INSTRUCTIONS TO CANDIDATES
- This paper consists of six questions.
- Answer any five questions.
QUESTIONS
-
- Explain five features of a sole proprietorship form of a business. (10 mks)
- Distinguish between oligopoly market and perfect competition market situations. (10 mks)
-
- Explain five insurance policies that the owner of a NAIVAS supermarket may find useful for his business. (10 marks)
- The following trial balance was extracted from the books of Jumia Traders on 31st December 2010.
JumiaTraders
Trial Balance
As at 31st/12/2010
Details
DR
Cr
Capital 400000 Sales 600000 Purchases 200000 Debtors 20000 Creditors 60000 Returns 25000 15000 Discounts 6000 8000 Carriage inwards 6500 Carriage outwards 15000 Salaries 10000 Stock 1st January 18000 Motor vehicle 400000 Furniture 150000 Rent 49000 Commission 50000 Electricity 43500 993,000
993,000
Prepare a trading, profit and loss A/C for the Year ended 31st December, 2010. (10 marks)
-
- Discuss the economic importance of the recently discovered oil in Northern Kenya. (10marks)
- Explain any five negative effects of inflation in an economy. (10 marks)
-
- Explain four Monetary Tools used by the Central Bank of Kenya to reduce the supply of money in the country. (8 marks)
- On 1st January 2012, Mlachake traders had cash in hand Ksh. 10,000 and cash at bank shs 15000. The following transactions took place during the month:
Jan 2: Bought goods in cash sh. 1500
Jan 4: Paid salaries by cash sh 7500.
Jan 5: Received cheques from the following debtors after allowing 2% discount in each case. Masy sh 980, kiplimosh .1960.
Jan 8: Settled the following accounts by cheque in each case deducting 5 % discount; Jumash 3000, Kasanishs 1200.
Jan 12: Bought machinery worth sh 7000, paid sh 5000 by cheque and the balance to be paid later
Jan 20: Took sh 1000 for personal use from the business cash till.
Jan 25: Cash sales sh 2000
Jan 26: Received cash shs.3000 from Kioko, a Debtor.
Jan 28: Brought in Sh 2000 cash from his personal savings.
Jan 29: Banked all cash except sh. 1000
Required: Prepare a duly balanced three column cashbook. (12 marks)
-
- Using a well labeled diagram explain the effects of a shift in the demand curve from left to right. (10mrks)
- Explain five reasons why the government levy taxes. (10mks)
-
- Discuss five factors the National government will consider before spending National Funds. (10marks)
- The following balances were obtained from the books of Shah Enterprise on 1st January, 2012.
Shs
Stock 5,000
Debtors 2,000
Cash in hand 4,000
Premises 80,000
Capital 66,000
Machinery 18,000
Overdraft 6,000
Creditors 12,000
Five year loan 25,000
The following transactions took place in the first week of January 2012.- Jan 2nd: Received from debtors sh. 1000 by cheque.
- Jan 3rd: Sold goods worth Shs 2000 for Shs 4000 and deposited the money in the business bank account.
- Jan 4th: Paid Sh 1000 in cash part of the five year loan.
- Jan 5th: Deposited Sh 2500 in bank account from cash till.
Required:
Prepare Nzioka Traders balance sheet as at 5th January, 2012 after the transactions took place. (10 marks)
MARKING SCHEME
-
- Features of a sole proprietorship
- It is started and owned by one person.
- The owner is responsible for day – today business operations.
- It has simple legal procedure during information.
- The owner enjoys all the profit and bears all losses alone.
- It has an unlimited liability.
- They are mostly small in size but there could be some that are large.
- It enjoys greater amounts of flexibility as the owner can change the business from time to time.
- It does have a perpetual life as its legal existence depends on the life of the owner.
(Any five well explained = 10 mks)
- Difference between oligopoly market and perfect competitions market situations;
Oligopoly Perfect competitions Sellers are few sellers are many The sellers determine / set the price / are price makers the sellers does not set / determine price / have no control / over price / are price takers Product sold / prodeuced is different / made different by colour, name , quantity and shape etc. Products are sold / produced is homogeneous (in colour , shape and quality ) etc Barriers / restriction to entry in the market or exit due to high capital requirements no barriers to entry / exit . there is free entry / exit. Price wars exist / used to determine price No price wars / allfirms sell at same uniform price Extensive advertising / promotion of the products No need for promotion / advertising / there's perfect knowledge about the market Factors of production are immobile / not easily switched from production of one to another factors of production are mobile , can be easily switched from one production to another
- Features of a sole proprietorship
-
- Explain five insurance policies that the owner of a supermarket may find useful for his business. (10 marks)
- Workman’s compensation
For employees who may suffer injuries while at work. - Personal accident cover
Covers losses / disability to injury or loss of income due to accident (body injury / death / hospitalization) accept any one explanation - Cash / goods in transit
Covers cash or goods cost while being moved from one place to another - Theft and burglary
covers losses resulting from theft and burglary activities. - Bad debt policy
Losses due to failure of debtors to pay - Public liability
Claims by other people due to accident injuries or losses caused by the supermarket or its employees. - Fidelity guarantee
Losses due to theft of business property by employees - Motor vehicle policies
To cover driver, vehicle, property on vehicle and property outside vehicle - Consequential loss
Compensation due to loss of profits that result from halt in business activities after fire - Sprinkler leakage
Compensates for damages caused by fire fighting equipment - Material damage policy
- Workman’s compensation
-
- Kwale traders
Trading, profit and loss account
For the year ended 31/12/2010
- Kwale traders
- Explain five insurance policies that the owner of a supermarket may find useful for his business. (10 marks)
-
- The economic importance of natural resources.
- They provide raw materials for industries.
- They bring foreign exchange to the country when exported.
- They are a source of energy.
- They provide settlement for both human beings and wildlife.
- They are a source of food.
- They create employment when they are being exploited. (5 x 2 = 10marks)
- Negative effects of inflation in an economy.
- Erosion of people’s purchasing power leaving them poorer than they were before inflation.
- Loss of confidence in the local currency by the citizens. This results to the people preferring to use other country’s currency.
- Lowering of people’s standard of living since the cost of living becomes higher.
- It discourages savings as well as investment by individuals and firms.
- It may result to high interest rates which make the cost of acquiring credit/finance to be very high.
- It may result to emergence of black markets in the country.
- It can even result to political instability in the country. (5 x 2 = 10 marks)
- The economic importance of natural resources.
-
- Ways in which central bank of Kenya may reduce the supply of money in the country.
- Bank rate :It’s the rate at which the central bank lends to commercial banks. The rate is raised in order to discourage borrowing and therefore reducing money supply.
- Open market operations: The central bank sells treasury bills and bonds in the market.
- Special deposits /compulsory deposits /minimum reserve requirements. These are raised upwards.
- Cash ratio/ liquidity ratio: The ratio is increased in order to reduce money supply.
- moral persuasion: The central bank may appeal /request/persuade credit rationing.
- Directives/ instructions to financial institution to landless (4 x 2 = 8 marks)
- Prepare a three column cash book duly balanced. (10 marks)
Date
Details
Folio
d.a.
Cash
Bank
Date
Details
Folio
d.r.
Cash
Bank
2002 July 1
Bal b/d
87,000
240,000
July 3
Salaries
101,500
1
Sales
50,000ü
12
Furniture
85,000ü
6
Wairimu
3167
ü
76800ü
16
Kirwa
800
39200
18
Sales
150,000
21
Wages
24,000
28
Malonya
600
15900
22
Cash
30,000ü
Cash
64700ü
25
Drawings
5000ü
30
Bank
64700
31
Bal c/d
20,000
315,000
3767
152,900
531500
800
152900
531,500
July 31st
Bal b/d
20,000
315,000
- Ways in which central bank of Kenya may reduce the supply of money in the country.
-
- Using a well labeled diagram explain the effects of a shift in the demand curve from left to right
Effects:- There will be an increase in price from √OPO to OP1
- There will be an increase the quantity demanded from √OQO to OQ1
- Reasons why the government levy taxes.
- To promote economic growth through investments and public corporations.
- To promote equity in income distribution.
- To control the economy by influencing consumption, investment output and employment.
- Influence balance of payment and regulate imports and exports.
- Discourage consumption of harmful products or those with negative impact on the society.
- Collect revenue to finance government activities
- Maintain economic stability.
- Protect local industries infant/strategic from unhealthy competition.
- Using a well labeled diagram explain the effects of a shift in the demand curve from left to right
-
- Discuss five factors that Nakuru county government may consider before incurring any expenditure.(10mks)
- Economy;
County expenditure must be incurred in the most economical way by avoiding any possible waste from occurring. - Maximum social benefit;
Any county expenditure must be incurred in such a way that majority of people are able to reap maximum benefit out of it. - Flexibility;
County expenditure should be adaptable to any future unforeseen occurrence and economics situations in the county. - Sanctions;
County expenditure must be approved by the county assembly to avoid embezzlement and misuse. - Proper financial management;
County funds should be well managed through maintenance of proper records and auditing as required.
- Economy;
- Discuss five factors that Nakuru county government may consider before incurring any expenditure.(10mks)
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