Business Studies Paper 2 Questions and Answers - Form 4 End Term 1 Exams 2021

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BUSINESS STUDIES
FORM 4
END TERM EXAMS
TERM 1 2021
PAPER 2
TIME 2 hrs

INSTRUCTIONS

  • Answer any 5 questions
  1.    
    1. Explain five factors that an entrepreneur would consider when evaluating a business idea (10mks)
    2. Explain five factors that should be considered when choosing means of communication (10mks
  2.      
    1. Describe five features of good money (10mks)
    2. Explain five measures that the government may use to curb undesirable levels of inflation (10mks)
  3.    
    1. Discuss five factors that have limited the practice of barter trade in Kenya (10mks)
    2. The following information relates Ndonga Traders for the month of Jan 2015.
      Jan 1: Sold goods on credit worth Ksh. 100,000 to Maina, invoive No. 101
      Jan 2:Sold goods to Wema traders on credit worth Ksh. 50,000 invoice No. 102
      Jan 3:Maina returned goods of Ksh. 20000, credit note No. 206
      Jan 4: Wema traders returned goods worth Ksh. 5000, credit note No. 207.
      Required:
      Prepare relevant journal entries, record the above transactions and then post to the relevant ledger accounts (10mks)
  4.    
    1. State and explain five principles of insurance (10mks)
    2. One of the reason of government involvement in business activities is to regulate demand and supply of commodities. Explain five ways through which the government may cause a decrease in the supply of a commodity (10mks)
  5. Study the balance sheet and answer the following questions below
         MAVOKO TRADERS
    BALANCE SHEET
    As at 31st Dec 2000 
    Fixed assets     Capital 422,930  
    Premises
    Furniture
    Machinery
    Motor car
    300,000
    51,500
    140,000
    190,000
     


    (681,500)


    Add Net profit
    Less drawings


    220,500
    (175,000)
     


    468,450
    Current Assets     LTL   
    Stock
    Debtors
    Cash at bank
    Cash at hand
    124,500
    103,650
    54,850
    3,650
     (286,650) Mortage loan
    Bank loan
    300,000
    100,000

    400,000
            


    968,150 
    Current liabilities   
    Creditors   99,720
      968,150
       
    1. Calculate:
      1. Working Capital (WC) (2mks)
      2. Return on capital (ROC) (2mks)
      3. Borrowed capital (2mks)
      4. Current ratio (2mks)
      5. Quick ratio (2mks)
    2. The new devolved government of Kenya aims at decentralizing government and business activities. Discuss any five advantages associated with this type of government (10mks)
  6.    
    1. Explain four characteristics of an underdeveloped economy (8mks)
    2. The following trial balance belongs to Kipevu trades as at 30th June, 2004
        KIPEVU TRADERS
      Trial balance as at 30th June 2004 
         Dr.(shs)  Cr. (shs)
      Stock on 30/6/03   40,000  
      Capital   162,300
      Purchase and sales  35,000 70,000
      Drawings 6,000  
      Furniture and fittings   20,000  
      Motor vehicles  150,000  12,000
      Debtors and creditors 8,000 4,800
      Returns 2,000 800
      Discount 900  
      Wages and salaries 15,000  
      Rent 3,500  
      Insurance 2,100  
      Commission 400  
      Bank   3,000
      Cash 6,000  
        252,900 252,900
      Required :
      1. Prepare a trading profit and loss account and
      2. Prepare a balance sheet as at 30th June 2004 (12mks) 


MARKING SCHEME

  1.    
    1. Explain five factors that an entrepreneur would consider when evaluating a business idea (10mks)
      • Profit to be earned in order to cover all operational expenses
      • Technology to be used in producing the product
      • Availability of market/ demand which should be adequate
      • Government policy/legal requirement which should be favorable
      • Channel of distribution to ensure the product is available in the market
      • Competition should be fair
      • Capital should be adequate to start
      • Input/supplies which should be minimal
      • Payback period which should be reasonable in relation to amounts invested
    2. Explain five factors that should be considered when choosing means of communication (10mks)
      • Speed/ urgency/ time - more urgent message will require a faster means
      • Cost/ affordability - one will choose a means that will be affordable
      • Secrecy/ confidentiality- confidential; messages require appropriate means
      • Distance/ destination short distances require simple means
      • Evidence/ reference/ record - when require simple means
      • Reliability- means used should ensure that message reaches its destination
      • Accuracy- method used should not distort the message
      • Impression/effectiveness- method used should meet the desired impression/effect
      • Recipient literacy/ language/status of recipient
      • Availability- one should go for a means that is available
      • Lengthy/ nature/detailed message- long message require written communication
  2.      
    1. Describe five features of good money (10mks)
      • Acceptability: must be acceptable to everyone for it to be used as a medium of exchange
      • Divisibility: Should be divisible into smaller units without loss of value
      • Scarcity: Should be relatively limited in supply so as to maintain value
      • Cognoscibility: Should be easy to recognize fake money
      • Malleability: Easy to print but difficult to forge
      • Homogeneity: Money of the same denomination should be uniform in quality and identical
      • Stability in value: Should be able to last for a long time without changing in value so that it maintains credibility and acceptability. If it fluctuates in value, people prefer holding wealth in form of goods
      • Portability: Should be easy and convenient to carry around
      • Durability: Should be able to last for a long time without getting torn, defaced or losing shape and texture.
    2. Explain five measures that the government may use to curb undesirable levels of inflation (10mks)
      • Taxes should be increased to reduce disposable income/ lowering the consumer’s expenditure.
      • Restriction of imports by imposing heavy tariffs to make people switch their spending on imports to locally produced goods in order to curb imported inflation.
      • Price legislation. This is where the price is controlled as a temporary measure to keep them stable.
      • Use of monetary policies such as open market operations, raising liquidity ratio, imposing high interest rates, selective control etc to reduce money supply.
      • Use of wage policies (checking on trade union pressure) to avoid increase in wages.
      • Increase general production of goods/services to avoid shortages
      • Reduce public expenditure such as construction of roads/ infrastructure

  3.    
    1. Discuss five factors that have limited the practice of barter trade in Kenya (10mks)
      • Lack of standard measure of value
      • Lack of store value
      • Lack of double coincidence of wants
      • Lack of portability
      • Indivisibility of commodities
    2. The following information relates Ndonga Traders for the month of Jan 2015.
      Jan 1: Sold goods on credit worth Ksh. 100,000 to Maina, invoive No. 101
      Jan 2:Sold goods to Wema traders on credit worth Ksh. 50,000 invoice No. 102
      Jan 3:Maina returned goods of Ksh. 20000, credit note No. 206
      Jan 4: Wema traders returned goods worth Ksh. 5000, credit note No. 207.
      Required:
      Prepare relevant journal entries, record the above transactions and then post to the relevant ledger accounts (10mks)
      Dr   Sales Journal   Cr 
      Date  Particular Invoice  LF  Amount
      Jan 1  Maina  101   100,000 
       2  Wema traders  102   50,000
         To sales A/c      150,000

       Dr Sales Return Journal(SRJ) Cr 
      Date Particular Credit note LF Amount
      Jan 3 Maina   106   20,000
       4  Wema traders  107    5,000
         To sales returns A/c      25,000

      Posting to ledger accounts
      General ledger
      Dr Sales A/C Cr
      Date Particular LF Amount Date Particular LF Amount
              Jan 4 Maina  SJ 150,000 

      Dr Sales Returns A/C Cr
      Date Particular LF Amount Date Particular LF Amount
      Jan 4 Total Debtors   25,000        

      Dr Debtors A/C(Maina A/C) Cr
      Date Particular LF Amount Date Particular LF Amount
      Jan 4 Sales    100,000 Jan 3 Sales returns   20,000

      Dr Debtors(Wema)A/C Cr
      Date Particular LF Amount Date Particular LF Amount
      Jan 2 Sales    50,000 Jan 4 Sales returns   50,000 


  4.    
    1. State and explain five principles of insurance (10mks)
      • Utmost good faith - The person taking out insurance cover to disclose all relevant information/ facts relating to the property or person insured.
      • Proximate cause - For the insured to be compensated there must be a very close relationship between the loss suffered and risk insured against
      • Contribution - If the insured has taken policies with more than one insurance company covering the same risk, in the event of loss the insurers contribute proportionately to indemnify the insured.
      • Indemnity - The insured would be compensated in such a way that he/she is put back to the financial position he/she was just before the risk insured took place
      • Subrogation - Whatever remains after the insured has been compensated becomes the property of the insurer.
    2. One of the reason of government involvement in business activities is to regulate demand and supply of commodities. Explain five ways through which the government may cause a decrease in the supply of a commodity (10mks)
      • High taxation
      • Price control
      • Quotas/ quantity restriction
      • Withdrawal of subsidies
      • Withdraw/ cancelling of licenses
      • Mobility of factors of production
  5. Study the balance sheet and answer the following questions below
         MAVOKO TRADERS
    BALANCE SHEET
    As at 31st Dec 2000 
    Fixed assets     Capital 422,930  
    Premises
    Furniture
    Machinery
    Motor car
    300,000
    51,500
    140,000
    190,000
     


    (681,500)

    Add Net profit
    Less drawings

    220,500
    (175,000)

     


    468,450

    Current Assets     LTL   
    Stock
    Debtors
    Cash at bank
    Cash at hand
    124,500
    103,650
    54,850
    3,650
     (286,650) Mortage loan
    Bank loan
    300,000
    100,000

    400,000
            


    968,150 

    Current liabilities   
    Creditors   99,720
      968,150
       
    1. Calculate:
      1. Working Capital (WC) (2mks)
        WC= CA-CL
        =288,650 - 99,720= 188,930
      2. Return on capital (ROC) (2mks)
        =Net profit/capital invested x100
        220,500/422,930 x 100
        =
        52.13%
      3. Borrowed capital (2mks)
        =long term loan=400,000
      4. Current ratio (2mks)
        =CA/CL
        =288,650/99720 x 100
        2.89%
      5. Quick ratio (2mks)
        CA - stock/CL
        =288,650 - 124,500 x 100
               99720
        =165%
    2. The new devolved government of Kenya aims at decentralizing government and business activities. Discuss any five advantages associated with this type of government (10mks)
      • Promotes balanced development in the country
      • Reduce rural-urban migration
      • Creates employment and improve standard of living in rural areas
      • Leads to proper utilization or resources in the rural areas
      • Promotes development of auxiliary services such as banking, transport, health, communication etc

  6.    
    1. Explain four characteristics of an underdeveloped economy (8mks)
      • high dependency ratio
      • unemployment cris
      • high population growth rates
      • prevalence of dual economy
      • slow economic growth
      • poor infrastructure facilities
    2. The following trial balance belongs to Kipevu trades as at 30th June, 2004
        KIPEVU TRADERS
      Trial balance as at 30th June 2004 
         Dr.(shs)  Cr. (shs)
      Stock on 30/6/03   40,000  
      Capital   162,300
      Purchase and sales  35,000 70,000
      Drawings 6,000  
      Furniture and fittings   20,000  
      Motor vehicles  150,000  12,000
      Debtors and creditors 8,000 4,800
      Returns 2,000 800
      Discount 900  
      Wages and salaries 15,000  
      Rent 3,500  
      Insurance 2,100  
      Commission 400  
      Bank   3,000
      Cash 6,000  
        252,900 252,900
      Required :
      1. Prepare a trading profit and loss account and
      2. Prepare a balance sheet as at 30th June 2004 (12mks) 
         KIPEVU TRADERS
        Dr               Trial balance as at 30th June 2004              Cr
        Opening stock
        Add purchases
        Cost of goods as
        Less returns outward
        4,000
        35,000
        39,000
        4,800
        Sales
        Less sales returns
        Net sales
        70,000
        2,000
                   68,0000
         
         
         
              
           34,200
         Gross profit c/d  33,800
        Expenses    Gross profit b/d
        Add discount
         33,800
        800
        Discount
        Wages
        Rent
        Insurance
        Commission
        900
        15,000
        3,500
        2,100
        400


        34,600
         
         
         
          21,900  
        Net profit c/d 12,700 Net profit b/d 34,600
          34,600   12,700

           KIPEVU TRADERS
        BALANCE SHEET
        As at 30th June 2004
        FIXED ASSETS Capital
        Less drawings
        Add profit
        162,000
        6,000
        12,700
        Motor vehicles 150,000
         Furniture 20,000
         170,000  Net profit 169,000
        CURRENT ASSETS CURRENT LIABILITY 
         Stock 34,200 Creditors  12,000
        Debtors 8,000  
        Cash 6,000
        48,200
         218,000   218,200



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