used by the government to influence the quantity of a product supplied in a market. (4 marks)
6. Highlight four factors that may be used to determine the size of a firm. (4 marks)
7. Indicate by writing the word “TRUE” or “FALSE” against the statement describing characteristics for goods and services. (3 marks)
   

   	STATEMENT	TRUE or FALSE
   a)	Goods are inseparable from their producers
   b)	Services can be standardized in form of size, appearance or quality
   c)	Services are experienced not owned
   d)	Goods are not always perishable
   e)	Services are highly perishable
   f)	Goods can change in value overtime

8. The central bank is a banker to the government. Outline four banking services it provides to the Kenya government. (4 marks)
9. The following are types of advertising: Product advertising, competitive advertising, informative advertising and institutional advertising. In the table below, match each type with its appropriate description. (4 marks)
   

   	TYPE OF ADVERTISING	DESCRIPTION
   a)		Promotes the name of the manufacturer
   b)		Persuades the consumers to buy a product
   c)		Creates awareness about a product
   d)		Promotes a particular brand of a product

10. Outline four barriers to written communication. (4 marks)
11. For each of the following cases, name the motive for holding money. (4 marks)
    

    	CAES	MOTIVE
    a)	To meet daily bus fare expenses
    b)	To meet unexpected medical emergencies
    c)	To stock maize when prices fall
    d)	To meet daily food requirements

12. The diagram below shows the current demands for petrol.
    
    
    1. What is the effect of an increase in the price of cars on demand for petrol. (2 marks)
    2. Draw a new demand curve on the diagram above to show the effect of an increase in price of cars. (2 marks)
13. State four reasons why few Kenyans take out life assurance policies. (4 marks)
14. For each of the transactions given below, indicate in the appropriate column, the source documents and the book of original entry in which the transaction is recorded. (4 marks)
    

    	Transaction	Book of original entry	Source document
    a)	Sale of tables on credit
    b)	Purchase of stock on credit
    c)	Goods returned by a customer
    d)	Payment to a creditor

15. Outline four sources of a business idea. (4 marks)
16. Write down the international trade document that relate to each of the following statements
    

    	STATEMENT	DOCUMENT
    a)	Indicate the country of origin of the imported goods
    b)	A document of title to the goods traded in international trade
    c)	Used to demand for payment before delivery of goods
    d)	Facilitated an importer to obtain credit

17. The financial period of Buteba Traders ends on 31st December every year. On 31st December 2011 the business had the following assets and capital.
    Item              Sh.
    Capital          24,000
    Stock of goods 1,500
    Debtors         2,000
    Machinery    20,000
    Cash            4,000
    Required:
    Calculate the total liabilities and prepare a balance sheet as at 31st December 2011. (4 marks)
18. Highlight four circumstances under which a country may be classified as underdeveloped. (4 marks)
19. Record the following transactions in the cash book of Jerussa Entreprises for the month of January 2011 and balance it off.
    2011
    Jan. 1: Cash in hand sh. 10,000, cash at bank sh. 20,000
    Jan. 10:Paid Luke Sh. 8,800 and Joan sh. 11,000 after deducting 12% cash discount in each case by cheque
    Jan. 30:Banked all the cash leaving sh. 1,200 in the cash box. (5 marks)
    JERUSSA ENTREPRISES
    CASHBOOK FOR JANUARY, 2011
    

    Date	Details	Disc All.	Cash	Bank	Date	Details	Disc Rec.	Cash	Bank

20. State four benefits that consumers get from small scale retailers. (4 marks)
21. The following information was obtained from the books of Okame Traders on 30th June 2011.
    Opening stock 8,000
    Purchases 53,000
    Sales 62,900
    Returns outwards 2,700
    Closing stock 12,700
    Prepare Okame Trading Accounts for the year ended 30th June 2011. (4 marks)
22. The following balances were extracted from the books of Mwambo wholesalers for the year ended 31st December,2005.
    Sales 500,000
    Purchases 320,000
    Opening stock 80,000
    Closing stock 40,000
    Debtors 140,000
    Creditors 90,000
    Calculate
    1. Margin
    2. Current ratio
    3. Rate of stock turn over (4 marks)
23. The following statistics refer to a hypothetical economy. Use it to calculate the per capita income using the income approach. (4 marks)
    (Ksh in millions)
    Total profits by entrepreneurs 80,0000
    Total rent received by landlords 130,000
    Total interests earned by financial institutions 40,000
    Total salaries paid by employees -50,000
    Total population 40
24. Give four features that differentiate a public corporation from a public limited company. (4 marks)
25. Highlight four undesirable effects of inflation to the Kenyan economy (4 marks)

MARKING SCHEME

1. Identify four factors that influence the level of capital of a business enterprise.4 marks)
   1. Net profit /ploughed back profits/dividents
   2. Additional investment/new investment
   3. Loss made
   4. Drawings
      4x@ 1 mark=4 marks
2. Give four features of economic resources 4 marks)
   1. They are scarce/limited in supply
   2. They have monetary value
   3. They have alternative uses/occupational mobility
   4. They are unevenly distributed fro one region to another
   5. They have utility/usefulness
   6. They are transferable from one party to another/geographical mobility
   7. They can be combined to produce goods/services
      4x@ 1 mark=4 marks
3. Indicate with a tick) in the appropriate column the business environment associated with each of the factors mentioned below. 4 marks)
   

   	FACTOR	INTERNAL	EXTERNAL
   i)	Government policy		√
   ii)	Technological environment		√
   iii)	Financial resources	√
   iv)	Firm structure	√

   4x@ 1 mark=4 marks
4. State four reasons why people engage in business activities. 4 marks)
   1. Creation of employmentfor self/others)
   2. Provision of goods/servicesto others)
   3. For profit generation/maximization
   4. For prestige/enhance own image in society
   5. To acquire what they lack
      4x@ 1 mark=4 marks
5. Outline four tools used by the government to influence the quantity of a product supplied in a market. 4 marks)
   1. Imposing taxes
   2. Offer of subsidies to producers
   3. Use of quotas
   4. Use of price controls
      4x@ 1 mark=4 marks
6. Highlight four factors that may be used to determine the size of a firm. 4 marks)
   1. Volume of output
   2. Floor area covered/size of land occupied
   3. Quantity of capital invested
   4. Number of employees engaged
   5. Production methods/techniques/technology
   6. Market size served
   7. Volume of sales
      4x@ 1 mark=4 marks
7. Indicate by writing the word “TRUE” or “FALSE” against the statement describing characteristics for goods and services. 3 marks)
   

   	STATEMENT	TRUE or FALSE
   a)	Goods are inseperable from their producers	FALSE
   b)	Services can be standardized in form of size, appearance or quality	FALSE
   c)	Services are experienced not owned	TRUE
   d)	Goods are not always perishable	TRUE
   e)	Services are highly perishable	TRUE
   f)	Goods can change in value overtime	TRUE

   6x ½ mark=3 marks
8. The central bank is a banker to the government. Outline four banking services it provides to the Kenya government. 4 marks)
   1. Giving financial advice to the government
   2. Receiving payment on behalf of the government from foreign donors/income tax depts./custom etc
   3. Giving credit/loan to the government
   4. Making various payments on behalf of the government
   5. Getting credit/loan from other sources on behalf of the government
   6. Collecting credits/loans from other sources on government behalf
      4x@ 1 mark=4 marks
9. The following are types of advertising: Product advertising, competitive advertising, informative advertising and institutional advertising. In the table below, match each type with its appropriate description. 4 marks)
   

   	TYPE OF ADVERTISING	DESCRIPTION
   a)	INSTITUTIONAL	Promotes the name of the manufacturer
   b)	COMPETITIVE	Persuades the consumers to buy a product
   c)	INFORMATIVE	Creates awareness about a product
   d)	PRODUCT	Promotes a particular brand of a product

   4x@ 1 mark=4 marks
10. Outline four barriers to written communication. 4 marks)
    1. Standard/level of language
    2. Poor handwriting/Illegibility/Inability to be read/not clear
    3. Unfamiliar terms/language/jargon/foreign language/technical/long
    4. Hostile tone/too persuasive to create misconception
    5. Unfamiliar subject/topic
    6. Blindness/visual impairment
       4x@ 1 mark=4 marks
11. For each of the following cases, name the motive for holding money. 4 marks)
    

    	CASE	MOTIVE
    a)	To meet daily bus fare expenses	TRANSACTIONARY
    b)	To meet unexpected medical emergencies	PRECAUTIONARY
    c)	To stock maize when prices fall	SPECULATIVE
    d)	To meet daily food requirements	TRANSACTIONARY

    4x@ 1 mark=4 marks
12. The diagram below shows the current demands for petrol.
    
    
    1. What is the effect of an increase in the price of cars on demand for petrol. 2 marks)
       • Few/less cars would be demanded and this would decrease/reduce the demand for petrol at the same price
         2x@ 1 mark=2 marks
    2. Draw a new demand curve on the diagram above to show the effect of an increase in price of cars. 2 marks)
       • Check the diagram: 4x@ ½ mark=2 marks
13. State four reasons why few Kenyans take out life assurance policies. 4 marks)
    1. Ignorance of the importance of these policies
    2. Widespread poverty/low incomes
    3. Fear of losing their money because of past experience of collapse of companies
    4. Lack of enough knowledge to imterpret the clauses in the policy
    5. Corruption and embezzlement of funds by insurance company officials, resulting in delays of compensation
    6. The elaborate and time consuming procedures of claiming compensation
       4x@ 1 mark=4 marks
14. For each of the following transactions given below, indicate in the appropriate columns, the source documents and the book of original entry in which the transaction should be recorded. 4 marks)
    

    	Transaction	Book of original entry	Source document
    a)	Sale of tables on credit	GENERAL JOURNAL	INVOICE ISSUED
    b)	Purchase of stock on credit	PURCHASE JOURNAL	INVOICE RECEIVED
    c)	Goods returned by a customer	SALES RETURNSJOURNAL	CREDIT NOTE RECEIVED
    d)	Payment to a creditor	CASHBOOK/CASH PAYMENT JOURNAL	RECEIPT/CASH SALE SLIPS

    4x@ 1 mark=4 marks
15. Outline four sources of a business idea. 4 marks)
    1. Newspapers/Magazines
    2. Shows and exhibitions
    3. Hobbies
    4. Vocational training and experience
    5. survey
    6. market gaps/shortages
    7. events/games/activities
       4x@ 1 mark=4 marks
16. Write down the international trade document that relate to each of the following statements
    

    	STATEMENT	DOCUMENT
    a)	Indicate the country of origin of the imported goods	Certificate of origin
    b)	A document of title to the goods traded in international trade	Bill of lading
    c)	Used to demand for payment before delivery of goods	Proforma invoice
    d)	Facilitates an importer to obtain credit	Letter of credit

    4x@ 1 mark=4 marks
17. The financial period of Buteba Traders ends on 31st December every year. On 31st December 2011 the business had the following assets and capital.
    Item    Sh.
    Capital 24,000
    Stock of goods 1,500
    Debtors 2,000
    Machinery 20,000
    Cash 4,000
    Required:
    Calculate the total liabilities and prepare a balance sheet as at 31st December 2011. 4 marks)
    BUTEBA TRADERS
    BALANCE SHEET
    AS AT 31ST DECEMBER 2011
    

    	Sh.		Sh.
    Machinery	20,000	Capital	24,000
    Debtors	2,000	Liabilities	3,500
    Stock	1,500
    Cash	4,000
    	27,500		27,500

    8x@ ½ mark=4 marks
18. Highlight four circumstances under which a country may be classified as underdeveloped (4 marks)
    1. When the rate of unemployment is high
    2. When there is high population growth/mortality rates
    3. When the standard of living of citizens is low
    4. When productivity in a country is low
    5. When the country has a high dependency ratio
    6. When there is inefficient /traditional technology
    7. When the country has a large subsistence/direct economy
       4x@ 1 mark=4 marks
19. Record the following transactions in the cash book of Jerussa Enterprises for the month of January 2011 and balance it.
    2011
    Jan. 1: Cash in hand sh. 10,000, cash at bank sh. 20,000
    Jan. 10:Paid Luke h. 8,800 and Joan sh. 11,000 after deducting 12% cash discount in each case by cheque
    Jan. 30:Banked all the cash leaving sh. 1,200 in the cash box. 5 marks)
    JERUSSA ENTERPRISES
    CASHBOOK FOR JANUARY 2011
    

    Date	Details	Disc Allowed	Cash	Bank	Date	Details	Disc Rec.	Cash	Bank
    2011					2011
    1.1.11	Bal. b/d		10,000	20,000	10.1.11	Luke	1,200		8,800
    30.1.11	Cash(c)			8,800	10.1.11	Joan	1,500	8,800	11,000
    			10,000	28,800	30.1.11	Bank(c)		1,200	9,000
    30.1.11	Bal. b/d		1,200	9,000	30.1.11	Bal. c/d	2,700	10,000	28,800

    10x @ ½ mark=5 marks
20. State four benefits that consumers get from small scale retailers. 4 marks)
    1. Free advice on product use/comparison/availability etc
    2. Personal attention
    3. Stable prices
    4. Steady supply of goods
    5. Credit facilities
    6. Place utility i.e goods are bought nearer
    7. Small quantities break bulk)
       4x@ 1 mark=4 marks
21. The following information was obtained from the books of Okame Traders on 30th June 2011.
    Opening stock 8,000
    Purchases 53,000
    Sales 62,900
    Returns outwards 2,700
    Closing stock 12,700
    Prepare Okame TradersTrading Accounts for the year ended 30th June 2011. 4 marks)
    
    OKAME TRADERS
    TRADING ACCOUNT
    FOR THE YEAR ENDED 30-6-2011 
    

    DR.			CR.
    	Sh.		Sh.
    Opening stock	8,000	Sales	62,900
    Add purchases	53,000
    Less returns outwards	2,700
    COGAFS	58,300
    Less closing stock	12,700
    Cost of goods sold(COGS)	45,600
    Gross profit	17,300
    	62,900		62,900

    8x@ ½ mark=4 marks
22. The following balances were extracted from the books of Mwambo Wholesalers for the year ended 31st December, 2005.
    Sales 500,000
    Purchases 320,000
    Opening stock1.1.2011) 80,000
    Closing stock31.1.2011 40,000
    Debtors 140,000
    Creditors 90,000
    Calculate
    1. Margin
       • Gross profit=Sales-opening stock+ purchases-closing stock)
         =500,000-80,000+320,000-40,000)
         =140,000
         Margin = 140000 x 100
                        500000
         =28% or 0.28 or ⁷/₂₅
    2. Current ratio
       CA/CL
       = closing stock + debtors = 140000 + 40000
                  creditors                         90,000
       = 180,000 = 2  = 2:1
            90,000    1
    3. Rate of stock turn over
       ROSTO =      cost of sale      =        360,000            =   360,000
                          average stock         80,000 + 40,000          60,000
                                                                      2
       = 6 times
       
       8 x @ ½ mark=4 marks
23. The following statistics refer to a hypothetical economy. Use it to calculate the per capita income using the income approach. 4 marks)
    Ksh in millions)
    Total profits by entrepreneurs 80,0000
    Total rent received by landlords 130,000
    Total interests earned by financial institutions 40,000
    Total salaries paid by employees -50,000
    Total population 40
    
    Gross National Product
    =80,000+130,000+40,000+50,000-50,000) Millions
    =250,000 millions
    
    Per capita income=
    =Ksh. 6,250
    
    4x@ 1 mark=4 marks
24. Give four features that differentiate a public corporation from a public limited company. 4 marks)
    

    Public corporation	Public limited company
    Formed under Act of Parliament Fully owned by the government Initial capital is by the government Management/ board appointed by government/president Set up to offer essential services Profits are earned by the government Financial statements presented to parliament	Formed under Company’s Act Owned by private people with shares Initial capital through share issue/dobent Management/Board elected by shareholders Set up to make profit Profits shared by share holdersas dividends Financial statements presented in press

    4x@ 1 mark=4 marks
25. Highlight four undesirable effects of inflation to the Kenyan economy 4 marks)
    1. Has adverse effects on contractual agreenment for provision and supply of goods and services
    2. Weakens the value of the local currency
    3. Leads to decline in the standards of living for people earning fixed income
    4. Lenders loose to borrowers
    5. Increases the cost in implementation of development projects/plans
    6. Leads to balance of payment deficits
    7. Leads to fall in investment and increase level of unemployment
    8. High inflation rates lead to general industrial unrest
       4x@ 1 mark=4 marks