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

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