Business Studies Paper 2 Questions and Answers - KCSE 2021 Past Papers

QUESTIONS

1.        
   1. Explain five circumstances under which a producer may sell goods directly to the consumer (10 marks)
   2. Explain each of the following terms of sale as used in international trade: (10 marks)
      
      1. Ex-works
      2. Cost and Freight
      3. FOB
      4. Landed
      5. In Bond
2.      
   1. Explain five factors that may discourage entrepreneurship in Kenya. (10 marks)
   2. Explain five demerits of indirect taxes.(10 marks)
3.      
   1. Explain five errors that may not be detected in a trial balance. (10 marks)
   2. Explain five documents prepared by the seller after receiving an order up to the point of delivery.(10 marks)
4.        
   1. Explain five reasons that may make a firm operate on a small scale (10 marks)
   2. The following information was extracted from the books of Ushirika Traders as at 31st December 2020.
      Details
      Gross profit - Ksh 94,000
      Commission Received - Ksh 32,000
      Carriage Outwards - Ksh 8,000 
      General Expenses - Ksh 15,000
      Discount Received - Ksh 29.000
      Total Fixed Assets - Ksh 1,110,000
      Insurance - Ksh 17,000
      Capital - Ksh 490,000
      Drawings - Ksh 37,000
      Long Term Liabilities - Ksh 610,000 
      Discount Allowed - Ksh 12,000
      Commission Allowed - Ksh 4,000 
      Current Liabilities - Ksh 162,000 
      Current Assets - Ksh 192,000
      Salaries - Ksh 22,000
      
      1. Prepare a Profit and Loss Account (6 marks)
      2. Determine:
         
         1. Working capital(1 mark)
         2. Return on Capital Employed. (3 marks)
5.      
   1. Explain five reasons that make it necessary for the Government to train business people. (10 marks)
   2. Explain five problems that the Kenyan Government may experience when implementing the Vision 2030. (10 marks)
6.      
   1. Explain five advantages of written communication. (10 marks)
   2. Use the transaction given below to prepare Patel Traders Two Column Cash Book for the month of February 2020. (10 marks)
      1st Feb. : Had Ksh 1,200 cash in hand and a bank overdraft of Ksh 1000
      2nd Feb. Used cash to pay water bill Ksh 200, electricity Ksh 100 and wages Ksh 400
      3rd Feb.: Received a cheque of Ksh 14,000 from Daisy
      5th Feb. : Sold goods worth Ksh 7,000 in cash.
      7th Feb. : Paid for goods bought for resale worth Ksh 5,000 by cheque.
      9th Feb.: Received a cheque of Ksh 10,000 from the Cooperative Society as earning from dividends.
      10th Feb.: Withdrew Ksh 2,000 from the bank for family use.
      13th Feb.: Received a cheque of Ksh 10,000 from Petro.
      15th Feb.: Deposited Ksh 1,000 from the office into the business bank account.
      17th Feb.: Paid Manu by cheque Ksh 1,000
      27th Feb.: Used the money in the bank to purchase furniture leaving only a balance of Ksh 2,000.

MARKING SCHEME

1.  
   1. Circumstances under which producers may sell goods directly to the consumer includes:
      1. When the sizes of the market served is small that the producer can access all the buyers/economically serve the entire market
      2. If the product is highly perishable that can easily go bad if the long channel is used.
      3. If the producer wants to get immediate feedback about the performance of the product.
      4. If the product is technical in nature that requires demonstration/installation/ maintenance/after sales service
      5. If the product is tailored to meet customer specification/produced according to customer specification/made in order to satisfy individual needs/tastes/ preference
      6. When the producer wants to avoid further increase in prices of the product created/avoid high cost of distribution.
      7. If it is government's policy which directs that goods should be distributed directly to the consumers.
      8. If it is the policy of the business requires that all goods must be sold directly to the consumers
      9. If the producer has enough/ adequate resources to set up retails/distribution outlets/buy distribution vehicles/ hire sales personnel.
      10. When goods are of very high value/expensive and middlemen are unwilling/ unable to stock them.
      11. If the competition is stiff/high in order to capture a higher share of the money. (Any 5 x 2-10 marks)
   2. Terms of sale as used in International Trade:
      1. Ex-works/Ex-warehouse/Ex-factory
         The price quoted includes only the cost of goods as they leave the place of manufacture or the warehouse of the exporter other expenses are to be met by the buyer.
      2. Cost and Freight
         The price quoted includes the cost of goods, loading cost and freight charges upto the port of entry.
      3. Free on Board(FOB)
         The price quoted includes the cost of goods handling and loading charges upto the ships. All other expenses are borne by the buyer.
      4. Landed
         The price quoted include all expenses upto the port of destination as well as offloading costs.
      5. In bond
         The price quoted includes all expenses of handling goods from the
         manufacturer's premises until they are delivered in a bonded warehouse in the receiving country.
         (5x2=10 marks)
2.  
   1. Factors that may discourage entrepreneurship in Kenya include:
      1. Unfavourable government policy such as imposing high taxes which discourage production of certain commodities/increases the cost of production
      2. Poor entrepreneurial culture/lack of adequate role models in the society to inspire/motivate those who would be entrepreneurs
      3. Inadequate/lack of market due to low purchasing power /high level of poverty/low incomes
      4. Poor transport network making it difficult to access raw materials/market.
      5. Insecurity in some areas that discourages entrepreneurs from investing/getting raw materials accessing the markets in such areas
      6. Inadequate natural resource endowment/raw materials leading to low production.
      7. In availability/inaccessibility to appropriate technology that leads to production of quality/competitive goods.
      8. Political instability may create unconducive/harsh/unfavorable environment for entrepreneurs to invest.
      9. Unfair/unhealthy competition which makes investment very expensive/ uncompetitive from cheap/inferior imports.
      10. Limited access to capital/inadequate/finance capital which makes it difficult to start and run business.
      11. Corruption/poor governance which increases the cost of doing business
      12. Poor education/training leading to lack of skills to start/run business
      13. Unfavorable/negative cultural practices leading to poor/negative consumption/practices/ choices/ discouraging starting/ running business
      14. Bureaucracy red tape/legal constraints making it complex expensive/difficult to start/run business.  (Any 5 x 2=10 marks)
   2. Demerits of indirect taxes includes:
      1. Uneconomical/expensive in collection as it is collected from various points/the government is forced to employ many inspectors to enforce the collection.
      2. There is uncertainty in revenue collection/revenue is collected only when goods/services are purchased.
      3. May lead to a reduction in demand since it increases the prices of the commodities/fuels inflation as it directly increases the prices of goods and services thereby erodes consumer's purchasing power.
      4. Lack of civic awareness which makes tax payer not take active interest in government expenditure since the tax amount is hidden in the price of the goods
      5. Encourages tax evasion/easy to evade as traders falsify records to avoid payment of the tax/to declare less tax collected.
      6. Low savings/investment as consumers spends more of their income on consumption.
      7. Less equitable/regressive/unfair as the burden falls heavily on the poor who spend a larger proportion of their income on consumption.
      8. May lead to misallocation of resources as people buy more of the goods that are not taxed
      9. Can be avoided by people not buying the taxed goods/services.    (Any 5 x 2=10 marks)
3.  
   1. Errors that may not be detected in a trial balance;
      1. Errors of omission
         Occur when a transaction took place but not recorded at all.
      2. Error of original entry
         Occurs when both the debit and credit entries are made using similar but erroneous figures recorded in the ledger.
      3. Error of principle
         Entries are made correctly but in the wrong class of accounts.
      4. Error of commission
         Entries are made in the wrong accounts of the same class with the correct amounts.
      5. Compensating errors
         Occurs where the errors in both the debit and credit balances are of equal magnitude so they cancel out occurs where the effect cancels out
      6. Error of transposition
         Occur when the sequence of figures are interchanged.
      7. Complete reversal of entries
         Occur where the entries are entered on the wrong sides of the relevant accounts.     (Any 5 x 2 = 10 marks)
   2. Documents prepared by a seller after receiving an order upto the point of delivery includes:
      1. Acknowledgement Note
         To inform the buyer that the order has been received and appropriate action is being taken.
      2. Packing Note/packing sheet/packing list/slip/dispatch note/packaging note The document shows the details of goods packed
      3. Advice Note
         Sent to inform the buyer when the goods are dispatched
      4. Delivery Note
         Details of goods to be delivered for verification purposes
      5. Consignment Note/flight note/airway bill
         A document showing terms of carriage/used when means of transport is hired.
      6. Proforma Invoice
         Polite request for payment before the goods are delivered.     (Any 5 x 2 = 10 marks)
4.  
   1. Reasons that may make a firm operate on a small scale include:
      1. The firm has a small amount of capital to operate with.
      2. The government policy that encourages existence of small enterprise in order to create more employment.
      3. Need to retain control as the management/ owner is in charge of all the activities of the firm.
      4. Flexibility as small firms are responsive to changing market requirements that large firms may lack.
      5. Type/nature of product where the business offers personal service/ requires personal touch which can only be best provided by an individual/ a small firm.
      6. Existence of a special market served by offering specialized services appropriately handled by small scale firms.
      7. Ease of management as small scale firms have few departments/ workers/ scales of operation/ few crisis to manage.
      8. Quick decision making due to few levels nof managerial/ hoerarchy consultation.
      9. Legal constraints which may hinder the firm to expand/ legal requirements which may be difficult to fulfil to enable the firm to expand.
      10. Decision of the owener to operate on small scale out of his/her own choice.   (Any 5 x 2 = 10 marks)
   2.  
      1.                                               USHIRIKA TRADERS
                                                      Profit and Loss Account
         Dr                             For the period ended 31^st December 2020                         Cr
         Carriage Outwards           8,000                                   Gross Profit                     94,000
         Commission Allowed        4,000                                   Commission Received    32,000
         Discount Allowed            12,000                                   Discoint Received           29,000
         Insurance                        17,000
         Salaries                           22,000
         General Expenses           15,000
         Net Profit c/d                    77,000
                                                155,000                                                                          155,000
         (Any 12 x ½ = 6 marks)
      2. Working Capital = Current Asset − Current Liabilities
                                   = 192,000 − 162,000
                                   = 30,000
         (Any 4 x ¼ = 1 mark)
      3. Return on Capiatl employed =         net profit          x 100%
                                                           Capital/Employed
         Capital Employed = Total Asset − Current Liabilities
                                      = 1,302,000 − 162,000
                                      =1,140,000
         OR
         C.E = W.C + Final Asset
                = 30,000 + 1,110,000
                = 1,140,000
         CE = Capital owned + LTL
               = 530,000 + 610,000
               = 1,140,000
         R.O.C.E =  77,000    x 100%
                          140,000
                       = 6.754%
         (Any 6 x ½ = 3 marks)
5. 1. Reasons that make it necessary for the government to train business people in- clude:
      1. To improve their skills by exposing them to basic management techniques. 
      2. To expose/educate them on modern/current trend of business operations like effective methods of advertising, keeping books of accounts, stock-taking etc.
      3. To expose business people to possible solution /possible problems affecting them like raising capital, identify investment opportunities etc.
      4. To impart proper business ethics so as to avoid consumer exploitation/ensure fair competition
      5. To educate them on efficient use of the available resources so as to minimize cost and maximize profit.
      6. To inform them on various available profitable business opportunities/market/gaps to be exploited.
      7. To sensitize business people on government initiatives that are beneficial to them like SME Loans.
      8. To educate them about government policies regarding business activities.    (Any 5 x 2 = 10 marks)
   2. Problems the Kenyan Government may experience when implementing the vision 2030 includes:
      1. Inadequate/limited resources like skilled personnel/human resource to interpret/ translate plans into reality/effectively implement the plans.
      2. Over reliance on foreign Aid/donor funding whose remittance is uncertain thus the plan may fail to take off/ be completed.
      3. Failure by the local people to support the plan because they were not involved during the formulation of the plan.
      4. Outbreak of natural calamities may lead to diversion of funds meant to finance the plan.
      5. Some unrealistic aspects of the plan/over ambitious plan that are difficult to implement.
      6. Inflation which makes the cost of implementation to rise/increase beyond the allocated funds.
      7. Lack of political will if there is no political commitment to start/complete projects, it remains on paper.
      8. Non observance of sequence/timeliness of implementing the plan/the logical order is not followed leading to incomplete/stalling of projects/white elephants
      9. Imported models/plans that are inappropriate for local situations/needs.
      10. Corruption/poor governance that leads to loss/misuse of funds
      11. Political instability that derails/delays implementation/destroys projects
      12. Insecurity that may either delay/derail implementation plans
      13. Inadequate/limited finance/capital to effectively fund/pay for the plan.
      14. Lack/inaccessibility of appropriate technology to implement/actualize projects
      15. Poor/lack of coordination/cooperation among implementing parties/agencies. (Any 5 x 2=10 marks)
6.  
   1. Advantages of written communication includes:
      1. It is a permanent record that can be used for future refernce.
      2. Suitable for official communication/ formal communication where information has to be passed through prescribed channels or procedure.
      3. Secure the confidentially of communication as it is accessed by the intended receiver only/can be used to pass secret information.
      4. It is more authentic/ accurate since it retains its original content/ it is not easily distorted/ misreported.
      5. Allows for inclusion of detailed information as different forms can be used to reinforce/ illustrate facts such as charts, photographs.
      6. It may be economical since forms of written communication are relatively cheap when used for mass communication e.g use of e-mail.
      7. Can be addressed to many people as the original document can be reproduced into many copies.
      8. Can be used as evidence to settle disputed in a court of law to support facts/ solve differences.  )Any 5 x 2 = 10 marks)
   2.                              Patel Traders Two Column Cash Book for the month of Feb 2020
      Dr                                                                                                                                                                Cr
      

      DATE	DETAILS	F	CASH	BANK	DATE	DETAILS	F	CASH	BANK
      Feb 1st	Balance b/d		1,200		Feb 1st	Balance b/d			1,000
      Feb 3rd	Daisy			14,000	Feb 2nd	Water		200
      Feb 5th	Sales		7,000		"	Electricity		100
      Feb 9th	Dividend			10,000	"	Wages		400
      Feb 13th	Petro			10,000	Feb 7th	Purchases			5,000
      Feb 15th	Cash	C1		1,000	Feb 10th	Drawings			2,000
      					Feb 15th	Bank	C1	1,000
      					Feb 17th	Manu			1,000
      					Feb 27th	Furniture			24,000
      					29/2/2020	Bal c/d		6,500	2,000
      			8,200	35,000				8,200	35,000
      Feb 29th	Bal b/d		6,500	2,000