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

INSTRUCTIONS TO CANDIDATES:

• Answer any FIVE questions.
• All questions carry equal marks

QUESTIONS

1.                      
   1. Explain five benefits that would accrue to a businessman who uses a Liner rather than Tramps Steamers. (10mks)
   2. Using a diagram, describe the effects of outward shift in supply curve on equilibrium price and  quantity.  (10mks)
2.                    
   1. Explain four measures that may be taken by the government to promote her export.  (8mks)
   2. The following Trial Balance was extracted from the books of Kisumu Auto spares as at 31stOct 2011
      
      Required,
      1. Prepare Trading ,Profit and Loss account for  the year ended 31stOct 2011
      2. Prepare Balance sheet as at 31stOctober 2011  (12mks)
3.                        
   1. Explain Five circumstances under which a manufacturer would find it advisable to distribute his goods through wholesalers. (10mks)
   2. Explain five functions of the central bank of Kenya in the Economy.  (10mks)
4.                
   1. Distinguish between shares and debenture as a source of finance. (10mks)
   2. Outline five circumstances under which a firm will be located near the market for its products.    (10mks)
5.                
   1. The following information relates to Bizna Distributor Company for the year ended 31stDec 2009
                                  shs
      Gross profit   600,000
      Opening stock  285,000
      Sales             2,400,000
      Purchases   1,830,000
      Expenses     360,000
      Closing stock   315,000
      Fixed assets   400,000
      Debtors   900,000
      Bank     35,000
      Current liabilities   438,000
      Required  calculate
      1. Margin (2 ½ mks)
      2. Rate of stock turnover (2 ½ mks)
      3. Return on capital employed (2 ½ mks)
      4. Current ratio (2 ½ mks)
   2. Explain five ways in which the Entrepreneur contributes to the production of goods.    (10mks)
6.                            
   1. Describe five means of payment that a trader may use to settle business debts.  (10mks)
   2. Explain five indicators of under development in Kenya.    (10mks)

MARKING SCHEME

1.                    
   1. Benefits accruing to a trader using a liner to transport goods.
      1. Liners have fixed schedule/ time table which enables a trader to plan the transportation
      2. Liners have fixed rates / fares which allows for budgeting.
      3. Liners are more reliable than tramps because they don’t change routes making the trader to be more confident
      4. Can carry bulky / heavy / more goods at a time.
      5. Cover longer distances than tramps
      6. May provide discounts to its regular users.
         (Any 5×2=10mks)
   2.                              
      
      
      • An increase in equilibrium quantity from Qo to Q1. √
      • A decrease in equilibrium price from Po to P1 √
2.                          
   1. Measures that may be taken by the government to promote export trade.
      1. Providing export subsidy thus making it cheaper for exporter
      2. Looking for more markets abroad through KETA enabling more to be exported
      3. Organizing fairs and exhibitions in foreign countries to create awareness.
      4. Encouraging production of high quality goods to increase their competitiveness.
      5. Easy export licensing for exporters to facilitate export licensing
      6. By using commercial attaches to promote country’s goods in foreign countries to create awareness.
      7. Diversifying her export commodities for market security / cushion slump in demand
      8. Lowering duties on imported raw materials meant for export to encourage re-exportation
      9. By establishing export processing zones, EPZs which enhance more exports
      10. By entering into bilateral trade agreement with other trading partners to improve their terms of trade.
   2. Kisumu Auto Spares
      Trading, profit and loss account
      For the year ended 31st Oct 2011
      

      	Shs.		Shs.
      Opening stock	61,500√	Sales	319,400√
      Add purchases	300,000√
      COGAS	361,500√
      Less closing stock	80,200
      COGS	281,300√
      Gross profit  c/d	38,100√
      	319,400		319,400
      Carriage on sale	14,400√	Gross profit   b/d	38,100√
      Advertising	22,200√	Discount received	26,400√
      Rates	9,400√	Rent income	12,600√
      Salaries	12,400√
      Net profit dd	18,700√
      	77,100		77,100

      14× ½ =7mks
      
      Kisumu Auto Spares
      Balance sheet
      As at 31stOct 2012
      

      Fixed Assets		Shs.			Shs.
      Motor vehicles	603,000√		Capital	653,560√
      Equipment	200,600√		Add. Net profit	18,700√	672,260
      Furniture	94,400√
      		898,000	Current liabilities
      Current Assets			Creditors	74,300√
      Stock	80,200√		Bank	412,600√	486,900
      Debtors	75,900√
      Cash	105,060√	261,060
      		1,159,060	672,260+672,260+486,900		1,159,060

      10× ½ =5mks
3.                    
   1. Circumstances under which a manufacturer would use wholesalers to distribute his products
      1. Where the market is spread out thus making it uneconomical and expensive for the producer to sell directly.
      2. Where the producer does not have adequate capital to set up his own distribution network
      3. If there is a government policy which separates the functions of producing, wholesaling and retailing.
      4. Where the nature of goods requires the wholesaler to carry out certain services eg breaking of bulk, blending, sorting etc.
      5. .Where the producer lacks transport facilities which can be provided by the wholesaler
      6. Where there are small scale retailers who are likely to buy from wholesalers and not directly from the manufacturer.
      7. Where the manufacturer has no ability to manage distribution outlets.
         (Any 5×2=10mks)
   2.  Functions of the central bank of Kenya in the economy.
      1. Currency issue- CBK issues currency notes and coins. It regulates the supply of money in the economy.
      2. Banker to the government – CBK accepts deposits from the government for safe keeping. It also manages national debt and advises the government on economic and financial matters.
      3. Banker to commercial banks - CBK provides banking services to commercial banks.
      4. Controller of commercial banks – CBK directs and advises commercial banks on their operations.
      5. Lender of last resort – CBK lends money to the government and commercial banks in times of crisis.
      6. Credit control – CBK regulates the amount of money in circulation thus limiting the lending capacity of commercial banks and stabilizes the economy.
      7. Custodian of foreign currency reserves – CBK regulates the inflow and outflow of foreign exchange in the economy.
      8. Clearing house – CBK facilitates clearance of interbank indebtedness arising from cheques drawn on each other.
         (Any 5×2=10mks)
4.                
   1. Differences between shares and debentures
      

      Shares	Debentures
      Unit of capital in a company Shareholders are owners of company Shares earn dividends from profits made. Dividends are only paid when profits are made Capital investment that does not require security Holders have voting rights At dissolution they are paid last	Unit of a loan advanced to a public limited company Debenture holders are creditor to the company Debentures earn interest which is an expense to the company Interest on debentures must be paid with or without profit May or may not require security Have no voting rights Have first priority payments during dissolution.

      (Any 5×2=10mks)
   2. Circumstances under which a firm would be located near the market for its products.
      1. When the products are perishable thus require fast delivery
      2. When the products are bulky / heavier than the raw materials
      3. When the products are fragile to avoid loses through breakage
      4. When its cheaper to transport raw materials than the final product
      5. When the raw materials are in the same location as the market for the product
      6. When it is the government policy that firms locate near their markets
      7. When the unit value of the products is high/ may pose security threat during transportation
         (Any 5×2=10mks)
5.                   
   1.                                             
      1. Margin =Gross profit/sales ×100√
         =600,000/√ 2,400,000 ×100=25%√√ (5× ½=2 ½mks)
      2. Rate of stock turnover=cost of sales/average stock√√
         =1,800,000/300,000√√=6times √√ (5×½=2 ½ mks)
      3. ROCE=Net profit/Capital employed × 100√
         =240,000/1,212,000 × 100√√√
         =19.8%√√
         (5 ×½ =2 ½mks)
      4. Current ratio = Current Assets: √√Current liabilities
         = 1,250,000√ : 438,000√
         =2.85:1√√ (5×½=2½mks)
   2. Ways in which an entrepreneur contributes to the production of goods.
      1. Identifies viable business opportunities
      2. Provides guidelines on how production should be organized
      3. Provides the capital necessary to carry on production
      4. Hires /provides all other factors of production
      5. Bears all the risks
      6. Decides how/ where/ when / what to invest in the business
      7. Rewards all the factors of production.
         (Any 5×2=10mks)
6.                  
   1. Means of payment a trader uses to settle his debts
      1. Cash-where a trader accepts or uses currency notes and coins for payment
      2. Bills of exchange –where a trader discounts or uses an acceptance bill of exchange to pay.
      3. Debit cards that allows traders to make payment without carrying money
      4. Money order-means of payment provided by the postal corporation on request.
      5. Cheque –order to the bank to pay the person named the amount indicated in the cheque
      6. Postal order – means of payment sold by the postal corporation in fixed denominations.
      7. Credit transfer- means of paying a large group of people using a single cheque
      8. Standing order- An order by an account holder to his bank to pay a fixed sum of money to a named person /institution until the order is revoked.
      9. Credit cards that allow traders to make payments without carrying money (Any 5×2=10mks)
   2. Indicators of underdevelopment in Kenya
      1. High poverty level where majority live below the dollar rate per day
      2. Low income earnings where majority of the labour force are unskilled
      3. High level of malnutrition since majority can not afford the basic foodstuff for sustenance
      4. Poor infrastructure /inadequate infrastructure due to misuse / misallocation of funds
      5. High level of illiteracy as majority can not afford to educate their children due to high cost of education
      6. High unemployment level due to inappropriate education/ skills/training /few job opportunities / vacancies
      7. Disparity in income levels due to corruption / embezzlement of funds
         (Any 5×2=10mks)