Business Studies Paper 2 Questions and Answers - Form 4 Term 1 Opener Exams 2023

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  • This paper consist of six questions.
  • Answer any five questions.
    1. There has been a decline in the demand for New cloths in the market recently. Explain five factors   that may have caused this trend.(10mks)
    2. Explain the procedure for obtaining an insurance policy.                                                                                      (10mks)
    1. Explain five measures that would be taken to ensure smooth functioning of a warehouse.                                    (10mks)       
    2. The balances below were extracted from the books of Karanja Traders as at 1st June 2017.\
      Equipment    320,000
      Stock            180,000
      Bank             104,000
      Cash               20,000
      Capital           544,000
      Creditors         80,000
      During the first week of June 2017 the following transactions took place.
      June 2 - Karanja Traders introduced additional funds into the business by depositing sh. 76,000 into business bank account.
               3 -Purchased a motor vehicle from CMC Motors worth sh. 400,000 on credit.
               5 -Paid a creditor sh. 12,000 cash.
               6 -Sold goods on credit to Anita sh. 50,000
               7 -Bought equipment sh. 100,000 by cheque.
      Prepare the balance sheet of Karanja Traders as at 7th June 2017 showing the items in their relevant classes. (10mks)
    1. Highlight five reasons why the government may find it necessary to participate in business activities.                (10mks)
    2. Explain five reasons why it is hard to fully satisfy human wants.                                                                         (10mks)
    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. 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 factors that a trader should consider before giving credit.                                                             (10mks)
    1. Explain four benefits that will accrue to the Kenyan government when drilling of Turkana oil wells will be completed.                         (8mks)
    2. On 1st March 2014,Kendi had cash in hand sh.7800 and a bank overdraft of shs.23,400.During the month, the following transactions took place:
      March 3: Cash sales sh6,500 paid direct into the bank.
        “        4: Bought goods for shs.15,000 and paid by cheque.
         “       6: Cash sales sh.50,000
         “       9: Received a cheque for Sh.76,500 from Amolo in settlement of his debts.
         “     13: Paid insurance premium sh. 16,000 in cash.
         “     14: Paid Kamotho by cheque Sh.9,700 in full settlement of his account having deducted 3% cash discount.
         “     17: Cash sales Sh.150, 000 paid direct to bank.
          “    21: Withdrew Sh 30,000 from bank for office use.
          “    23: Received a cheque of sh 23,750 from Rotich in full settlement of his account less 5% cash discount.
         “     25: Paid wages of shs. 20,000 in cash.
         “     26: Cheque received fromAmolo was dishonored.
               30:Banked all cash except Sh 3,000.
      Prepare a three-column cash book duly balanced.                                              (12mks) 


    1. Causes of decline in demand for new clothes.
      • Decline in consumers income- this may reduce their purchasing power hence less able to afford the new clothes.
      • Fall in the price of substitutes and second hand clothes may be cheaper.
      • Increase in the price of new clothes which makes new clothes to be out of reach for most consumers.
      • Government policy: The government may have increased the rate of tax on new clothes making them more expensive/may have withdrawn subsides.
      • Unfavourable change in tastes and preferences: consumers may be purchasing more second hand clothes as they may have positive tastes towards them as they could be seen as being fashionable.
      • Decline in population: a decrease in population will lead to reduced numbers of potential and actual customers.
      • Expectations of a future fall in price: consumers may be anticipating a fall in price in the future hence currently suspended buying new clothes.
    2. Explain the procedure for obtaining an insurance policy
      • Filling in the proposal form-the prospective insured should fill and give the details of his property to be insured.
      • Determine the premium to be paid-the insurance company calculates the amount that is expected to be paid by the insured.
      • Payment of the first premium-the insured pays the first premium.
      • Issue of a cover note/binder-the insured is issued with the cover note for a whole month as an indication that the first premium has been paid.
      • Issue of the policy- insured is issued with insurance policy which shows the terms and conditions of the agreement and that the agreement is valid.
    1. Measures that would be taken to ensure smooth functioning of a warehouse.
      • Ensure that the warehouse is located in a convenient/accessible place to the users.
      • Ensure that the warehouse is provided with adequate handling equipment/machine/working materials/tools for ease of operation.
      • Ensure that the warehouse is spacious enough to allow easy movement/accommodation of goods/personnel.
      • Ensure that the warehouse has storage facilities for holding different types of good.
      • Ensure that the warehouse is filled with safety equipment for the building/personnel/goods.
      • Ensure that the warehouse has qualified personnel who are conversant with the operation of the warehouse.
      • Ensure that the laid down legal procedures are complied with to avoid conflict with the law/government.
      • Ensure the building/structures are appropriate for the types of goods to be stored.
      • Ensures the warehouse is linked with a good/appropriate transport network to facilitate easy movement of goods in/out of the warehouse.
      • Ensure the warehouse have a good communication network/system for easy content with its clients/suppliers.
      • Ensure proper recording systems in a warehouse to ensure that all movement of goods is properly monitored.
    2. Balance sheet
                                                                                         As at 7th June 2017
      Fixed assets                          shs.                     shs.
      Motor vehicle                       400,000✓
      Equipments                          420,000✓   
      Current assets   
      Stock                                   130,000✓
      Debtor                                  50,000✓
      Bank                                     80,000✓
      Cash                                      8,000✓
      Capital + liabilities  
                                         Shs.                           shs. 
      Capital                                                    620,000  ✓
      Long term liabilities  
      CMC motors                                           400,000✓
      Short term liabilities   
      Creditors                                                    68,000 ✓
    1. Highlight five reasons why the government may find it necessary to participate in business activities.
      • To provide goods and  services that are too  sensitive  to be left in the hands of the private sector 
      • To attract foreign investment by initiating majordevelopment project. 
      • To prevent exploitation of consumers by private business people especially in the provisionof essential goodsand services which private individuals are not able to due to large amount of capital required. 
      • To stimulate economicdevelopment inthe country. 
      • To ensure equitable distribution of essential goods and services.
    2. Explain five reasons why it is hard to fully satisfy human wants
      • Recurrent/Repetitive--needs keeps on occurring even after they are once met.
      • Resources to use are scarce-one has to make a choice to meet most urgent needs others postponed.
      • Some needs are habitual—some forms a habit requiring to meet them now and then.
      • Some are complimentary-meeting one forces a person to buy another good ie some are jointly meet.
      • They are competitive—wants compete for attention to be met first,when one decides to meet a particular need  others arises making it hard to meet them all.
      • They are insatiable/unlimited/endless—wants are many/uncountable hence hard to meet them all.
      • Wants  keeps   on changing –with once age/gender and time.
    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 business
      • Assists 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.
    1. Despite the economies of scale enjoyed by large firms, some firms continue to operate on small scale basis. Explain five reasons. (10mks)
      • 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. Factors to 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. Benefits Kenya will get through exploitation of oil.
      • Creation of employment to Kenyans.
      • Earning revenue through sale of oil thus boosting the economy.
      • Opening up Turkana region which is a remote place.
      • Growth of Turkana town and other surrounding towns which improves the standards of living of locals.
    2. Three column cash book 
      Date Details Disc All Sh Cash sh. Bank Sh. Date Details Disc Rec Cash sh. Bank sh.
      2016 March 1 Bal B/D    7800   2016 March 1 Bal B/D      23,400
       3  Sales      6500  2  Purchases      15,000
       6  Sales    50,000    13  Insurance    16,000  
       9  Amolo      76,500  14  Kamotho  300    9,700
       17  Sales      150,000  21  Cash      30,000
       21  Bank    30,000    25  Wages    20,000  
       23  Rotich  1250    23,150  26  Amolo      18,000
       30  Cash      48,800  30  Bank    48,800  
                 31  Bal C/D    3,000  209,450
           1250  81,800  305,550      300  87,800  305,550
      (24 Ticks @ ½ Mark Total 12 Marks)

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