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BUSINESS STUDIES
PAPER 2
TIME: 2 HOURS

CEKENAS END OF TERM TWO - 2024

FORM FOUR EXAM
Kenya Certificate of Secondary Education (K.C.S.E)

MARKING SCHEME
1. a) Explain five circumstances that may lead to the existence of a business
opportunity to be exploited by the entrepreneur (10mks)
i. When there is lack/ absence of some products/services: Customers may need some
products/ services which are not easily found in their area.
ii. When there are Exorbitant/unfair/Higher prices of goods/services: Existing market prices
may be unnecessarily high hence offering them at relatively lower prices would create an
opportunity.
iii. In case of excess demand/insufficient/inadequate quantities of products/ services: When
the quantities of goods available in the market are not sufficient, an opportunity to supply
more exist
iv. When low/inferior/standard/poor quality products: when customers expect better quality
products, this presents an opportunity to offer them
v. In case of sub-standard services/poor service provision: An opportunity will exist where
better services are offered in the distribution of goods
vi. If un-met sociocultural needs/conditions: Goods and services should target the society’s
existing attitudes, practices and beliefs which existing products may not be addressing
vii. In case of innovation: Discovery of new technology which may lead to reduces costs of
production and general efficiency presents an opportunity
(The circumstance must be brought out either in the mention or in the explanation
using the terms in case of / where / when / if)
Any 5 x 2 = 10mks

b) Explain five reasons why an effective filing system is important in a business

(10mks)
i. Enhanced tidiness, since documents are arranged neatly/ presentable manner
ii. Easy retrieval/ accessibility to information since documents are coded and serialized
iii. Enhanced safety of information since documents are protected from damage by bad
weather, fire etc
iv. Saves on storage space since documents are kept in a compact manner
v. Encourages transparency and accountability since the movement of documents can be
monitored
vi. Safeguards secret and confidential information as documents are kept away from
unauthorized access
vii. Enhanced security as document saved on electronic filing systems require passwords and
authorized keys to access
viii. Information is preserved for future reference since it facilitates safekeeping of documents
ix. Encourages prompt decision making as information is readily available.
(Any 5x2= 10mks)
2. a) Explain five differences between chain stores and departmental stores
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 (10mks)
Chain stores Departmental stores
i )Have many branches in different towns i) Have different departments within the same
building
ii) Purchase are centralized ii) Purchases are made per department

iii) Have standardized prices in all branches iii) Every department sets its own prices

iv) Has uniform outward appearance and interior iv) Each department is different from the other
layout in all branches in terms of outward appearance and interior
layout
v) Management of the stores is centralized v) Each department has its own management

vi) Slow moving goods in one branch can be vi) Slow moving goods in one department
moved to another where demand for them is cannot be moved to another department
higher
vii) Goods paid for in a department can be only
vii) A customer can pay for goods in one branch collected from that department
and collect than from another branch

viii) Sell similar goods and services in all viii) Sell different goods and services in
shops/branches different shops/ branches

ix) Sale are decentralized ix) Sale are centralized

x) Usually located in town centres x) Usually located in outskirts areas

(Any 5 x2 = 10mks, No splitting of marks)

b) Explain five elements of effective communication (10mks)
i. Sender : this is the source of the message
ii. Message: this is the information to be communicated
iii. Chanel/ medium: this is channel/ medium to be used to convey message
iv. Receiver/ recipient: the party/ person to whom the message intended
v. Feedback: this is the receivers reaction / response to the message
vi. Encoding: this is the process of generating the message
vii. Decoding: this is the process of interpreting the message
viii. Clarity: the message should be clear/ not vague/ not ambiguous
ix. Precision: should avoid unnecessary details
x. Preparedness: the sender should carefully plan/ think through the message before
sending
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 xi. Accuracy: the message should be factual/ error free
xii. Timeliness: message should be presented at the right time
xiii. Completeness: the message should contain all the relevant facts/details/ should be
comprehensive
Any 5 x2=10mks
3. a) The following information was extracted from the books of Queenter
Traders as at 31st Dec 2023
Kshs
Sales x
Purchases 500,000
Return inwards 90,000
Return outwards 26,000
Creditors 150,000
Rent 60,000
Delivery van 160,000
Carriage outwards 3,000
Debtors 120,000
Carriage inwards 40,000
Bank 60,000
ST
Stock (1 Jan 2023) 100,000
Interest expenses 10,000
Bad debts 7,000
Stock (31st Dec 2023) 188,000
Bank overdraft 4,000
Discount received 4,000
Capital 170,000

Additional information:
Gross profit margin is started at 40%

Required :
i) Prepare a trading, profit and loss account for the year ended 31st Dec,2023 (10mks)

Queenter Traders
Trading, profit and loss account 
For the period ended 31st Dec 2023
Opening stock 100,000  Sales 800,000
Add purchases 500,000  Less return inwards 90,000 
Add carriage in 40,000  710,000
540,000
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Less return out 26,000  514,000
C.O.G A4 Sale 614,000
Less closing stock 188,000
Cost of goods sold 426,000

Gross profit c/d 284,000

710,000 710,000
Rent 60,000 Gross profit b/d 284,000 
Carriage outwards 30,000
Interest expenses 10,000 Discount received 4,000 
Bad debts 7,000

Net profit c/d 208,000

284,000 284,000
( 20  × ½ ) = 10 marks

ii) Compute the rate of stock turnover (4  × ½ ) = 2 marks

= Cost of sales
Average stock
= 426,000  = 2.95 ~ 3 times  (4  × ½ ) = 2 marks
144000
Average stock = 100000 + 188000
2
= 144,000
Workings:
Or
Mark up = 40 = 40 gp = gp
60 gp + cos sales

gp 40 x C.O.S gp = 40
60 gp + 426000 100

40 x 426000
60 100gp = 40 (gp + 426000)

gp = 284000 100gp – 40gp = 17,040,000

sales = c.o.s. + g.p 60gp = 17040000

284000 + 426000 gp = 284000

b) Explain four methods of determining the price of a product other than

Government interaction measures (8mks)

i.
Bargaining/haggling – terms of exchange is negotiated/argued/debated between
buyers and sellers
ii. Demand and supply/price mechanism interactions between forces of demand and
supply
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 iii. Auction – prices determined by the highest bidder
iv. Tendering – prices determined by the (lowest) bidder who meets the required
specifications
v. Retail price maintenance/recommended retail price/products fixing/price fixing
where producers/manufacturers agree on the price of commodities
vi. (Price) collusion – where different market players such as buyers/sellers conspire
to fix the price
vii. Private treaty – a sale of property at a price agreed on by the seller and buyer
without an intervening agency
(Any 4x2=8mks)
4. a) Explain five benefits a wholesaler may get if he operates his own warehouse
(10mks)
i) Offers security of goods from theft
ii) Goods can be tested and checked if they are in good condition before use/sale
iii) Goods not fully manufactured may be completed in his private warehouse e.g.
packaging and branding
iv) Allow the distributor enough time to plan for the distribution of goods
v) Allows continuous supply of goods in the market/avoid shortage
vi) Can purchase stock in bulk and hence accrue the economies of sale
vii) Enables the wholesaler to pile up/gather stock in anticipation of high seasonal
demand
viii) Offers safety of goods from damage / loss

b) Outline five demerits of direct taxes (10mks)

i) Burden of paying tax s borne directly by tax payers money thus no room to share
the burden
ii) May easily be evaded as taxpayers may come up with ways of
concealing/cheating/falsifying their incomes
iii) Not an adequate source of revenue as most of people in least developed countries
are low income earners
iv) Reduce ability to save as it reduces disposable income
v) Reduces ability to invest due to reduced profits
vi) It is paid in lump sum/at once leading to taxpayer feeling the pinch
vii) It is complex/complicated due to numerous accounting formalities to be followed
viii) It is compulsory for those whose income is within tax bracket leaving them with no
choice
ix) May cause labour unrest/strike as workers clamour for higher pay when direct
taxes increases
5. a) Discuss five causes of unfavourable balance of payment for developing
countries (4mks)
i) Reliance on primary/raw products for export; most countries mainly export
primary or agricultural products and fetch low prices in the international market
and lower their export receipts
ii) Heavy importation of finished goods/manufactured goods whose value are high
hence spending more on them
iii) Low levels of technology on production that compromises the quality of their
exports hence lowering their value
iv) Too much reliance on foreign borrowing/foreign aid and yet such loans may be
repaid with very high interest
v) Susceptibility to natural calamities. Developing countries are affected by natural
disasters that adversely affect their production
vi) Preference towards foreign goods/imports believing that they are of better quality
hence ending in spending more on them

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 vii) Unfavourable world economic order developing countries have little say in
international forums and hence cannot influence economic orders in their favour
thus earning less on export and spending more in imports
viii) Inability to attract foreign investment leading to low capital inflows
ix) Decrease in demand for exports hence lowering the countries earnings
x) Low production of exports goods leading to lower export earnings
xi) Devaluation/depreciation of foreign currencies which encourage less export
earnings
xii) Appreciation/revaluation of local currency which leads to lower export earnings
xiii) Political instability which may interfere or lower export earnings
xiv) Restrictive policies by other countries that lead to fewer export earnings
xv) Withdrawal of foreign aid/grants leading to capital flight/outflows
xvi) Corrupt practices leading to low export earnings
b) Describe five channels of distribution that a Kenyan manufacture would use
to ensure her goods reach consumers in another country (10mks)
i. Kenyan/local manufacturer Wholesaler (foreign) Retail Consumer Consumer (foreign)
ii. Kenyan/local manufacturer manufacturers agent in foreign country Foreign Consumer
iii. Kenyan/local manufacturer foreign import agent foreign consumer
iv. Kenyan/local manufacturer Manufacturer Representatives abroad Foreign retailer
Foreign consumer
v. Kenyan/local manufacturer Foreign consumer
vi. Kenyan/local manufacturer Foreign wholesaler Foreign retailer Foreign Consumer
vii. Kenyan/local manufacturer Retailer (foreign) Consumer (foreign)
viii. Kenyan/local manufacturer Wholesaler (foreign) Retailer (foreign) Consumer (foreign)
ix. Kenyan/local manufacturer Import agent Retailer Foreign consumer
x. Kenyan/local manufacturer Manufacturer’s Agent in the foreign country foreign consumer
xi. Kenyan/local manufacturer Foreign wholesaler Foreign consumer
xii. Kenyan/local manufacturer local export agent foreign wholesaler foreign consumer
xiii. Kenyan/local manufacturer local export agent foreign wholesaler foreign retailer
foreign consumer
xiv. Kenyan/local manufacturer local export agent foreign retailer foreign consumer
xv. Kenyan/local manufacturer local export agent foreign consumer
xvi. Kenyan/local manufacturer local export agent foreign import agent foreign wholesaler
foreign retailer foreign consumer
xvii. Kenyan/local manufacturer local export agent foreign import agent foreign consumer
xviii. Kenyan/local manufacturer local export agent foreign import agent foreign wholesaler
foreign consumer
xix. Kenyan/local manufacturer local export agent foreign import agent foreign retailer
foreign consumer
xx. Kenyan/local manufacturer local retailer foreign consumer
Any 5x2=10mks
*Emphasis on the terms local/Kenyan manufacturer as a start and foreign consumer at the end of each
channel
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*Accept only arrows as they show direction
6. a) Explain four factors that may hinder the development of a country (8mks)
i. Low Natural Resource Endowment: Inadequacy or absence of significant quantities of natural
resources such as raw materials, fertile land, favorable climate and good terrain may limit the
inputs in the production process.
ii. Insufficient/Inadequate capital: there may be a problem in activities such as exploitation of
resources, industrialization and creation of employment opportunities.
iii. Poor/ inappropriate technology: Where technology use is low or backward, productivity is also
low.
iv. Poor human resource Endowment: If there is a shortage of skilled man power it can lead to a
barrier in development as the skills to needed for exploitation of the resources are absent.
v. Unfavorable Domestic environment: The quality of social political and economic environment
determines the growth of entrepreneurships that in turn determines the rate at which resources are
utilized and capital accumulate.
vi. Low demand for goods/services/ limited market: which discourages production activities
vii. The vicious circle of poverty: Low capital translates to low productivity which implies low
income which in turn imply low savings and low level of investment leading to deficiency of
capital.
viii. Health epidemics such as HIV/AIDS: This s may apply directly due to loss of life or indirectly
when a person is sick hence unproductive to the nation hence reduced productivity
ix. Corruption and resource mismanagement: This has considerably hampered development as public
funds meant for development have sometimes been diverted to private use.
x. Lack of entrepreneurial skills: Development of entrepreneurial skill may sometimes be hindered
by government policies and resulting in low productivity
xi. Inappropriate policies: many developing countries adopt policies that fail to be in reality of the
prevailing circumstances in the economy hence discouraging production.

b) The following balances relate to Karonji stores as at 31st November 2023

Land and buildings 1,200,000
Motor vehicle 600,000
Stock 120,000
Trade debtors 50,000
During the week ending 7th Dec 2023 the following transactions took place December 2 nd
bought stock on credit 80,000
3rd – sold stock on credit 62,000
6th – received 100,000 cash from debtors
Required: Open the relevant ledger entries, balance them and extract a trial balance as at
7th December 2023 (12mks)
Land and Building A/c
1/12/23 Bal b/d 1,200,000 7/12/2023 Bal c/d 1,200,000

( 2 × ½ ) = 1 mark

Motor vehicles A/c

1/12/23 Bal b/d 600,000 7/12/2023 Bal c/d 600,000

( 2 × ½ ) = 1 mark

Stock A/c
1/12/23 Bal b/d 1,200,000 7/12/2023 Bal c/d 1,200,000

( 2 × ½ ) = 1 mark

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 Trade debtors A/c
1/12/23 Bal b/d 50,000 6/12/2023 Cash 100,000
3/12/23 Sales 62,000 7/12/23 Bal c/d 12,000

( 4 × ¼ ) = 1 mark
Cash A/c
6/12/23 Trade debtors 100,000 7/12/2023 Bal c/d 100,000

( 2 × ½ ) = 1 mark

Purchases A/c
2/12/23 Creditors 80,000 7/12/2023 Bal c/d 80,000
( 2 × ½ ) = 1 mark

Creditors A/c
7/12/23 Bal b/d 80,000 2/12/2023 Purchases 80,000

( 2 × ½ ) = 1 mark
Sales A/c
7/12/23 Bal c/d 62,000 3/12/2023 debtors 62,000

( 2 × ½ ) = 1 mark
Capital A/c
7/12/23 Bal c/d 1,970,000 1/12/2023 bal b/d 1,970,000
( 2 × ½ ) = 1 mark

KARONJI STORES
TRIAL BALANCE
AS AT 7TH DECEMBER 2023
Details Dr Cr
Land and buildings 1,200,000
Motor vehicles 600,000
Stock 120,000
Trade debtors 12,000
Cash 100,000
Purchases 80,000
Creditors 80000
Sales 62000
Capital 1,970,000

2,112,000 2,112,000

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