Business Studies Paper 2 Questions and Answers - Lainaku II Joint Mock Examination 2023

Instructions to candidates

This paper consists of 6 questions.
Answer any five questions in the spaces provided.
All questions carry equal marks
Non –programmable silent electronic calculator may be used.
Candidates must answer the questions in English.

1. Highlight five ways in which micro environment can lead to success of a business. (10 marks)
2. Explain five advantages of locating firms to different parts of the country. (10 marks)
1. Outline five circumstance a firm may find it necessary to advertise its products. (10 marks)
2. Explain five areas in which government expenditure can be channelled to stabilize the economy of a country. (10 marks)
1. Explain five ways in which consumers may benefit from warehousing. (10 marks)
2. Highlight five reasons why some African countries are reluctant in implementing free trade agreement. (10 marks)

Explain five benefits that a firm may enjoy by preparing a business plan.(10 marks)

The following balances were extracted from the books of Tango Traders on 31st December 2020.

Item	Shs.
Building	208,000
Bank overdraft	125,000
Debtors	43,000
Creditors	118,000
Motor vehicle	660,000
Closing stock	80,000
Lighting	10,000
Discount allowed	10,800
Rent income	40, 800
Repairs on buildings	4,600
Interest on loans	8,900
Capital	711, 500

Additional information
Gross profit margin is stated at 20%.
Cost of goods sold Sh. 120, 000.
Prepare:

Profit & loss account for the year ended 31st December 2020. (5 marks)
Balance sheet as at 31st December 2020. (5 marks)

1. Explain five features of oligopoly market structure. (10 marks)
2. Explain five problems faced by public corporations in Kenya. (10 marks)
1. Explain five types of small scale retail shops with a fixed premise. (10 marks)
2. Use the following transactions to prepare Tikoi Traders Two Column Cash Book for the month of June 2022. (10 marks)
  1^st June: Had Sh. 10, 500 in cash and Sh. 6, 500 at the bank.
  2^nd June: Received a cheque of Sh. 50, 000 from Tosh.
  4^th June: Paid wages Sh. 2, 500 cash.
  6^th June: Sold goods worth Sh. 9, 250 cash.
  7^th June: Withdrew Sh. 5, 500 from the bank for family use.
  9^th June: Purchased goods worth Sh. 15, 800 by cheque.
  12^th June: Paid Gael, a creditor by Cheque Sh. 5, 000.
  15^th June: Brought into the business additional cash of Sh. 15, 000 from private sources.
  20^th June: Deposited Sh. 8, 500 from the office into the business bank account.
  28^th June: Used all the cash in hand to purchase equipments leaving no balance.

MARKING SCHEME

1. Highlight five ways in which micro environment can lead to success of a business. (10 marks)
  1. Proper/functional business structure through clear arrangement of functions/ ensures that roles are well defined /leading to achievement of set goals.
  2. Employment of qualified / skilled/experienced labour/personnel - who are correctly matched to their jobs enhances performance.
  3. Availability/ adequate financial resources/capital to start /run/ ensure smooth operations / expand the business.
  4. Availability/ Access to relevant physical resources - such as machinery that complements human effort/ hence ensures efficiency / saves on cost.
  5. Research/development/Innovativeness through continuous improvement of methods of production/technology boosts the quality/quantity of output.
  6. Setting good objectives that are simple/ achievable can make a business succeed.
  7. Proper management style that is open encourages participation of employees
  8. Motivated/ supportive owner leading to better returns on capital invested.
  9. Positive business culture; if culture matches the expectations/ values of staff, then productivity will be enhanced.
    (Naming 1, otherwise well explained point 2 marks) (Any 5 x 2 = 10 marks)
2. Explain five advantages of locating firms to different parts of the country. (10 marks)
  1. Creates employment to rural dwellers enabling them to earn income.
  2. Leads to development of social amenities like schools/hospital that improves welfare of people.
  3. Attracts auxiliary/support industries such as banks/insurance that benefit the industry.
  4. Leads to utilization of available local resources resulting to increased productivity.
  5. Reduces/curbs rural-urban migration thus retaining productive population in rural areas.
  6. Even/balanced regional development that opens up remote/marginalized areas resulting to fair distribution of resources.
  7. Improved standard of living since development of rural areas increases quality/variety of products.
  8. Reduced income inequality/disparity since many people will engage in production activities.
  9. Reduced social problems such as theft/prostitution that arise as a result of congestion of people in a particular area.
  10. Transfer of new technology/skills for better utilization of resources. (Naming 1, otherwise well explained point 2 marks)
    (Any 5 x 2 = 10 marks)
1. Outline five circumstances a firm may find it necessary to advertise its products. (10 marks)
  1. When there is need to create awareness about existence of the products (resulting to increased sales).
  2. When informing its customers on new products in the market/any changes relating to the product such as changes in price/ quantity/improvement in quality.
  3. When creating brand loyalty making the customers buy that particular product all the time (and not its substitute).
  4. Where there is need to capture new markets resulting to increased sales/increased profits.
  5. If there is need to remind customers about availability of the product/retain the product’s market resulting to continued purchase of the product.
  6. In case the firm want to create a good public image by countering any dented image/negative information that may have been said concerning the product.
  7. If there is need to popularize the product thereby encouraging purchase of the product since the customers will continue using it regularly.
  8. When persuading/ convincing the customers to buy more of the products resulting to increased sales.
  9. When the firm want to reach potential customers whom salesmen are not able to reach.
    (Non-split, Zero or 2 marks) (Any 5 x 2 = 10 marks)
2. Explain five areas in which government expenditure can be channelled to stabilize the economy of a country. (10 marks)
  1. Provision of social/essential services/amenities to improve welfare of the population for effective participation in economic activities.
  2. Promoting balanced regional development by initiating economic projects in areas that are under developed/ lagging behind.
  3. Provision of security to create an enabling/conducive environment for business/economic activities to take place smoothly.
  4. Development of infrastructure/building roads to facilitate distribution/movement of products/improve efficiency in production.
  5. Provision of basic goods/services during shortages/calamities by subsidizing production cost.
  6. Providing loan/cheap capital/advancement of interest-free earning capital during harsh economic times to ensure entrepreneurs are in business.
  7. Promoting local industries by providing incentives like free/cheap land/subsidies.
  8. Creation of administrative departments for effective operation/ planning of the country’s economy.
    (Naming 1, otherwise well explained point 2 marks) (Any 5 x 2 = 10 marks)
1. Explain five ways in which consumers may benefit from warehousing. (10 marks)
  1. Ensures constant/steady supply of goods; facilitates release of goods to the market regularly (hence minimizes shortages).
  2. Stabilizes prices of goods; ensures constant supply of goods leading to stable prices.
  3. Creates time utility: ensures that consumer accesses/uses good at appropriate time.
  4. Helps improve quality of goods such as fruits/wine that mature over time (hence consumer gets quality goods).
  5. Preparation of goods for sale; consumer receives goods that have been sorted/graded/packaged/blended/branded
  6. Enables breaking of bulk where the consumer buys goods in convenient/ affordable quantities.
  7. Availing seasonally demanded goods such as umbrellas/gumboots that are only used at certain times (of the year).
  8. Availing a variety of goods enabling the consumer to have a wider choice to satisfy different wants
    (Naming 1, otherwise well explained point 2 marks) (Any 5 x 2 = 10 marks)
2. Highlight five reasons why some African countries are reluctant in implementing free trade agreement. (10 marks)
  1. To safeguard local employment that may suffer due to free entry of imports.
  2. To prevent dumping of inferior goods by developed countries that may have adverse effects on the economy.
  3. To prevent entry of harmful goods/services that may have adverse effects on people’s health.
  4. To safeguard government revenue that could be lost if there was no taxation/ custom duties.
  5. To avoid unfair competition from developed countries with superior products as it could lead to loss of market for local products.
  6. To avoid erosion of cultural values caused by negative foreign culture due to unrestricted free trade.
  7. To reduce balance of payment deficits as a result of payment for imports exceeding receipts from exports.
  8. To prevent imported inflation that may be caused by inflow of highly priced imports.
    (Naming 1, otherwise well explained point 2 marks) (Any 5 x 2 = 10 marks)

Explain five benefits that a firm may enjoy by preparing a business plan. (10 marks)
1. Proper allocation of resources/ enhances efficiency in the use of the firm’s resources by ensuring use of available resources in the best way possible.
2. Sourcing for capital/ facilitates acquisition of loans; can be used to convince financial institutions/ investors to fund the firm’s operations.
3. It’s a motivational tool since it inspires the management/employees/creates team work in accomplishing the objectives of the firm.
4. A tool for evaluation/facilitates business evaluation by determining whether the firm is achieving its goals/objectives (so that necessary adjustments can be made).
5. Act as a guide to avoid mistakes since the mistakes are identified and corrected in the plan.
6. Helps the firm to adapt to future changes since a business plan gives room to accommodate any change that might occur in future.
7. Framework for implementing a new business hence the management is able to take possible actions on strengths/weaknesses
8. Act as management/monitoring/planning/control tool for the business by structuring implementation of functions.
9. Gives the firm a competitive edge by enabling the firm to get better understanding of the market/ competitors.
  (Naming 1, otherwise well explained point 2 marks) (Any 5 x 2 = 10 marks)

Tango Traders
Profit & loss Account
For the period ended 31st Dec 2020✔

Lighting 10, 000✔
Discount allowed 10, 800✔
Repairs on buildings 4, 600✔
Interest on loans 8, 900✔
Net profit c/d 36, 500✔

Gross profit b/d 30, 000✔✔

Rent income 40, 800✔

70, 800

70, 800✔

(10 x 12 = 5 marks)

Tango Traders
Balance sheet
As at 31st December 2020✔

Fixed Asset Building 208, 000✔ Motor vehicle 660,000✔ Current Asset Stock 80,000✔ Debtors 43, 000✔	Capital 711, 500✔ Add net profit 36, 500✔ Current liability Creditors 118, 000✔ Bank overdraft 125, 000✔
991, 000	991, 000✔

(10 x 12 = 5 marks)
N/B; Award even where student have not classified balance sheet items
Penalize foreign items in the balance sheet (each 12 mark)

1. Explain five features of oligopoly market structure (10 marks)
  1. (Market) consists of few large firms that tend to have large capital outlay/control substantial share of the market/make extensive use of modern technology.
  2. Firms are highly interdependent in decision making in that one firm’s actions triggers counter reactions of other firms.
  3. Firms may engage in price wars which may lead to collapse/survival of some firms.
  4. Some firms deals in homogenous/similar/uniform products; products are close substitutes of each other/ products are similar but differentiated by colour/shapes/pricing/branding to make them heterogeneous.
  5. May lead to price rigidity/kinked demand occasioned by fear of other firm’s reactions.
  6. There may be price leadership where the dominant firm dictates the market price.
  7. Firms may engage in non-price competition/collusive oligopoly such as aggressive advertising/offering after sales services/market segmentation.
  8. There are limiting factors such as large capital investment to be a player in this market (keeping off possible entrants into the market).
    (Naming 1, otherwise well explained point 2 marks) (Any 5 x 2 = 10 marks)
2. Explain five problems faced by public corporations in Kenya. (10 marks)
  1. Political interferences as appointment of managerial staff are based on political patronage/ political considerations/ as decisions are often made for the achievement of political goal rather than profit.
  2. Poor management resulting from bureaucratic administration/ appointment not based on merit.
  3. Slow decision making since decision making may take long due to large number of people involved /many consultations.
  4. Misappropriation of funds/corruption/embezzlement of funds due to misuse of financial resources/ poor financial controls.
  5. Diseconomies of large scale operations such as high overhead costs/ high cost of providing goods/services to citizens regardless of their geographical location.
  6. Inadequate professional staff due to poor remuneration that do not retain/attract qualified staff.
  7. Continuous/ persistent loss making due to lack of profit motivation/ main aim is to provide services to citizens.
  8. Insufficient funding from government making them compete less with private sectors/ not able to finance their activities.
  9. Poor quality goods/services due to lack of competition/ some enjoy monopoly powers.
    (Naming 1, otherwise well explained point 2 marks) (Any 5 x 2 = 10 marks)

Explain five types of small scale retail shops with a fixed premise. (10 marks)
1. Single/unit shop; usually run by one person/ involves selling products in a small fixed shop.
2. Tied shop; shops that mainly sell the products of one particular manufacturer/ are owned by a specific supplier of certain goods.
3. Kiosk; simple/semi-permanent structures used in selling fast moving goods/services.
4. Market stall; these are permanent stands found in market places.
5. Canteen; shops/room found in an institution which is used for selling goods/services from different producers.
6. Mail order stores; goods are ordered through mobile phone/emails/delivery is done through post office/courier firms.
7. Exhibition shops; small room in a building hired by individuals for purposes of selling goods/services like clothes.
  (Naming 1, otherwise well explained point 2 marks) (Any 5 x 2 = 10 marks)

Tikoi Traders
Two Column Cash Book
Dr For the month of June 2022✔ Cr

Date	Details	Folio	Cash	Bank	Date	Details	Folio	Cash	Bank
01/06/22	Bal b/d✔		10,500✔	6,500✔	04/06/22	Wages✔		2,500✔
02/06/22	Tosh✔			50,000✔	07/06/22	Drawings✔			5,500✔
06/06/22	Sales✔		9,250✔		09/06/22	Purchases✔			15,800✔
15/06/22	Additional Capital✔		15,000✔		12/06/22	Gael✔			5,000✔
20/06/22	Cash(C₁)✔			8,500✔	20/06/22	Bank(C1)✔		8,500✔
					28/06/22	Equipments✔		23,750✔
					28/06/22	Bal c/d✔			38,700✔
			34,750✔	65,000✔				34,750✔	65,000✔
28/06/22	Bal b/d			38,700