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

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  • Write your name and adm. no in the spaces provided above.
  • Sign and write the date of examination in the spaces provided above.
  • Answer ALL the questions.
  • Candidates should answer all the questions in English


  1. State four elements that may comprise external environment to a business. (4mks)
  2. Outline four differences between goods and services. (4mks)
  3. Highlight four responsibilities of an effective a business accountant (4marks)
  4. State four reasons why consumers have to make a choice between competing needs. (4mks)
  5. The following are some policies issued under marine insurance, fleet policy, composite policy, voyage policy and time policy. Identify the policy that suits the description listed below. (4mks)
    a) Covers a ship within a specified period of time  
    b) Covers a ship on a particular journey  
    c) Different insurers covers a ship for the same risks.  
    d) Covers many vessels against losses under one policy.  
  6. Highlight four reasons why the government requires businesses to obtain licences. (4mks)
  7. Fill the levels of production in the diagram below. (3mks)
  8. Give four disadvantages of government involvement in business activities. (4mks)
  9. Give four measures that a government may take to reduce the mortality rate in a country. (4mks)
  10. Highlight four services that a wholesaler may offer to a manufacturer. (4mks)
  11. The following information was extracted from the books of Jupiter traders.
    Rate of turnover 3 times
    Mark-up 20%
    Opening stock sh. 160,000
    Closing stock sh. 200,000
    1. Gross Profit (2mks)
    2. Sales (2mks)
  12. The conditions given below are for a monopoly firm or a firm operating under perfect competition. Write the correct market structure against each of the conditions in the spaces provided. (4mks)
    a) Market structure determines price for the product.  
    b) There is free entry and exit  
    c) Product involved is homogeneous  
    d) Market structure regulates supply of the product  
  13. Outline four reasons that can lead to dissolution of a sole proprietorship. (4mks)
  14. Bahari enterprises had capital balance of sh 525,000 on 1st July 2006 and sh. 80,000 on 30th June 2007. Drawings and net profit in the year ending 30th June 2007 were sh 225,000 and sh. 175,000 respectively. Determine the additional capital during the year. (4mks)
  15. Highlight four functions of a proforma invoice. (4mks)
  16. Identify the books of original entry used in recording each of the following transactions of Turkwel Traders. (4mks)
    a) Sold goods on credit to Atieno for sh. 30,000  
    b) Bought goods on credit from Chantal Traders for sh. 40,000  
    c) Zuma returned goods worth. 8,000  
    d) Turkwel returned goods worth sh 11,000 to Simba traders  
  17.  Highlight four benefits that would accrue to a firm located near other existing firms. (4mks)
  18. Give four factors that limit the use of containers as a method of transporting goods in developing country.
  19. Give four reasons why a business person may wish to keep money in a fixed deposit account instead of a savings account. (4mks)
  20. The following information was obtained from the records of Jakayo traders as at 1st July 2010
    FURNITURE SH 20,000
    Stock sh, 8,000
    Creditor sh 7,000
    Cash at Bank sh 12,000
    Long term loan sh. 10,000
    Prepare Jakoyo is Balance sheet as at 1st July 2010
  21. Highlight four obstacles that could be ineffective communication between the principal and the students during an assembly. (4mks)
  22. Give four factors that influence the level of National income. (4mks)
  23. Give four benefits of expanding a businesses. (4mks)
  24. The diagram belows a shift in demand for a certain commodity.
    Highlight four factors that may have caused the shift from dy to dx
  25. From the following information, prepare a three column cash book duly balanced. (5mks)
    May 1 : Balances brought forward; Bank sh. 2,000(Cr) Cash sh. 1,000
    May 5: Received sh. 7,800 cash from Olive Traders after deduction of 2 ½% cash discount.
    May 14 Deposited sh. 8, 800 from the cash till to the bank.
    May 24: Paid wages for sh 800 by cheque.

Marking Scheme

  1. Elements that comprise external environment to a business. (4mks)
    • Political climate
    • Demographic factors
    • Economic situation
    • Technological factors
    • Legal and legislative framework
    • Social-cultural factors
    • Markets competition
    • Aerographical /physical factors
    • Nature of customers
  2. Differences between goods and services. (4mks)
    Are tangible and invisible Are in tangle and invisible
    They are separable from the owners/providers They are inseparable from the Owners/provides
    Their quality can be standardized. Their quality cannot be standardized.
    Payment for goods is for ownership/exchange Payment for services is for experience received
    Goods are not always perishable Services are always highly perishable
  3. Responsibilities of an effective business accountant. (4mks)
    • Keeping records of books of account
    • Receiving invoices and making payments
    • Preparing the annual final accounts
    • Preparing the payroll.
    • Controlling the creditors accounts
    • Analysing the final accounts before presenting to the owners of the business.
    • Keeping records of the business assets
  4. Reasons why consumers have to make choice between competing wants. (4mks)
    • Due to different prices of goods
    • Limited resources or income
    • Due to different tastes or preferences of the consumers
    • Due to unlimited needs of the consumer
    • Due to government policy on goods and services or restriction through total ban
  5. Marine policies. (4mks)
    • Time policy
    • Voyage policy
    • Composite policy
    • Fleet policy
  6. Reasons why the government require businesses to obtain licences. (4mks)
    • To control illegal business in the country.
    • To control the type of goods entering or leaving the country.
    • To raise revenue for the government
    • To regulate the number of businesses in a country
    • To ensure that those engaged in professional activities meet the requirements of their professions.
    • To ensure that traders engage only in licensed business
  7. Levels of production. (3mks)
    • Primary
    • Secondary
    • Tertiary
  8. Disadvantages of government involvement in business activities. (4mks)
    • Mismanagement in government enterprises due to political influence and corruption
    • Too much government involvement may discourage private investors since it can pose unfair competition.
    • Its involvement is at times a burden on the tax payer since losses incurred by its firm are from the exchequer.
    • Conflict of some interest where some industry regulators are also service providers.
    • Too long licensing processes are not conclusive for business prosperity.
    • Government interventions interfere with pricing mechanism in areas of commodity prices, interest rates and exchange rate
  9. Measures the government may take to reduce the mortality rate in a country. (4mks)
    • Availability of better health care
    • Food security
    • Minimizing internal conflicts and wars.
    • Improving environmental sanitation
    • Sensitization on public and personal hygiene
    • Disaster preparedness e.g. floods, fire, collapse of buildings etc.
    • Apply measures to reduce road accidents
    • Control of drugs and alcohol
  10. Services that a wholesaler may offer to a manufacturer. (4mks)
    • Link the manufacturer with the retailers
    • Breaks bulk on behalf of manufacturer/preparing goods for sale.
    • Provides working capital when they pay for the goods
    • Assist in the distribution of goods/offering transport
    • Promotes the product on behalf of the manufacturer.
    • Relieves the manufacturer of some risks e.g. price fluctuations, expiring of goods etc.
    • Offers valuable information about goods
    1. Gross profit (2mks)

      Coast of sales= rate of stock turnover
      Average stock

      Cost of sales = 3
      160,000 + 200, 000
      Cost of salaries = 3
      Cost of sales= 540,000
      Gross profit= 20/100 x 540,000
      = 108,000

    2. Sales (2mks)
      Sales= Cost of sales + Gross profit
      = 540,000 + 108,000
      = 648,000

  12. Market structure. (4mks)
    • Monopoloy
    • Perfect competition
    • Perfect competition
    • Monopoly
  13. Reasons for dissolution of a sole proprietorship. (4mks)
    • Death, insanity or bankruptcy of the owner
    • If the business is always operating at a loss
    • If the business is unable to pay its debt
    • The owner may choose to close it down.
    • If the activities has been out lawed
    • Lack of raw materials/inputs/depletion of basic inputs eg. Quarry.
    • Lack of market due to stiff competition/customer low income/instruction of a better substitute.
    • Poor financial management/lack of working capital
  14. Additional investment= closing capital-Opening capital-Net profit + drawings.
    • 800,000-525,000- 175,000 + 225,000 = 325,000
  15. Functions of a proforma invoice(4mks)
    • To request for payment before goods are delivered.
    • If the seller does not have enough finances
    • To caution the buyer that seller does not intend to sell on credit.
    • To show the prospective buyer the amount he/she will be expected to pay when goods are finally delivered
    • The buyer can use it to seek funds to finance the purchase.
    • It can serve the same purpose as a quotation.
    • To enable a retailer (buyer) to calculate the expected profit from the stock he intends to buy.
    • If goods are custom made
  16. Books of original entry. (4mks)
    • Sales journal/ debtor journal/daybook
    • Purchases journal/creditors journal.
    • Sales return journal/return outward journal
    • Purchases returns journal/return outward journal
  17. Benefits that would accrue to a firm located near other existing firms. (4mks)
    • Access to market
    • Access to security
    • Social amenities
    • Access to raw materials
    • Collaboration with existing firms e.g in development and research.
    • Enjoyment of existing infrastructure
    • Auxiliary services.
  18. Limitation in use of container as a method of transporting goods.
    • Specialised equipment which are expensive
    • Volume of business may not be large enough/warrant the heavy investment/volume of business may be low
    • Organisation personnel/talents/training/operational management skills needed for the method may be lacking /training may be expensive.
    • Initial capital needed for the system not easily affordable expensive.
    • The method requires re- degrading of existing ports reconstructing parts which is quite expensive.
    • General resistance to change by stakeholders
  19. Advantages of fixed deposit account. (4mks)
    • Interest earned is higher than saving account.
    • It is an investment for money which is not required immediately.
    • The fixed deposit may be used as collateral security for loan and other credit facilities.
    • He may be dealing in seasonal goods and he would keep his money more profitably in a fixed deposit a/c until he requires it.

    AST AT 1ST JULY 2010  
    Cash at Bank
    Long term loan 
      40,000   40,000
    8 x ½ = (4mks
  21. Ineffective communication. (4mks)
    • Language barrier
    • Prejudgement
    • Poor listening skills
    • Emotional problems
    • Poor timing
    • Noise
  22. Factors that influence the level of national income. (4mkjs)
    • Natural resource endownment
    • Availability of capital or man made resources.
    • Human resources in terms of quality of labour force.
    • Social-cultural attitudes that have a bearing on development of entrepreneurs.
    • Technological advancement in production process.
    • Availability of foreign investment.
    • Political sanity, certainty ,stability and security.
    • Country’s infrastructural development eg. Road, electricity, railway net work etc.
  23. Benefits of expanding a business. (4mks)
    • Can reduce cost of production
    • Can borrow money more easily/to raise more capital
    • Can buy/sell in large quantities
    • Can enjoy large discounts
    • Can be able to buy modern cost cutting equipments
    • Can reduce cost of selling goods.
    • Can be able to hire experts/specialization
    • Can afford to carryout research
    • Can afford advertisement.
  24. Factors that cause a decrease in demand. (4mks)
    • Decrease in the price of the substitute
    • Increase in price of complimentary good.
    • Decrease in consumers income
    • Negative tastes, preference or not fashionable
    • Future expectation of a decrease in prices
    • Decrease in the general population
    • The government might have increased the taxation on that commodity
    • Seasonal changes not favouring the commodity
    • Unfavourable terms of sale
  25. 3 column cash book
    DR CR
    Date Details Discount Cash Bank Date Details Discount Cash Bank
    2014         2014        
    May 1
    May 5
    May 14

    Balance b/d




    May 1
    May 14
    May 24

    Balance b/d
    Bank (c)
    Balance c/d


        200 8,800 8,800       8,800 8,800

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