- This paper consists of 6 questions.
- Answer any five questions
- All questions carry equal marks
- Non –programmable silent electronic calculator may be used.
- Candidates should check the question paper to ascertain that all pages are printed as indicated and that no questions are missing.
- Candidates must answer the questions in English.
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- Explain five sources of business ideas. (10 marks)
- Outline five circumstances under which a high population growth may be desirable to a country. (10 marks)
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- Highlight five benefits that are likely to accrue to a firm due to its own expansion. (10 marks)
- Explain five documents required for the formation of a limited liability company. (10 marks)
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- Explain five insurance policies that an investor will find useful for the operation of a supermarket. (10 marks)
- Explain five ways in which division of labour enhances performance of a business. (10 marks)
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- Explain five characteristics of land as a factor of production. (10 marks)
- Highlight five factors to consider when choosing a distribution channel. (10 marks)
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- Explain five factors that determine amount of money held for precautionary motive. (10 marks)
- The following information relates to Chenka Enterprises for the period ended 30th April 2018.
Gross profit 800,000
Buildings 1,600,000
Debtors 200,000
5 year loan 1,000,000
Creditors 400,000
Stock 650,000
Bank 250,000
Cash 100,000
Discount received 10,000
Carriage outwards 150,000
Electricity 50,000
Interest on loan 40,000
Rent income 20,000
Commission received 10,000
Required:- Prepare a profit and loss account for the period ended 30th April 2018. (5 marks)
- Calculate return on capital employed. (3 marks)
- Determine capital owned. (2 marks)
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- Highlight five problems associated with road transport in Kenya. (10 marks)
- On 1st September 2020, Sefa traders had Shs. 55,000 in hand and Shs. 250,000 at bank. During the month the following transactions took place:
September 2 Cash sales directly banked sh 35,260.
3 Bought stationery in cash sh 4,500.
7 Paid Lucy, a creditor sh 94,000 by cheque in full settlement of his account after deducting 6% cash discount.
15 Paid electricity Sh 34,000 in cash.
20 Withdrew sh 50,000 from bank for office use.
25 Lupita, a debtor paid her account of sh 75,000 by cheque less 10% cash discount.
28 Deposited all the cash into bank leaving no balance.
Required: Prepare a three column cash book and balance it off. (10 marks)
MARKING SCHEME
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- Explain five sources of business ideas. (10 marks)
- Attending trade fairs/shows/exhibitions exposes people to activities/products that can generate a new production idea.
- (Accessing information through) print/electronic media (such as reading news paper/magazines/journals/radio/television) on unmet needs/available opportunities to be exploited in the market.
- Spotting/identifying a market gap/niche e.g. on unsatisfied consumer needs/complaints, (which can generate idea of satisfying the need)
- Exploiting/commercializing one’s hobbies by developing them into a business enterprise.
- Recycling/using waste products (such as scrap metals) in order to generate a useful/ new/unique product.
- Exploiting personal skills/knowledge/vocational training/experience by a generating a business idea along one’s line of specialization/occupation.
- Conducting/Carrying out market research/survey on what product consumer requires most.
- Brainstorming enables sharing of ideas that gives rise to a business enterprise.
- Internet resources such as websites/face book/twitter.
(Naming 1, otherwise well explained point 2 marks) (Any 5 x 2 = 10 marks)
- Outline five circumstances under which a high population growth may be desirable to a country. (10 marks)
- When the resources available are many hence need of a large population to utilize the resources fully.
- When supply of products/goods/services is high hence need to have a large population to create/ increase market/demand for products.
- If there is need to create a pool of labour due to increased production activities/investments.
- If it is accompanied by technological innovation/advancement as many ideas are generated as population grows.
- Where the country is under populated hence need to achieve optimal population.
- In case there is need to promote diverse talents since number of talents are likely to be too many as population grows.
Marking notes:- Answer must start with the words: if/when/where/in case.
(Naming 1, qualification 1 mark) (Any 5 x 2 = 10mrks)
- Answer must start with the words: if/when/where/in case.
- Explain five sources of business ideas. (10 marks)
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- Highlight five benefits that are likely to accrue to a firm due to its own expansion. (10 marks)
- Financial economies - due to growth of its asset base which can be used as security to acquire a loan.
- Risk bearing economies - since the firm will be able to diversify its production activities/take insurance cover.
- Managerial/staff/organizational economies - since the firm will be able to hire /employ specialized/professional personnel.
- Technical economies - due to use of modern technology/ machinery/ specialized labour.
- Marketing economies/buying and selling economies - such as receiving discounts as a result of large scale purchase.
- Research economies - resulting to better methods of production/marketing.
- (Staff) welfare economies - such as providing recreation facilities/ housing/ education/wide range of allowances to its employees.
- Inventory economies - since the firm will be able to establish warehouses to stock raw materials.
- Transportation economies - since transport cost will be lowered by large volume of raw materials transported at once.
(Naming 1, otherwise well explained point 2 marks) (Any 5 x 2 = 10 marks)
- Explain five documents required for the formation of a limited liability company. (10 marks)
- Memorandum of association - which defines relationship between company and outsiders.
- Articles of association - which gives rule/regulations to govern internal operation of the business.
- A list of directors - giving their names/occupations/qualification/contacts.
- A declaration statement - stating that registration requirements as laid down in law have been met/necessary registration requirements have been complied with fully.
- A statement signed by directors - stating they have agreed to act as directors.
- Certificate of incorporation/registration - issued by the registrar of companies to certify the registration of the company.
- Prospectus. - Issued by public limited companies to describe how capital is to be raised.
- Certificate of trading/trading license - which is issued to authorize the company to start operations.
(Naming 1, otherwise well explained point 2 marks) (Any 5 x 2 = 10 marks)
- Highlight five benefits that are likely to accrue to a firm due to its own expansion. (10 marks)
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- Explain five insurance policies that an investor will find useful for the operation of a supermarket. (10 marks)
- Workmen's compensation cover: It will cover employees who may suffer injuries while on official duty.
- Cash/goods in transit cover: It will provide cover for loss of cash/ goods while being transported.
- Theft and Burglary cover: which covers losses arising from activities of robbers/ thieves.
- Public liability: that covers losses/injuries/damages caused accidentally by a business/ its employees to the members of public.
- Fidelity guarantee policy: which will provide cover against activities of his/her dishonest employees.
- Consequential Loss Policy: which will cover the Supermarket due to loss of profit caused by interruption of business activities/as a result of fire
- Sprinkler Leakage Policy: which will provide cover against loss/damage caused to goods/ premises by accidental leakages from fire fighting sprinklers.
- Fire and Related Perils Policy /Material Damage Policy: which will cover the building and its contents.
(Naming 1, otherwise well explained point 2 marks) (Any 5 x 2 = 10 marks)
- Explain five ways in which division of labour enhances performance of a business. (10 marks)
- Saves time - since there is less movement/as one concentrates in one activity.
- Promotes creativity/innovation - as one does one activity repeatedly (thus devising new methods of production).
- Makes it possible to use machinery - since production is in stages hence a machine for each stage can be made.
- Goods/services are of high quality - since one works in a area/ stage he/she is best at.
- Increases the rate of output/quantity - due use of machinery (which increases the rate of production).
- Promotes easy supervision - since a manager /administrator will be in charge of monitoring only one stage/ few stages.
- Improves the skills of the worker - thus one spends less mental/physical energy in a task.
- Makes production less tiresome - due to workers being used to one routine job/ making them use less energy.
(Naming 1, otherwise well explained point 2 marks) (Any 5 x 2 = 10 marks)
- Explain five insurance policies that an investor will find useful for the operation of a supermarket. (10 marks)
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- Explain five characteristics of land as a factor of production. (10 marks)
- Supply of land is fixed - thus one cannot increase/decrease the supply of land.
- Productivity of land can be varied/ improved - by use of fertilizer/adding manure.
- Land is not equally productive e.g. land in arid areas is not as productive as land in places with good climatic condition.
- It is geographically immobile - hence cannot be moved from one place to another.
- It is occupationally mobile - since can be put into different uses
- It is a natural resource - since man plays no part in its creation.
- Land is basic factor of production - since one cannot carry out production process without use of land.
- It is subject to law of diminishing returns - Productivity increases at a decreasing rate.
(Naming 1, otherwise well explained point 2 marks) (Any 5 x 2 = 10 marks)
- Highlight five factors to consider when choosing a distribution channel. (10 marks)
- The (geographical) spread of customers. If the customers are spread over a wide area, then a longer channel would be preferable / use of intermediaries / middlemen.
- Nature of the products. If the products are not easily spoilt/ durable, long channel can be used in their distribution.
- Level of competition. Shorter channels should be used if competition is so stiff.
- Government policy. Firms must adhere to government regulation on the distribution of its products.
- Marketing risks. Where marketing risks are higher, more middlemen should be involved to spread such risks.
- Availability of intermediaries, only use intermediaries which are available.
- Pricing. Shorter channels will be preferred where the prices are to be kept low by avoiding the intermediaries.
- Cost of channel. Should choose / use channel that is affordable / cheap.
- Volume / quantity of output; if large use a long channel.
- Profitability. Use a short channel to maximize / get higher profits.
- Resources / size of the firm. If the firm has limited resources / small in size, then a longer channel is ideal
- Size of market. Where it is small use direct / short channel.
(Naming 1, otherwise well explained point 2 marks) (Any 5 x 2 = 10 marks)
- Explain five characteristics of land as a factor of production. (10 marks)
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- Explain five factors that determine amount of money held for precautionary motive. (10 marks)
- Level/size of income; the higher the income the higher the amount of money held (for precautionary motive).
- Family status; high class families tend to hold more money (for precautionary motive) than low class families.
- Age of the individual; the aged tend to hold more money (for precautionary motive) than the young (since they have more uncertainties than the young).
- Number of dependant; the more the dependants one has, the more the money they are likely to hold (for precautionary motive).
- Individual’s temperament; pessimists tend to hold more money than the optimists (because they normally think things will go wrong).
- Duration/interval between incomes; those who earn money after a short time are likely to keep less money (than those who earn money after a long time).
(Naming 1, otherwise well explained point 2 marks) (Any 5 x 2 = 10 marks)
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Chenka Enterprises
Profit & loss account
For the period ended 30th April 2018✔
Carriage outwards 150,000✔Interest on loan 40,000✔Electricity 50,000✔Net profit c/d 600,000✔✔840,000
Gross profit b/d 800,000✔Rent income 20,000✔Discount received 10,000✔Commission received 10,000✔840,000Net profit b/d 600,000 - Capital employed = Total Assets – Current liabilities
= 2,800,000✔ – 400,000✔
= 2,400,000✔
Return on capital employed = Net profit ×100%
Capital employed
= 600,000 ×100%✔✔
2,400,000
= 25%✔ (6 x ½ = 3 marks)
N/B; Return on capital employed must be expressed in % form. - Capital owned = Assets – Liabilities
= 2,800,000✔ – 1,400,000✔
= 1,400,000✔✔
(4 x ½ = 2 marks)
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- Explain five factors that determine amount of money held for precautionary motive. (10 marks)
-
- Highlight five problems associated with road transport in Kenya. (10 marks)
- Heavy traffic jams/ congestion - especially in urban areas making road transport inefficient/causing delays.
- The poor state of Kenyan roads - leads to frequent breakdown of vehicles/makes maintenance of vehicles expensive/ reduces speed of vehicles.
- High rate of accidents - which leads to loss of life/property.
- Poor construction of roads - leading to their damage/wearing out very fast.
- Over loading of vehicles - leading to destruction of roads.
- Poor enforcement/corruption - of the traffic act allows unroadworthy vehicles to be used on roads (resulting to frequent accidents).
- Use of impolite language by drivers/touts - especially in matatu sector making road transport unattractive to users.
- Most of the Kenyan roads are seasonal/ not tarmacked - hence many areas are not accessible during rainy season.
- High cost of fuel - making road transport expensive.
(Non-split, award zero or 2 marks) (Any 5 x 2 = 10 marks)
Sefa traders
Three column cashbook
Dr For the month of Sept 2020✔ Cr
Date Details LF
DiscallowedCash Bank Date Details LF DiscreceivedCash Bank 01/09/20 Bal b/d✔ 55,000✔ 250,000✔ 03/09/20 Stationary✔ 4,500✔ 02/09/20 Sales✔ 35,260✔ 07/09/20 Lucy✔ 6,000✔ 94,000✔ 20/09/20 Bank(C1)✔ 50,000✔ 15/09/20 Electricity✔ 34,000✔ 25/09/20 Lupita✔ 7,500✔ 67,500✔ 20/09/20 Cash(C1)✔ 50,000✔ 28/09/20 Cash(C2)✔ 66,500✔ 28/09/20 Bank(C2)✔ 66,500✔ 28/09/20 Bal c/d✔ 275,260✔ 28/09/20 Bal b/d 7,500 105,000✔ 419,260✔ 6,000 105,000✔ 419,260✔ 275,260✔
(30 ticks x 1/3 = 10 marks)
Marking notes- For wrong format, award zero mark.
- Mark even where there is no folio column.
- To award marks for totals- all entries in that column must be correct.
- Omissions of dates completely, subtract a maximum of 2 marks (1 mark either side).
- Where columns have not been labelled, don’t mark entries in those columns.
- Highlight five problems associated with road transport in Kenya. (10 marks)
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