Kenya Certificate Of Secondary Education(KCSE 2013) Business Paper 2 with Marking Scheme

1. Explain five benefits that may accrue to a country with a large proportion of skilled labour force. (10 marks)
2. Outline five characteristics of an efficient tax system. (10 marks)
1. Explain five benefits that Kenya may get as a member of C.O.M.E.S.A. (10 marks)
2. Explain five factors that may hinder economic development in Kenya. (10 marks)
1. Explain five benefits that may be realized by a country as a result of government policy to relocate industries to rural areas. (10 marks)
2. The following balances were extracted from the books of Soilo Traders on 31^st December 2010.
  
  Prepare:
  1. Trading, Profit and Loss Account for the year ended 31^st December 2010. ( 5 marks)
  2. Balance sheet as at 31^st December 2010. (4 marks)
1. Explain five advantages of advertising to the consumer. (10 marks)
2. On 1^st January 2011, Jumo Traders had shs 22,500 in cash and shs 250,000 at bank.
  During the month, the following transactions took place:
  
  Prepare a duly balance three column cash book. (10 marks)
1. Outline six circumstances under which a trader may use air transport. (12 marks)
2. Explain four ways through which a public limited company may be dissolved. (8 marks)
1. With the aid of a diagram, explain the effect of an increase in the supply of a commodity while its demand remains constant. (10 marks)
2. Explain five features of oligopoly. (10 marks)

MARKING SCHEME

1. Benefits that may accrue to a country with a large proportion of skilled labour force include:
  1. Saving on foreign exchange that would have been used to pay expartriates/ imported labour.
  2. Production of high quality goods/services as the workers are experts in their respective areas.
  3. Increased output of goods/services as the workers are competent due to exploitation of resources.
  4. Reduction in cost of production since the labour tends to be efficient/less wasteful.
  5. Increase in purchasing power/demand due to higher incomes/salaries earned.
  6. Reduction in dependency ratio since the employment rate is higher.
  7. Enhances creativity/innovation/research leading to new/improved/variety of goods/services.
  8. Promotes specialization/division of labour leading to faster production.
  9. Easen/simpilify setting of wage/employment policy due to abundance/ availability of skilled labour/may reduce labour stife/unrest.
  10. Increased government revenue due to income taxes levied.
  11. Increased foreigh exchange due to export of skilled labour.
  12. Enhances entrepreneural culture since skilled labour is more willing to undertake risks.
  13. Adaptability/flexibility as they are ready to embrace changes. Any 5 x 2 = 10 marks
2. Characteristics of an efficient tax system are:
  1. Equity - the tax should be fair and just/people should be taxed according to their income.
  2. Economical - it should be cheap and easy to administer/cost effective/cost of collecting should be lower than the revenue.
  3. Convenient - method of payment should be convenient to the tax payer/ favourable to tax payer.
  4. Certainty - tax payer/collector should know what, when and how to pay/collect.
  5. Flexibility - where tax is used as an instrument of national policy, it should be adaptable to all circumstances.
  6. Simplicity - it should be easily understood.
  7. Elasticity - proceeds from taxation should be capable of expanding/contracting in line with changes in income/population.
  8. Diversity/wide base. There should be wide range/varietyof taxes/should net many tax payers.
  9. Difficult to evade. Should not create loopholes for people to avoid.
  10. Should regulate the economy. Any 5 x 2 = 10 marks
1. Benefits that Kenya may get as a member of COMESA include:
  1. Free flow of goods and services.
  2. Expanded market for goods and services.
  3. Reduced costs of operating businesses as a result of increased scale of operation.
  4. Production of competitive/quality goods and services.
  5. Possibility of political cooperation.
  6. Increased variety of goods to choose from.
  7. Improved infrastructure to facilitate conduct of business.
  8. Creation of employment opportunities due to increased trading.
  9. Attracts investment due to greater demand.
  10. Lower prices of goods due to abolition of tarrifs.
  11. Encourages specialization where countries enjoy comparative advantage.
    Any 5 x 2 = 10 marks
2. Factors that may hinder economic development in Kenya include:
  1. Inaccessibility to appropriate technology leading to low quality/quantity.
  2. Inadequate research data.
  3. Poor development planning.
  4. Inadequate skilled labour force.
  5. Inadequate natural resource endowment.
  6. Brain drain-skilled man power seeking greener pastures elsewhere.
  7. Low demand for goods/services.
  8. Negative socio-cultural practices.
  9. Inadequate/lack of foreign exchange.
  10. Poor governance/corruption. Any 5 x 2 = 10 marks

Benefits that may be realized by a country as a result of government policy to relocate industries to rural areas include:
1. Increased availability of variety of goods and services as a result of new businesses in the area.
2. Availability of auxiliary services - citizens would enjoy more and better auxiliary services like transport.
3. Increased job opportunities - there will be more jobs available that would reduce unemployment.
4. Increased utilisation of locally available resources - locally available factors of production will be used and the citizens would earn rewards associated with them.
5. Improved standard of living as development of the rural areas increases the quality and variety of goods and services.
6. Reduced congestion in towns - this would benefit the few citizens remaining in the city.
7. Balanced economic development as economic activities are spread throughout the country.
8. Transfer of technology to rural areas which leads to production of better quality goods/services.
9. Creation of market for goods/services produced in rural areas. Any 5 x 2 = 10 marks

Soilo Traders
Trading, Profit and Loss Account
For the year ending 31st December 2010

Shs
Opening stock 75,000
Add: Purchases 395,000
Goods available for sale 470,000
Less: Closing stock 170,000
Cost of Goods Sold 300,000
Gross profit c/d (40% x 500,000) 200,000
500,000
General expenses 60,000
Net profit 212,000
272,000

Shs
Sales 500,000

500,000
Gross profit b/d 200,000
Rent income 72,000
272,000

(11 x ½ = 5½ marks)

Soilo Traders
Balance Sheet
As at 31st December 2010

Shs
Fixed assets
Machinery 360,000
Furniture 430,500 790,500
Current assets
Stock 170,000
Debtors 62,250
Bank 202,000
Cash 88,800 523,050
1,313,550

Shs
Capital 1,000,000
Add: Net profit 212,000 1,212,000

Current Liabilities
Creditors 101,550

1,313,550

(9 x ½ = 4 ½ marks)

Advantages of advertising to the consumer include:
1. Consumers become aware of existence of a product and where it can be found.
2. Consumers enjoy high quality goods resulting from competitive advertising.
  /Producers seek to maintain very high standards of quality.
3. Makes it easy for consumers to choose products from a variety offered in the market based on their advertised quality and contents.
4. Protects consumers from exploitation since they are aware of prices and quality of items and can therefore enforce their rights.
5. Communicates changes about the producer like new product lines, change of name and physical address. This enhances convenience for the customers.
6. Educates the consumers on the proper use of products where advertising messages involve demonstrations of product usage.
7. Entertainment by use of drama/music/plays.
8. Aiding budget/planning as they are made to know about price and existence of goods.
9. May enjoy lower prices due to competition.
10. Correct misconceptions hence assist in making decisions. Any 5 x 2 = 10 marks

Jumo Traders
Three Column Cash Book

Dr Date	Details	Discount Allowed	Cash	Bank	Date	Details	Discount Received	Cash	Cr Bank
Jan 1 2 5 20 29 30	Bal b/d Sales Kamau Traders Cash (c) Bank (c) Cash (c)	Shs 23,750 23,750	Shs 22,500 465,200 250,000 737,700	Shs 250,000 451,250 200,000 150,000 1,051,250	Jan 15 20 25 28 29 30 31	Ndaru Traders Bank (c) Wages Mbago Traders Cash (c) Bank (c) Bal c\d	Shs 16,000 45,000 61,000	Shs 184,000 200,000 144,000 150,000 59,700 737,700	Shs 255,000 250,000 546,250 1,051,250

(20 x ½ = 10 marks)

1. Circumstances under which a trader may use air transport:
  1. Perishable nature of goods since they go bad/get damaged.
  2. Goods are of high per unit value since they are prone to theft.
  3. Urgency - where goods require to arrive at the destination promptly.
  4. Security - where security of goods is of valuable consideration.
  5. Where other means of transport are unavailable.
  6. Where distance to be covered is too large.
  7. Where it is the policy of the business which needs to be followed.
  8. Where destination is remote making it inaccessible by other means. Any 6 x 2 = 12 marks
2. Ways through which a public limited company may be dissolved include:
  1. A resolution by the shareholders to dissolve the company. When there is a unanimous decision by the shareholders to wind up the company during the annual general meeting.
  2. Change in the country's law that renders the activities of the company illegal/ unlawful. When the laws of a country bars certain activities that the company may have been involved in.
  3. Inability to repay financial debts on infringement of stakeholders’ rights.
  4. Amalgamations/mergers - a company may be dissolved if it combines with another and a new one replaces the one combining/creates a new entity.
  5. Take overs/acquisition/absorption - a company may be dissolved if it is taken over by another/or by the government through acquisition of majority shares hence redirection of its activities/loss of identity.
  6. Realization of sustained / continuous losses. A company may be dissolved when it makes losses continuously to the extent of not being able to meet its recurrent expenditure/insolvency.
  7. Court order for infringing on the law/granted to a complaint raised by stakeholders/acting ultravires.
  8. Completion/fulfilment of task/activity/objective (for which the company was formed) hence making its continued existence unnecessary
  9. Failure to commence business within one year after incorporation thus contravening the company's act. Any 4x2 = 8 marks
1. The effect of an increase in the supply of a commodity while the demand remains constant:
  
  Other factors remaining the same, the price of a commodity will fall from P₀ to P₁ as the quantity supplied changes from Q₀ to Q₁
  This creates a new equilibrium E₁ from E₀ as supply curve shifts to the right from S₀S₀
  The increase in supply causes excess supply/surplus.
  This lowers price to the new equilibrium price oP1 and equilibrium quantity oQ₁.
  Diagram - 16 x ½ = 8 marks
  Explanation - 4 x ½ = 2 marks
  Total = 10 marks
2. Features of oligopoly include:
  1. Firms are interdependent in decision making. Firms keenly observe each others' actions/decision hence acting in any way triggers counter reactions (from other firms).
  2. Firms deal in products that are homogenous or similar. The products are close substitutes of each other and are only differentiated in terms of aspects like colour/packaging/shapes/pricing/branding.
  3. Firms may engage in nonprice competition/collusive oligopoly. The firms under oligopoly may avoid price wars hence only compete via other means like aggressive advertising/after sales services/market segmentation/fixing quotas.
  4. Unpredictability of behaviour/uncertainty since firms under oligopoly keep reacting to market changes differently/actions taken by other firmswithin the market may take others by surprise.
  5. The market is made up of a few large firms since such firms operating under oligopoly tend to have a large capital outlay/make extensive use of modern technology in their production activities/control substancial share of the market.
  6. There are limiting factors such as large capital investment required to be a player in this market/the level of technology involved may keep off possible entrants into the market/intimidation/collusion.
  7. Firms may engage in price wars/rivalry/cut throat competition which may lead to survival/collapse of some firms.
  8. May lead to price rigidity/kinked demand occassioned by fear of other firms' reactions.
  9. There may be price leadership where the dominant firm dictates the market price/rules the market. Any 5 x 2 = 10 marks