Business Studies Paper 2 Questions and Answers - Form 4 Opener Term 1 Exams 2022

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Instructions to candidates:

  • Answer any five questions.


    1. Explain five reasons why it is important for an entrepreneur to have a business plan. (10mks)
    2. Explain five ways in which the stock exchange market facilitates the growth of the country’s economy. (10mks)
    1. Outline five problems that are likely to be encountered when measuring national income. (10mks)
    2. Explain five factors that a trader should consider before giving credit. (10mks)
    1. Highlight five circumstances under which a manufacturer would opt to use salesmanship as a way of promoting his products. (10mks)
    2. Explain five sources of business ideas that a potential investor can use when making investment decision. (10mks)
    1. Explain five ways in which the government can create an environment that is conducive for doing business. (10mks)
    2. The following balances were extracted from Witu books of accounts on January 2017;
      Motor vehicles 
      Cash at bank 
      Cash in hand 
      ADC loan 
      250, 000
      8, 000
      37, 000
      20, 000
      15, 000
      5, 500
      100, 000
      12, 000
      224, 000
      The following transactions took place during the month.
      January 1   deposited an additional shs.30, 000 from private sources into the business bank account.
      January 5    issued a cheque for shs. 80, 000 to ADB bank which was honoured by the bank.
                   10  sold goods whose cost was shs.3, 500 at shs.7, 000 and received the proceeds by the cheque.
                   15  bought a new motor vehicle worth shs.50,000 having borrowed an additional loan from ADB bank.
                   17  took goods worth shs. 1, 200 to be used by his family.
                    20  sold one of the old motorvehicles whose book value was shs.27, 000 at shs. 22, 000 on credit.
                    25  received cash shs.15, 000 from a debtor.
                    29 paid a creditor by chequeshs.8, 500
                    30 bought more goods on credit worth shs. 3, 200
      Prepare Witu’s balance sheet as at 30th April 2017. (10mks)
    1. explain any five causes of an increase in supply of a given commodity. (10mks)
    2. Describe the procedure followed in seeking compensation from the insurance company. (10mks)
    1. Despite the economies of scale enjoyed by large firms, some firms continue to operate on small scale basis. Explain five reasons. (10mks)
    2. Explain five reasons why several competing firms would combine and form one firm. (10mks)

Marking Scheme

    1. Reasons for preparing a business plan.
      • It may be a requirement by financiers.
      • It assists in allocating resources.
      • Assist in determining the financial requirements.
      • Acts as a tool of control
      • Acts as a motivating factor to the workers in that each one knows what is expected of him
      • Assists in identifying the strengths and weaknesses of the businessAssists in adapting to possible changes
      • that are likely to occur during the implementation period.
      • Assists in avoiding mistakes in that such mistakes can be detected and rectified before implementation.

    2. Role of stock exchange market.
      • It facilitates buying and selling of shares in that it acts as a link between the sellers and the investing public.
      • Acts as an indicator of the level of economic activities in a country by looking at the number of shares being transacted.
      • Assists in safeguarding investor’s interest in that only those financially sound companies have their shares traded in the market.
      • Creates a culture of saving in that those with surplus money can invest in shares.
      • Provide useful information that assist in making investment decision in that people know where to invest.
      • It creates employment for people in trading of shares
      • Acts as a source of government revenue through taxes
      • Assist companies to raise revenue
      • Assist in determining the prices of shares.
      • Problems encountered in measuring national income.
      • It’s not possible to estimate depreciation on capital goods.
      • It’s not easy to determine the value of the subsistent output.
      • There is the problem of change in value of money which may give exaggerated information
      • There is the problem of double counting
      • It’s not easy to estimate the value of free and subsidized services
      • Inaccurate data due to use of wrong statistical methods.
      • Inventory valuation on stock appreciation
      • There is the problem of the output of foreign firms.

    2. Factors considered before giving credit.
      • Credit worthiness of the buyer
      • Repayment period
      • The amount of goods that the customer wants
      • Availability of adequate stock
      • Honesty on the trustworthiness of the customer
      • Frequency at which the customer buys
      • Seller’s intensions such as retaining customers.
    1. Reasons for using salesmanship.
      • When introducing new products in the market
      • When the unit value of a product is high
      • Where demonstration is required
      • Where the feed-back of the customer is needed
      • Where the market is concentrated In a small geographical area
      • Where the firm has adequate resources to finance the sales force
      • Suitability of a product to individual needs as opposed to those of the general public.

    2. Sources of business ideas
      • Using information from the media
      • Using individual talents and strengths
      • Spotting market gaps
      • Brain storming where people come together and agree on certain idea
      • Shows and exhibitions
      • Identifying use of wastes product
      • Listening to complaints from customers
      • Market survey to find out what is on demand
      • Hobbies or those activities that people do for pleasure like entertainment.
      • Ways of creating an enabling and
      • carrying out market research and giving advise to entrepreneurs.
      • providing infrastructure
      • ensuring that there is maximum security
      • reducing taxes
      • increasing subsidies
      • Providing basic services like education and medical care.
      • Accessing businessman to sources of capital.
      AS AT 30TH APRIL 2017
      FA capital 271, 300 
      Motor vehicles 
      273, 000
      8, 000 
      AD is loan

      70, 000
       CA CL
      36, 400
      27, 500
      20, 500 


      6, 700
      36, 500
        386, 500   386, 500
      1 mrk for each correct entry.
      diagram 8mrks
      • Equilibrium price will increase. 1 mrk
      • The equilibrium quantity remains constant.1mrk

    2. Steps followed in seeking compensation
      • Reporting to the insurance company in case a risk occurs..
      • Filling claim firms.
      • Investigation of the claim by the insurer
      • Preparation of assessment report
      • Payment of the claim.
    1. Factors that contribute to existence of small firms.
      • Limited access to sources of finance.
      • Limited size of the market
      • Limited access to modern technology
      • One’s decision due to fear of taking risk
      • Government policy where the government encourages the setting up of small scale businesses in order to create self-employment.
      • Small firms are easy to manage.

    2. Reasons for amalgamation
      • Increasing bargaining power
      • Avoiding unnecessary competition
      • Mobilization of capital
      • Controlling the market
      • Avoiding wasteful use of resources
      • Sharing of ideas
      • Reducing the cost of operating
      • Ensuring constant supply of raw materials through backward integration.

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