Business Studies Paper 2 Questions and Answers - Kapsabet Pre Mock Exams 2021/2022

BUSINESS STUDIES
PAPER 2

INSTRUCTIONS TO CANDIDATES

• This paper consists of six questions
• Answer any five questions
• All questions carry equal marks
• Candidates should answer the questions in English

1.          
   1. Explain five circumstances that can cause a business to succeed in their activities. (10marks)
   2. Explain five problems facing the savings and credit cooperative societies in Kenya. (10marks)
2.          
   1. A prudent tax system must meet certain essential qualities. Explain five indicators of a good tax system . (10marks)
   2. Describe the procedure an insured must take when making an insurance claim. (10marks)
3.        
   1. Ondari intends to promote his products. Explain five factors that he must take into account when deciding on which method to use. (10marks)
   2. Explain five weaknesses of using national income statistics as a measure of social welfare. (10marks)
4.              
   1. Explain five factors that justify the existence of small scale firms in an economy. (10marks)
   2. Bartenge Enterprises started business on 1 st May 2014 with Shs. 250,000 consisting of:
      Cash at bank Shs.200,000, Cash in Hand Shs. 30,000 and Furniture Shs. 20,000.
      The following transactions took place during the month of May.
      
      3 rd May 2014, Motor Van worth Shs. 85,000 and stock of Shs. 25,000 were bought on credit
      6 th May 2014, more stock worth shs.10,000 was bought by cash
      9 th May 2014, withdrew money from bank sh 50,000 for office use
      15 th May 2014, Sold stock at cost to a customer on credit for shs. 18,500
      19 th May 2014, received a cheque for the full settlement of a debt owed from the transaction of 15 th may 2014
      23 rd May 2014, paid Shs. 65,000 by cheque for the motor van bought earlier on credit
      31 st May 2014, paid Shs. 20,000 cash for the stock bought on credit
      
      Required:
      Prepare the balance sheet of Bartenge Holdings as at 31 st May 2014. (10marks)
5.         
   1. Explain five problems that are faced by a country with a big population of ageing persons. (10marks)
   2. Explain five difference between banking and non-banking financial institutions . (10marks)
6.          
   1. Explain four reasons why upward communication should be encouraged in an organization. (8marks)
   2. The following trial balance was extracted from the books of Lule Traders on 30 th April 2015
      

      Lule Traders Trial Balance As at 30 th April 2015
      	Dr (Kshs.)	Cr (Kshs.)
      Sales  Purchases  Stock 1.5.2014  Carriage outwards  Carriage inwards  Returns  Salaries  Electricity  Rent  Sundry expenses  Equipment  Furniture Debtors  Creditors  Bank  Cash  Drawings  Capital  Stock as at 30.4. 2015 Shs.	186,000 115,560 37,760 3,260 2,340 4,400 24,470 6,640 38,760 1,200 20,500 128,440 49,980	3,550 5,760 12,020 24,000 6,000 45,770 30,450
      	348.440	348,440

      Required:
      1. Trading, profit and Loss account for the year ended 30 th April 2015 (8marks)
      2. Balance sheet as at 30 th April 2015 (4marks)

MARKING SCHEME

1.          
   1. Circumstances that can cause a business to succeed in their activities
      • Where there is proper location of the business convenient for its operations .i.e Availability of customers.
      • Where there is favourable government policies it encourages growth and investment.
      • Where there is political stability and security thus creates certainty and confidence to entrepreneurs.
      • Where there is fair competition to enable business access markets for its goods and services
      • Where there is use of modern technology in production of goods and services promoting quality production.
      • Where there is adequate capital to run and expand the business.
      • Where there is availability of skilled and adequate labor matched to their job specialization
      • Where there is good customer relationship and care to attract and retain clients.
      • Where there is availability of good infrastructure for business to access its market and inputs.
      • Where there is proper marketing plans to increase sales.5 well explained points= 10mks
   2. Problems facing the savings and credit cooperative societies in Kenya
      • Loan defaulting by members as some leave employment due to terminal illness, sacking and personal reasons.
      • Lack of management skills among members leading to poor management of societies.
      • Corruption and embezzlement of funds by official
      • Poor investment decisions by some officials leading to losses.
      • Stiff competition from commercial banks and micro financial institutions.
      • Late remittance of members contributions by employers.
      • High demand for loans against the receipts from monthly contributions.
      • Retrenchment of workers by both government and private sector has led to financial problems to the society. 5 well explained points= 10mks
2.                          
   1. Indicators of a good tax system
      • Equity; - Tax burden should be distributed among the tax payers according to their ability to pay
      • Economy; - Collection and administrative cost of the tax should not exceed tax revenue collected
      • Flexibility; - Tax system should be capable of being revised or changed in line with the changing economic conditions.
      • Diversity; - Different types of tax so that tax burden is on different groups of the society.
      • Elasticity; - Tax revenue should be capable of responding appropriately to changes in national income.
      • Simplicity; - The tax system should be understood by tax payers and the collectors. This motivates them to pay tax.
      • certain; - The one expected to pay should be clearly aware of how much he/she is paying. The tax collector/government should also be aware of how much it is supposed to collect from tax. 5 well explained points= 10mks
   2. Procedure an insured must take when making an insurance claim (10mks)
      • Notification of the insurer by the insured that the risk insured against has occurred.
      • Filling a claim form. The insured is issued with a claim form to fill in giving details of the risk based on the principle of utmost good faith.
      • Investigation of the claim. The insurer investigates the claim based on the information in the claim form.
      • Preparation of the assessment report. The insurer assesses the assessors report on the extent of the loss.
      • Payment of the claim .On the assessment of the claim, the insured prepares to compensate the insured.(5 well explained steps= 10mks)
3.                 
   1. Factors that he must take account when deciding on which method of product promotion to use.
      • Nature of the product
      • Nature of the market/Target group
      • Method used by competitors
      • Government policy
      • Cost of promotion method
      • Objectives of the promoting firm.
        5 well explained points= 10mks
   2. Weaknesses of using national income statistics as a measure of social welfare
      • It may be based on inaccurate data
      • Bulk of the wealth held by a few people/Unequal distribution of income
      • Wealth is created in the expense of peoples health/time for rest and recreation or leisure/no time for family etc.
      • Increased productivity but there is massive environmental pollution
      • Inflation i.e, the price level could have risen by the same proportion as per capita income.
      • Most of the income made due to improvement is all put into more investment and not on improving for instance own housing.
      • Government may be using income earned on goods and services such as military facilities which does not directly improves people’s standards of living.
        5 well explained points= 10mks
4.                
   1. Explain five factors that justify the existence of small scale firms in an economy.
      • Small capital .some businesses remain small because of limitations of investment funds.
      • Where the market served is small .The market demand in a particular industry could be too small that it cannot accommodate large scale firms.
      • If the government demands so. The law may restrict the growth of firms.
      • Products that are designed to meet customer specification. There are services that require personal attention entrepreneurs that invest in such firms are compelled to operate them in small scale.
      • Desire to retain control by the owner. There are entrepreneurs that start firms and leave them to remain small for fear of loss of control and independence in management if the firm becomes large scale.
      • Rising costs of production. Some firms that would want to remain small because of fear of increasing cost of production with increase in its level of production.
      • Risk of large scale enterprises. There are huge risks that face large scale enterprises despite the many benefits that accrue to it. To avoid such risks, firms may opt to remain small scale.
      • Expensive goods. Firms that are engaged in the production and sale of expensive and sell specialized goods are of small scale because the products they are dealing with are too expensive to call for mass production.
      • Quick decision making. In cases where the proprietors want to avoid delay in decision making, they may opt to maintain a small business as it may require less consultations.
      • Simplicity of small firms. To avoid bureaucracy and complexities associated with large scale firms, a proprietor may want to remain small scale.
        5 well explained points= 10mks
   2.        

      Bartenge Traders Balance Sheet As at 31st May 2014
      Fixed assets	Ksh	Ksh
      Equipment Furniture		24,000√  6,000√  30,000		Capital Add net profit .	128,440√ 27,320√  155,760
      Current assets	Ksh.			Less drawings	20,500√  135,260
      Stock Debtors Bank Cash	49,980√  45,770√   38,760√   1,200√			Short term liabilities Creditors	. 30,450√
      					135,710
      	165,710				165,710

      10 ticks @ 1mk= 10mks       

5.                   
   1. Problems with an ageing population
      • They provide aless mobile labour force- The older a person gets, the less willing they are to move from one place to another or even to change jobs.
      • Low labour supply- Old people are less productive and thus cannot provide the much needed labour force
      • High dependency levels- the old will be less productive and therefore will be highly dependent on the few working group who will then be strained while providing for their needs.
      • The country becomes less progressive because it lacks the input of more energetic youth.
      • May lead to unemployment- this may be due to the fall in demand for goods and services required by the youth.
        5 well explained points= 10mks
      • Explain five difference between banking and non-banking financial institutions (10mks)
   2.      
      

      BANK	NON BANK FINANCIAL INSTITUTIONS
      Operate current accounts	Do not operate current accounts
      Controlled by the CBK	Not controlled by CBK
      They issue chequebooks	Not allowed to issue chequebooks
      Formed to offer a wide range of financial services	Formed to offer specific services in which they were formed for.
      They usually offer short term loans	Designed to offer medium and long term loans
      Must open accounts with the central bank	Must open accounts with commercial banks
      They provide forex services	They do not deal in forex
      Members of clearing house	Does not take part in clearing house
      Involved in credit creation	Not involved in credit creation

         

6.                              
   1. Importance of encouraging upward communication in an organization
      • Facilitates quick feedbac
      • Enables the management to receive and accommodate the views and sentiments of all staff in the organization when making decisions
      • Enables a sense of belonging among workers thus motivating all members of staff
      • Encourages free dialogue between the junior and senior members of staff
        4 well explained points= 8mks
   2.    
      

      Lule Traders Trading, Profit and Loss account For the year ended 30th April 2015√  Dr                                                                                     Cr
      Cost of sales:	Ksh.	Ksh.	Ksh.
      Opening stock Add Purchases Add carriage in.	115,560√  2,340√		37,760√	Sales Less Returns In.	186,000√ 4,400√
      		117,900		Net sales	181,600
      Less Returns out. C.O.G.A.S Less Closing stock	3,550√		114,350 152,110√ 49,980√ 102,130
      Gross profit c/f			79,470√
      			181,600
      	181,600			Gross profit b/f	79,470
      Carriage outwards Salaries Electricity Rent Sundry expenses Net profit	3,260√ 24,470√  6,640√  5,760√  12,020√  27,320√
      	79,470				79,470

           16 Ticks @ ½ Mark= 8 Marks
      
      
      

      Lule Holdings Balance Sheet As at 30th April 2015√
      Fixed Assets:	Ksh.	Ksh.			Ksh.
      Motor Van Furniture		85,000√ 20,000√		Capital	250,000√
      		105,000		Current Liabilities
      Current Assets	Ksh			Creditors	25,000√
      Stock Bank Cash	16,500√ 103,500√ 50,000√​	​ 170,000
      		275,000			275,000

      8 Ticks @ ½ Marks= 4 Marks