4.

29 BUSINESS STUDIES (565)

4.29.1 Business Studies Paper 1 (565/1)

1. Features of human wants as described are:

(a) Insatiable.
(b) Recurrent / Repetitive.
(c) Complementary.
(d) Competitive.
(4 x 1 = 4 marks)

2. Occupations that relate to the production activities are:

(a) Extraction: (i) mining.

(ii) fishing.
(iii) lumbering.
(iv) farming.
(any 2 x 1
2 = 1 mark)

(b) Construction: (i) bridge making

(ii) road construction.
(iii) ship building.
(iv) masonry.
(any 2 x 1
2 = 1 mark)

(c) Direct services: (i) hairdressing.

(ii) teaching.
(iii) health care.
(iv) entertaining.
(any 2 x 1
2 = 1 mark)

3. Tasks that may be carried out by a receptionist in an office include:

(a) Receiving visitors to the organization.

(b) Receiving and routing telephone calls.
(c) Taking and passing messages.
(d) Dealing with simple petty cash for purchase of newspapers, tea etc.
(e) Supervising messengers.
(f) Keeping simple records.
(g) Distributing publications by the organization.
(any 4 x 1 = 4 marks)

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4. Circumstances in which a cheque may be used as a means of payment include:

(a) When the amounts involved in the transaction are high.

(b) When the seller insists on payment by cheque.
(c) When evidence of payment is required.
(d) When payment is to be directed into the payee’s account.
(e) When the terms of sale is cash with order.
(f) When there is need to ensure safety of the money being transferred.
(any 4 x 1 = 4 marks)

5. Activities that may be carried out in a stock exchange market include:

(a) Buying and selling of shares.

(b) Mobilising savings for investment.
(c) Listing of companies.
(f) Issuing of new securities / raising capital.
(e) publication of statistical information.
(f) Advising investors.
(any 4 x 1 = 4 marks)

6. Features of liners in sea transport include:

(a) Ferry passengers or cargo.

(b) Follow a regular time table / schedule.
(c) Call at ports at regular intervals.
(d) Follow a regular route.
(e) Form associations / conferences to protect themselves against unfair competition.
(f) Charge fixed freightage and fare regardless of demand.
(any 4 x 1 = 4 marks)

7. Types of information that a manager may pass to the juniors include:

(a) Instructions and directions.

(b) Explain policies of the organization.
(c) Give procedures to be followed in carrying out duties.
(d) Information on performance of juniors (evaluation).
(e) Invitation to meetings.
(f) Allocation / delegation of duties.
(g) Motivating / inspiring juniors.
(h) Giving solutions to juniors’ issues.
(any 5 x 1 = 5 marks)

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8. Meaning of terms:

(a) Insured:
Is an individual or business unit that signs an insurance contract to be covered against
a risk of loss and can therefore be compensated in the event of the loss occurring.

(b) Insurance:
Is an arrangement (contract) in which the insured pays premiums to the insurer so as
to be compensated in case of loss occurring as a result of an insured risk.
(2 x 2 = 4 marks)

9. Indicating whether factors cause movement along the demand curve or a shift of the
demand curve:

(a) Shift of the demand curve.

(b) Movement along the demand curve.
(c) Shift of the demand curve.
(3 x 1 = 3 marks)

10. Roles played by the broker in the chain of distribution include:

(a) Linking the buyer and the seller.

(b) Bargaining for the principal.
(c) Passing information between the principal and the client.
(d) Facilitating access to a variety of goods and services to the buyer.
(e) Providing an avenue for the seller to access many buyers.
(f) Giving advice to buyers and sellers on market trends.
(any 4 x 1 = 4 marks)

11. Factors represented by the arrows labelled a and b are:

(a) (i) Payment for goods and services.

(ii) Factor services / inputs / factors of production.
(2 x 1 = 2 marks)
(b) (i) Payment for factor inputs.
(ii) Goods and services.
(2 x 1 = 2 marks)

(Total = 4 marks)

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12. Missing figures:

(a) CA = 155,000
(b) C = 73,600
(c) FA = 138,600
(d) L = 335,620
(4 x 1 = 4 marks)

13.
Mheshimiwa’s
Trial Balance as at 31st May 2010
Dr Cr
Details
Shs Shs
Purchases 3,880
Sales 3,350
Returns outwards 150
Returns inwards 160
D Simila (Debtor) 2,550
P Mwende (Creditor) 3,100
Wages 800
Cash 960
Capital 1,750
8,350 8,350
(10 x 1
2 = 5 marks)

14. The columns:

V is Folio
W is Discount allowed
X is Cash
Y is Bank
(4 x 1 = 4 marks)

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15. Functions of the International Bank of Reconstruction and Development include:

(a) Provision of finance to member countries to foster economic development.

(b) Issuance of loans to developing countries at concessionary rates for project
development.
(c) Provision of personnel/manpower to facilitate project appraisal.
(d) Provision of experts to implement and manage identified projects.
(e) Training of local personnel in project appraisal and implementation.
(f) Supervise member countries’ management of public finance.
(g) Aproving development plans from member countries for funding.
(h) Advising and recommending economic policies to be adopted by member countries.
(i) Promotes long term growth in international trade.
(any 4 x 1 = 4 marks)

16. Disadvantages of barter trade include:

(a) Lack of double coincidence of wants.

(b) Indivisibility of some goods.
(c) Perishability of some goods.
(d) Difficult to measure value.
(e) Problems of portability of some goods.
(f) Lack of a standard for making deferred payments.
(g) Lack of unit of accounts.
(any 4 x 1 = 4 marks)

17. Recording transactions into the general journal.

Date Particulars Folio Dr Cr

2010 Shs Shs
Oct. 10 K Likia 3,000
Stationery 3,000
(sale of stationery on credit)
Oct. 23 Motor vehicle 700,000
Onjwaria Motors 700,000
(purchase of motor vehicle on credit)
(4 x 1 = 4 marks)
18. Levels of inflation are:

(a) Hyper inflation/runaway.

(b) Galloping inflation/rapid.
(c) Stagflation.
(d) Creeping inflation/mild/moderate.
(4 x 1 = 4 marks)
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19. Characteristics of underdevelopment that are common among countries in Africa, Latin
America and Asia include:

(a) Low per capita income.

(b) High population growth rate.
(c) Poor standards of living.
(d) Low literacy levels.
(e) High levels of unemployment.
(f) Poor health care.
(g) Low life expectance.
(h) Over reliance on primary level of production/high levels of subsistence production.
(i) High dependency ratio.
(j) Poor infrastructure.
(k) Low technological levels.
(l) Large income disparities.
(m) Low levels of labour productivity.
(any 4 x 1 = 4 marks)

20. Factors in the internal environment that may influence the operations of a matatu
business include:

(a) The management/structure.

(b) Employees.
(c) Capital / finances.
(d) The owner.
(e) Marketing strategy / handling of customers.
(f) Research and development.
(g) Condition of the vehicle.
(h) Business culture.
(any 4 x 1 = 4 marks)

21. Reasons for which businesses should observe ethical practices include:

(a) To ensure fair competition.

(b) To protect consumers/customers.
(c) To protect the environment.
(d) To protect the rights of employees.
(e) To promote social responsibility.
(f) To maintain a positive image.
(g) To abide by the country’s laws.
(h) To maintain suppliers.
(i) To promote positive cultural practices.
(any 4 x 1 = 4 marks)

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22. Merits of promoting products through personal selling include:

(a) Enhances personal appeal between the buyer and the seller.
(b) Can effectively counteract customers negative attitudes towards the product.
(c) Questions and complaints from customers are channelled directly to employees of
the company and not middlemen.
(d) Demonstration on the use of the goods can easily be done.
(e) Flexibility in presentation to suit customer needs.
(f) Provide immediate feedback from and to the clients.
(g) Effective in conducting market research.
(any 4 x 1 = 4 marks)

23. Calculating Kiboko’s initial capital:

IC = CC + D - P - AI
= 7, 000, 000 + 400, 000 - 3, 100, 000 - 800, 000
= Shs 3, 500, 000
(6 x 1
2 = 3 marks)

24. Positive implications of a youthful population to an economy include:

(a) Less expenditure on social security and pension.

(b) Wider market for goods meant for the youth like clothing.
(c) Guaranteed continuous supply of labour.
(d) Flexibility and adaptability to technological changes which improve production.
(e) Faster growth of some sectors like the music, fashion and fast food industries.
(f) Increased innovation due to their adventurous nature.
(any 4 x 1 = 4 marks)

25.
PQ Ltd
Trading Account
for the year ended 31 December 2012
Shs Shs
Opening stock 57,140 Sales 23,498,000
Add: Purchases 16,290,000 Less: Returns in 27,200
GAFS 16,347,140
Less: Closing stock 86,340
COGS 16,260,800
GP c/d 7,210,000
23,470,800 23,470,800
(10 x 12 = 5 marks)

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4.28.2 Business Studies (565/2)

1. (a) Benefits that a firm may enjoy by preparing a business plan include:

(i) Sourcing for finance/capital/loans. It can be used to convince financial

institutions and investors to fund the firm’s operations.

(ii) A tool for evaluation. It can be used to determine whether the firm is achieving
its goals and objectives/ help to make necessary adjustment/changes/ for
supervision purposes.

(iii) A tool for management. It can be used for structuring the implementation of the
functions /tool for planning, organizing, directing, staffing,
coordinating budgeting/communicating.

(iv) Gives the firm a competitive edge. It enables the firm to get a better
understanding of the market and competitors.

(v) Enhances efficiency in the use of the resources of the firm. It ensures that the
resources available are allocated and used in the best way possible without
wastage.

(vi) Motivational tool. It inspires the management /employees /creates team work
in accomplishing the objectives of the firm.

(vii) Framework /blue print/guide for implementing a new business, thus assisting
management in decision/actions on the (possible) strengths, weaknesses,
opportunities and threats on a day to day basis.
(Any 5 x 2 = 10 marks)

(b) Demerits that a country may suffer when the government becomes a major
investor in business include:

(i) Discourage private investment. The move may discourage private investment
due to unfair competition and acquisition of monopoly powers/unfavourable
laws.

(ii) Poor quality goods and services. The quality of goods and services may be
compromised due to lack of competition. Government employees also lack
enthusiasm since there is no profit motive.

(iii) Limited choices for consumers. Where the government is the only provider of
good/service, consumers may be denied a variety to choose from.

(iv) Inefficiency. Leading to low/poor productivity/continuous loss.

(v) Burden to tax payers. The investments may drain public resources by
increasing government expenditure in situations where the enterprise is not
able to sustain itself (burdening tax payers).

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 (vi) Lack of accountability/transparency/corruption. Managers of government-run
businesses tend to misappropriate and embezzle public funds/ misuse public
funds.

(vii) Unstable management. Government-run businesses are prone to frequent

changes in their management occasioned by changing political leadership.

(viii) Political interference/patronage. Appointment of cronies/nepotism and

unethical practices may lead to social discontent.

(ix) Bureaucracy/red tape. Leading to rigidity/slow response to market changes.

(Any 5 x 2 = 10 marks)

2. (a) NDOVU TRADERS

THREE COLUMN CASH BOOK
Discount Cash Bank Discount Cash Bank
Date Details Date Details
Allowed (shs) (shs) Received (shs) (shs)
Jan 1st Bal b/d 30,000 75,000 Jan 2nd Purchases 15,500
Jan 5 th Chui 1,250 23,750 Jan 8 th Drawings 8,900
Jan 11th Maro 800 16,000 Jan 17th Furaha 900 29,100
Jan 15th Sales 24,250 Jan 20th Cash 15,000
Jan 20th Bank 15,000 Jan 25th Wages 21,000
Jan 22nd Koko 1,000 39,000 Jan 30th Bal c/d 27,400 106,000
3,050 93,000 130,000 900 93,000 130,000
Bal b/f 27,400 106,100

1
(36 # 3 = 12 marks)

(b) Reasons for which traders observe ethical practices in product promotion include:

(i) To avoid misleading the consumers by not making false claims about their
products.

(ii) To ensure that consumers are not offended by not making use of appeals that go
against their cultural values.

(iii) To avoid exploiting certain vulnerable groups like children since they lack
the knowledge and experience to understand and evaluate the purpose of
persuasive appeals.

(iv) To avoid negative influence on the consumers’ values and lifestyles that may
lead to immorality and ill health like glorifying the image of alcohol and
cigarettes.

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 (v) To avoid portraying rival businesses negatively in an attempt to capture the
market or gain undue advantage.

(vi) To create a positive image reputation of business hence maintaining customer

loyalty.

(vii) To abide by the laws of the country to avoid law suits/conflicts/frictions with
law enforcement agencies/government.
(Any 4 x 2 = 8 marks)

3. (a) Objectives that may be attained by establishing firms in different parts of the
country include:

(i) To reduce rural-urban migration. Setting up firms in several parts of the country
may curb the influx of people from rural to urban areas. This helps to retain the
productive population in the rural areas.

(ii) To utilize local resources/factors of production/untapped resources. Establishing

firms in various parts of the country will enhance the use of idle resources in
those areas.

(iii) To create employment opportunities. This is a sure way of creating employment

opportunities in several parts of the country which improves the standard of
living.

(iv) To provide balanced regional development. Creating firms in various parts of

the country will ensure that all parts grow/ develop at the same rate/time.

(v) To promote development of infrastructure. Setting up of firms will encourage

the growth of infrastructure like roads, power, water, railway and
communication in various parts of the country which opens up the country and
facilitates production/movement of goods/services/factors.

(vi) To promote development of social amenities / schools/ health

facilities. When firms are set up in various parts of the country, social amenities
will also be developed. This improves the social welfare of the people.

(vii) To reduce social problems hence avoiding/minimizing polution/crime/

prostitution/drug abuse/theft.

(viii) To promote urban growth hence encouraging growth of market/economy/

commercial activities.

(ix) To reduce congestion in certain areas in order to ease pressure on resources.

(x) To reduce effects of concentrated pollution which may negatively affect the
environment.

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 (xi) To minimize effects/impact of calamities/terrorism/catastrophe which may
polarize the economy.

(xii) To reduce income disparities/inequalities as people will be engaged in

production activities.
(any 5 x 2 = 10 marks)

(b) Accounting documents that are used in home trade include:

(i) Invoice. This is a document sent by the seller to a buyer demanding payment
for goods supplied. It shows details of the goods, quantity, unit price, value, any
discount given, net payment and terms of payment sold/bought on credit/a
source document for sales/purchases day bool/A Ledger.

(ii) Debit note. A document sent by the seller to the buyer to correct an
undercharge. It is issued when the invoice shows a lesser amount than what is
actually owed. It is an additional invoice/may be used when empty containers
have not been returned and have to be charged for.

(iii) Credit note. A document sent by the seller to the buyer to correct an overcharge.
It is issued when goods are returned to the seller because they are defective, not
the ones ordered or they were not required. When returning empty containers
(which had been charged for). A source document for sales returns/purchases
returns day books.

(iv) Receipt. This is a document issued by the seller to the buyer when payment is
made for goods / services. A source document for the cash book/cash payment
journal/cash receipts journal.

(v) Statement of account. This is a document sent by the seller to the buyer
showing details of transactions for the month with a running balance shown with
each entry.
(vi) Payment voucher. A document used to validate payment for service/goods
rendered. It is issued by a cashier and signed by the service provider/ payee/
recipient/a sosurce document for the petty cash book/imprest used where the
receipt is not readily available.

(vii) Remittance advice note. This is a document that accompanies a cheque issued
for settlement of a debt. It provides information on the payment.

(viii) A1E (Authority to incurr expenditure. written instructions allowing one to

spend institutional funds up to a certain amount.
(ix) Bank deposit slip - As a source document for cash book/evidence of payment
into the bank account.

(xi) Consignment note supports hire of carriage services/shows transport charges.

(Any 5 x 2 = 10 marks)
660
4. (a) Calculating:

I. Turnover = Sales - Returns inwards

= 1,155,000 - 30,000
= shs 1,125,000 (4 # 1 = 1 mark)
4
II. Rate of stock turnover (ROSTO)
Cost of goods sold
Rosto = Average stock
Cost of goods sold = opening stock + purchases + carriage inwards - Return
outwards - closing stock

430, 000 + 930, 000 + 10, 000 - 470, 000 - 20, 000
ROSTO =
^430, 000 + 470, 000h ' 2
880, 000
= 450, 000
= 1.96 times
- 2 times

(12 # 14 = 3 marks)

III.
GP
Mark up = Cost of goods sold

245, 000
=
880, 000
= 49 - 27.8%
179
a 4 # 1 = 2 marks k
2

IV.
GP
Margin = sales

245, 000
= 1, 125, 000

49
= 225 or 21.77% a 4 # 1 = 2 marks k
2

V. Net profit = Gross profit - Expenses

= 245,000 - (25,000 + 100,000 + 25,000)
= 95,000
1
(8 # 4 = 2 marks)

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 (b) Guidelines that should be followed by the government in its expenditure include:

I. Maximum social benefit/optimal benefit. Government spending should benefit

as many people as possible.

II. Flexibility. Should be elastic enough to accommodate changing circumstances.

III. Economy. Should be capable of being changed to accommodate prevailing
economic circumstances.

IV. Equity. Should aim at distributing incomes fairly.

V. Sanction. Government spending must be approved by the relevant authority to

enhance accountability.

VI. Accounting. Proper accounting records should be kept to facilitate good

financial management.

VII. Productivity. A larger proportion of the national income should be spent on

development projects.

VIII. Surplus. Expenditure should be less than the total revenue collected.

IX. Elasticity - should be capable to being expanded/contracted depending on the

size of the economy.
(Any 5 x 2 = 10 marks)

5. (a) Disadvantages that a developing country may suffer by liberalizing foreign trade
include.

(i) May lead to dumping of inferior products into the country.

(ii) May cause over exploitation of resources leading to their depletion.

(iii) May lead to loss of jobs due to closure of firms that cannot cope with
competition.

(iv) May contribute to worsening balance of payment situation as developing

countries have fewer/ lowly valued exports.

(v) Cultural values and beliefs may be eroded due to unrestricted trade.

(vi) Entry of harmful goods. Goods with harmful ingredients such as beauty creams
and drugs may find their way into the country.

(vii) Slow economic development. The country may stagnate due to over
dependence on other countries for supplies.

(viii) Brain drain. The developing country looses skilled personnel to better
developed countries who provide better pay and amenities.
(Any 5 x 2 = 10 marks)

662
 (b) Features of monopolistic competition include:

(i) Many sellers and buyers. The market is comprised of many sellers and buyers
who operate independently.

(ii) Free entry and exit into the market. There are no barriers to entry into, or exit
from the market.

(iii) Commodities sold are very close substitutes. Firms sell similar products but
which are highly differentiated by names, shapes, colour, odour and packaging.

(iv) All firms earn normal profits in the long run. Some firms may earn supernormal
profits in the short run.

(v) Firms are independent. There is little interdependence in terms of pricing and
quantities to produce.

(vi) Entry or exit of a firm does not significantly affect the market. None of the firms
can influence the market supply by joining or leaving the industry.

(vii) No single firm has control over the factors of production. All firms acquire the
factors at the prevailing market rates and conditions.

(viii) Perfect knowledge of the market. Buyers and sellers are aware of the prices,
quantities and other market factors.
(Any 5 x 2 = 10 marks)

6. (a) Sources of finance for a public limited company apart from the sale of shares
include:

(i) Borrowing from financial institutions in the form of loans, bank overdraft and
mortgage.

(ii) Trade credit. Buying goods for re-sale on credit so as to pay at a later date.

(iii) Hire purchase. Buying goods and paying for them on instalment basis.

(iv) Debentures. Borrowing from members of the public for which interest is paid at
a fixed rate and over a predetermined period of time.

(v) Sale and leaseback. Selling an asset like a building and then hiring it back for a
specified period of time.

(vi) Retained profits. Profits made are not shared out as dividends but ploughed
back into the business.

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 (vii) Discounting bills of exchange. Receiving payment from financial institutions at
a discount against bills of exchange before their maturity.

(viii) Use of reserves/ provisions. The company may make use of funds set aside for
depreciation, tax and bad debts to finance its day to day operations.
(Any 5 x 2 = 10 marks)

(b) Factors that may have caused a decline in the demand for wooden furniture
include:

(i) Decline in consumer incomes. This may reduce their purchasing power hence
less able to afford the furniture.

(ii) Fall in the price of substitutes. Furniture made from other materials like plastic
and metal may be cheaper.

(iii) Increase in the price of wooden furniture. This makes the furniture to be out of
reach for most consumers.

(iv) Government policy. The government may have increased rates on timber
products hence making the furniture more expensive.

(v) Unfavourable change in tastes and preferences. Consumers may be purchasing

more plastic and metallic furniture.

(vi) Decline in population. A decrease in population will lead to reduced numbers of

potential and actual customers.

(vii) Expectations of a future fall in price. Consumers may be anticipating a fall in

price in the future hence currently suspend buying.
(Any 5 x 2 = 10 marks)

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