Business Studies Paper 2 Questions and Answers - Achievers Joint Mock Exams 2023

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Instructions

This paper consists of six questions.
Answer any five questions
Answers should be written in the booklet provided.
All questions carry equal marks.
Candidates should answer all the questions in English.

QUESTIONS

1. Explain five benefits of division of labour to an organization. (10 mks)
2. With the aid of a diagram, explain the effect of an increase in the supply of a commodity while its demand remains constant. (10mks)
1. Explain five ways in which central bank of Kenya may control the supply of money in the country (10mks)
2. Explain five characteristics of property insurance. (10mks)
1. Highlight any five merits of direct tax. (10mks)
2. Explain the differences between a public company and a public corporation (10mks)
1. Explain five features of oligopoly. (10mks)
2. Kenya is experiencing a general increase in prices of commodities. Explain any five causes of this trend. (10mks)
1. On July 2022, Ufanisi Traders had cash in hand sh 3,500 and cash at bank shs. 140,000. The following transactions took place during the month
  July 2: Cash sales sh 42, 000 was paid direct into the bank.
  July 3: Received a cheque of sh 15000 from Kariuki in full settlement of his debt.
  July 8: Bought goods by cheque sh 26000.
  July 13; Paid Wanjiku by cheque sh 24000 after deducting 5% cash discount.
  July 17; Withdrew sh. 40,000 from bank for office use.
  July 22; Bought office furniture by cheque sh. 50,000
  July 27; Received a cheque for sh 9000 from Waweru after deducting a 5% cash discount.
  July 30; Banked all the money except sh. 7000
  Required:
  Prepare a Three-Colum cash book and balance it off. (10mks)
2. Explain five factors that would influence the choice of office layout to be adopted by a firm. (10mks)
1. The following information related to Rashid Traders for the year ended 31st May 2019. (10mks)
  
  Shs.
  Purchases 150,000
  Opening stock 40,000
  Closing stock 10,000
  Margin 40%
  Total expenses 5,000
  Capital 100,000
  
  Calculate:
  1. The mark-up (1mk)
  2. Cost of goods sold (2mks)
  3. Gross profit (2mks)
  4. Sales (2mks)
  5. Net profit (1mk)
  6. Rate of return on capital (2mks)
2. Explain five challenges facing the transport industry in Kenya today (10mks)

MARKING SCHEME

1. Benefits of division of labour to an organization
  1. Less time is spent in completing a job/ saves time/faster/quicker/speedier. There is less movement by workers. No/minimal changing from doing one work to another.
  2. Increased production/quantity/output- People become more expert/specialist at their jobs as they do it repeatedly (hence increasing productivity)
  3. Standardized goods/uniform goods- Goods produced are of uniform quality due to use of machines/work can be automated leading to lower costs of production /making work easier/efficient.
  4. Better/improved/enhanced management- This facilitates control/co-ordination/ Planning/directing/accountability/staffing/evaluation/organization/supervision.
  5. High quality goods/service produced- People concentrate in doing jobs for which they are best suited(which improve quality of output)/repeating same task/repeating same task/specialization.
  6. Increased creativity/invention/innovation- the organization may tap workers talents and skills which may help to modify existing products/develop new products/initiate new methods of production/technology/discover new markets.
  7. Improved efficiency –due to better use of resources/ improve image/reputation of the organization.
2. Effects of increase in supply on equilibrium point and quantity.
1. - Bank rates.
    This is the rate at which the central bank lends to commercial banks. It can be varied to encourage or discourage credit/ raising/ lowering bank rate
  - Open market operation
    The central; bank may sell or buy securities in the market. Selling securities reduces the money supply ( for lending)
  - Special deposits/ compulsory deposits/ minimum reserve requirements
    The central bank require other financial institutions to have a certain percentage of deposits deposited in the central bank which can be varied to encourage / discourage credits
  - Cash ratio/ liquidity ratio
    The ration of cash/ deposits may be carried to control money supply credit which can be increased to reduce money supply/ can be decreased to increase money supply.
  - Moral persuasion/ Liquid assets persuasion
    The central bank may appeal/ request/ persuade/ restrain leading/ credit rationing. The commercial banks may be required by the central bank to approve loans only for special types of projects e.g. agriculture, manufacturing e.t.c
  - Direct action/ directive/ instructions
    Central banks can use its authority to direct/instruct the financial Institutions to lend more/ less/ apply credits squeeze/ credit expansions margins requirements.
2. Characteristics of property insurance.
  1. Premium charged ids dependent on the degree of risk/number of risks/value of property- higher premium will be paid for risks of high degree/number/value and vice versa.
  2. It is a contract of indemnity –the owners of the insured property is compensated/restored for the loss of the property upon occurrence of the risk.
  3. It is a short term contract – The insurance contract ends after a specific period of time usually one year/must be renewed for the policy to continue being in force.
  4. Policy cannot be assigned to the next of kin to another individual- the owner of the policy can not transfer it in case of sale/change of ownership of property.
  5. It has no surrender value- should the insured terminate the policy before the contract expires, he/she is not entitled to any refund from the insurer.
  6. There must be an insurable interest in the property to be insured. The insured must be in a position to suffer financial loss in the event of the risk covered happening in order to claim compensation.
  7. There is a maximum limit to the amount of compensation- this can be up to the value of the insured property in case of over insurance/the sum insured in case of under insurance.
  8. The policy cannot be used as collateral/security to get loan/credit.
  9. Uncertainty of the risk as the risk may or may not occur/occurrence of the risk is not guaranteed.
  10. Premium paid is a direct expense as the insured cannot benefit from premium paid/premiums paid are not savings to the insured.
  11. Subject to the principle of subrogation- once the insured is fully compensated the salvaged property reverts to the insurer
  12. Subject to the principle of contribution – in case of loss the insurer contributes proportionally towards compensation
  13. Principle of proximate cause - for the loss to be compensated it must have a direct bearing with risk insured against it
  14. Principle of utmost good faith/uberimae fides – the insured must disclose all relevant/material fact concerning the property.
  15. Mitigation of loss – insured should take measures to reduce chances of the risk occurring.

Merits of Direct tax
1. Economical in collection
  Direct taxes are mostly collected at the source and the cost of collecting them is fairly low.
2. Tax revenue is certain
  Yields from direct tax such as income tax is fairly certain and maybe calculated accurately in advance
3. Equitable
  Direct tax ensures that there is fairness in contribution of tax. This because contributors pay according's to the size of their income
4. Does not affect the price of goods and services
  It affects consumer’s disposable income and not the price of goods and services.
5. Brings redistribution of wealth
  The wealthier members of the society are taxed more than the poorer in the case of progressive tax systems. Finance obtained from the wealthier members are used to finance services that benefits the poor.
6. Simple to understand
  Direct tax is both simple and easier to understand by both the contributors and the tax collector.
7. Desirable
  The tax is desirable as it only affects people who fall within the jurisdiction of income tax and corporation tax.
8. Flexible
  The tax is flexible in that it can be expanded to cover as many areas as desirable
9. Elastic
  The tax is elastic in that it may be raised or reduced according to the needs of the economy.

Explain the differences between a public company and a public corporation

PUBLIC COMPANY	PUBLIC CORPORATION
Formed under the companies ACT	Formed under an act of parliament
Owned by shareholders	Owned by the government or jointly with private investors
Capital provided by shareholders	Capital is provided by the government or jointly with private investors
Managed by a board of directors appointed by the shareholders	Managed by a board of directors appointed by the government
Established to sell whatever goods or services the promoters feel can legally be sold to bring profit	Basically established to offer essential goods or services at a subsidized cost
Profits are shared by the shareholders	All profits go to the government or shared jintly with other shareholders
Decisions to wind up may be made by the shareholders	Dcision to wind up may be made by parliament
Must publish accounts in the dailes	Accounts are presented to parliament
Accounts audited by private auditors	Accounts audited by the auditor general

1. 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 non-price 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 firms within 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 @ 2 = 10 marks
2. Causes of inflation
  - Increase in government expenditure
    When the government spend more money it had borrowed from central bank or printed it increases the supply of money in the economy leading to increase in aggregate demand which may led to upward pressure on the prices of goods and services.
  - Effects of credit creation
    When commercial banks lend more money than the deposit they hold they increases the supply of money which leads to consumers purchasing ability. This increases consumer’s ability to purchases more goods and services eventually leading to inflation
  - Increase in money income
    When money income increases, purchasing power will increase and this will have upward pressure on prices as the demand for goods and services increases
  - General shortages of goods and services
    If there is shortage of commodities supplied the demand will be high causing demand pull inflation because the demand pulls the prices of the commodities upwards.
  - Rise in wages and salary
    An increase in wages and salaries which will be reflected in the increased prices of commodities, which will in turn cause inflation
  - increase in taxes
    Increase in indirect taxes (e.g. VAT), can increase the cost of production which make firms to increase their prices.
  - Increase in profit margin
    Increase in profit margins by management and shareholders leading to an increase in prices. This is possible where there is no price control.
  - Increase in cost of inputs other than labor.
    Increase in cost of inputs (e.g. raw material) causes the price of finished goods to be high. These inputs can either locally available or imported.
  - Reduction in subsidies
    Reduction in subsidies also lead to an increase in cost of production which will be reflected in an increase in the price of the commodities

UFANISI TRADERS
3- COLUMN CASH BOOK
FOR THE MONTH OF JULY 2010.

DR											CR
DATE	DETAILS	F	D.A	CASH	BANK	DATE	DETAILS	F	DR	CASH	BANK
JULY 2010						JULY 2010
1	Bal b/d			3,500	140,000	8	Purchases				26,000
2.	Cash sales				42,000	13	Wanjiru		1200		22,800
3.	Kariuki				15,000
						17	Bank	C			40,000
17	Cash	C		40000
24	Waweru		450		8550
						22	Furniture				50,000
30	Cash	C			36500	30	Bank	C		36500
						30	Bal c/d			7000	103250
			450	43,500	242050				1200	43500	242050
31.	Bal b/d			7000	103250

Factors to consider when selecting office equipment’s
1. Cost
  This is the initial, maintenance and running costs of the equipment.
2. Adaptability
  This is the ability of the equipment to cope with future changes and development.
3. Possibility of hiring rather than buying
  One has to consider the cost and convenience of buying an equipment as opposed to hiring.
4. Durability
  This refers to the lifespan of equipment.
5. Effect on staff morale
  This refers to staff attitude towards the equipment.
6. Availability of complementary resources
  This refers to accessories required in order to operate the equipment for example power. One has to consider whether the spare parts of the equipment will be readily available or not.
7. Availability of manpower
  This is the personnel required to run or operate the equipment.
8. Availability of room
  One has to consider whether the room for keeping the equipment is available or not.
9. Security of the equipment
  One has to consider whether the available resources are adequate to offer enough security for the equipment or not.

1. 1. Margin = 40%
    markup = 66.7%
  2. Cost of sales = opening stock 40,000
    + purchases 150,000
    190,000
    - closing stock 10,000
  3. Gross profit = 180,000
  4. Sales = cost of sales 180000
    + Gross profit 120000
    300000
  5. Net profit = Gross profit 120000
    Less expenses 5000
    115000
  6. Rate of return on capital
2. Explain five challenges facing the transport industry in Kenya today
  - Congestion and traffic jams due to narrow roads and poor planning of roads
  - Poor and dilapidated roads i.e. roads are in state of disrepair
  - Road carnage and highway robbery have led to loss of life and property
  - Pipeline leakages and spills has led to losses, high monitoring costs and environment pollution
  - Strikes in almost all sectors e.g. matatus, airline, dock workers have led to inefficiency in the industry
  - Inadequate handling facilities at ports
  - Exorbitant landing fees and inappropriate run-ways have limited maximum utilization of Kenya airports
  - Motor vehicles emissions and matatus noisy operations cause air and noise pollution
    (any 5 x 2 = 10mks)