NAME……………………………………………………………ADM…………..CLASS…….
CLASS LIST NO………….
MECS CLUSTER EXAMINATION
565/1
BUSINESS PAPER 1
JULY 2025
MARKING SCHEME
1. State four functions of an entrepreneur in production. (4 marks)
Organizes the factors of production
Provides factors of production
Make decisions
Pays for the use of factors of production eg wages
Takes the risks
Identifies business opportunities and starts a business.
2. State four advantages of indirect taxes. (4 marks
They can be used selectively
Payment of taxes is voluntary
Difficult to evade
Stimulate people's effort to work hard and earn more to be able to buy goods and
services whose prices have risen.
Can be broad-based to raise more revenue
Convenient since it is paid when buying taxed goods
Elasticity can be increased to raise more revenue.
3. List four differences between a public limited company and a partnership form of
business. (4 marks)
Public Ltd Co Partnership
Members have limited liabilities General partners have unlimited liabilities
Minimum membership of 7 people Minimum of 2 persons
No maximum membership Maximum 20 for trading partnership and 50
for professional partnership
Sale of shares is the main source of capital Contribution from partners is the main
source of capital
Managed by a board of directors Managed by the active partners
Has perpetual existence Has a limited life
Separate legal entity No separate legal existence from the general
partners
4. State the effects of the following transactions given in the table below on the balance
sheet totals. (Use increase, decrease or no effect) (4 marks)
Transaction Effects on balance sheet totals
I. converted a personal vehicle into a business Increase
asset.
II. Paid outstanding rent expense in cash Decrease
III. Deposited cash from the cash till to the No effect
business bank account
IV. Bought office furniture on credit Increase
5. Highlight four characteristics of a valid insurable risk. (4 marks)
Risk must be under control of insured.
There must be a large number of similar cases subjected to the same risk
The insured risk must not affect all the insured at the same time.
The possible loss must be significant
The value of the object of insurance must be reliably measured in money in
case of property insurance
The risk must be pure
The risk insured must not violate /be against the laws of the country.
6. From the following transactions, indicate the account to debit and the account to
credit (4 marks)
Transaction Debit Credit
(i) Sold goods on credit Debtors a/c Sales a/c
(ii) Returned some faulty goods to the Creditors a/c Returns outwards
supplier a/c
(iii) Took a loan from KCB Bank which Bank a/c KCB Loan a/c
was deposited into business bank
account
(iv) Took part of the stock for family use Drawings/capital a/c Purchases a/c
7. In the space provided in the table below, indicate the documents to which each of the
statements relates. (4 marks)
Statement Document
I. Request by the seller for payment in advance Pro-forma invoice
II. Used to correct an undercharge in the invoice Debit note
III. Informs the buyer when the goods were dispatched Advice note
IV. Shows transactions between the buyer and the seller Statement of account
for a given period
8. Outline four circumstances under which a manufacturer may use a longer
channel in distributing products to the market (4 marks)
When the market is far/ widely spread
When the volume of production is large
When middlemen are involved in preparing goods for sale eg. By
branding/Packaging, etc
When it is the government policy to use a longer channel
When competitors are using a longer channel
When there is need to free up business resources
When there is need to reduce market risks eg. Fall in demand due to change in
fashion
9. Highlight four components of business studies. (4 marks)
Economics
Accounting
Commerce
Office practice
Entrepreneurship
10. State four circumstances under which a manufacturer may prefer to build their
own warehouse. (4 marks)
When he wants to save on hiring costs.
When the goods require special handling.
When there is need for fast decision-making.
When he wants to control the warehouse operation.
When he does not want to be delayed by warehousing procedures.
11. State four differences between goods and services. (4 marks)
GOODS SERVICES
Tangible and visible Intangible and invisible
Can be stored Expires immediately
Transferable/ can change ownership Untransferable/impossible to change
ownership
Change in value over time Value remains the same for a long time
Price paid for possession Price paid for experience
12. On the spaces provided, indicate the type of journal in which each of the following
transactions would be recorded. (4marks)
TRANSACTION TYPE OF JOURNALS
i) Goods previously sold on credit were Sales/returns inwards journal
returned
ii) Office furniture sold on credit General journal
iii) Goods bought on cash Cash receipt journal
iv) Wages paid by cheque Cash payment journal
13. Give four features associated with a perfect competition market. (4 marks)
Many buyers
Many sellers
Products are similar/identical /homogeneous.
Sellers are identical/buyers are identical
No transport cost
Perfect mobility of factors of production
14. State four causes of cost push inflation. (4 marks)
Rise in wages and salaries
Increase in profit margin
Increase in taxes
Reduction in subsidies
Increase in the cost of inputs other than labour
15. State four circumstances under which the use of gestures in communication may
be appropriate. (4 marks)
When one of the parties is deaf/dumb
Where there is a lot of noise
When the recipient has to respond immediately
When there is need to maintain confidentiality
In case there is need to emphasize a point.
Where there is language barrier
Where there is need to maintain silence
When communicating to many people at once.
16. The information below was extracted from the books of account of MAC TRADERS
on 31st December 2024.
Mark up 25%
Closing stock 20,000
The rate of stock turnover is 5 times
Cost of sales 800,000
Required to calculate;
i) Gross profit (2 marks)
ii) Turn over = c.o.s +g.p (2 marks)
= 800,000 + 200,000√
= 1,000,000√
17. State four factors that may lead to an increase in the level of national income.
Abundant natural resources
Highly skilled manpower
High amount of capital invested
High levels of technology applied
Political stability.
Availability of entrepreneurship
Availability of foreign investments
Citizens' positive attitude towards work
18. State four factors considered when determining the size of a firm (4 marks)
Volume of production
Floor space covered by premises
Number of employees
Size of the market
Level of technology used
Capital invested
19. State four ways in which a country may use to reduce imports. (4 marks)
Increase customs duty
Reduce import quota.
Impose total ban/embargoes
Introduce long procedures/bottlenecks /red tape in licensing importers
Giving financial assistance to local producers
Control foreign exchange.
20. Outline four reasons why the government participate in business activities.
(4
marks)
To prevent public exploitation by private business.
To provide essential goods and services where private investors are unwilling
to invest due to low profits
To attract foreign investments by initiating major development projects.
To provide goods and services that are too sensitive to be left to private sector
for security reasons.
To earn profits and use them to benefit all citizens.
To invest in projects that require high initial capital.
To stimulate economic development by providing social services.
21. Use the table below to calculate the values of A, B, C and D. (4
marks)
ASSETS CAPITAL LIABILITIES
I. A 160,000 150,000 10,000
II. 2,000,000 700,000 B 1,300,000
III. C 1,000,000 600,000 400,000
IV. 280,000 D 240,000 40,000
22. Assuming the government sets the maximum price at Sh. 300. Highlight any
four effects of setting the price below the equilibrium price. (4
marks)
a. There might be a shortage/ excess demand
b. There may be increased demand
c. Sellers may supply less to the market
d. The government may be forced to increase the price to attract more supply.
e. Sellers may incur losses
f. Some sellers may leave the market
23. State four challenges that a country may encounter during the implementation
of an economic development plan. (4 marks)
Inavailability/delay of donor funding
Poor /lack of cooperation by the implementers
Occurrence of natural calamities/disasters
Interference from external forces
Inavailability/inadequate funds
Lack of political goodwill.
24. State any four characteristics of money. (4 marks)
Divisibility
Portability
Malleability
Acceptability
Homogeneity
Stability
Durability
25. Highlight four internal business environments that may contribute to the success
of a business. (4 mark)
Adequate /appropriate human resources
Sufficient financial resources
Adequate physical facilities
Use of modern /advanced technology in production
Effective business structure
Appropriate/good business culture.
