JOSPA RELEASE VOLUME 1

REVISION BUSINESS STUDIES

PAPER 2

10 SAMPLE PAPERS + ANSWERS

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SAMPLE PAPER 1
BUSINESS STUDIES PAPER 2
565/2

1. a) Explain FIVE benefits a person gets as a result of taking a whole life policy with an insurance
company. 10mks
b) A commodity X has an abnormal demand curve and a normal supply curve. With an aid of a
diagram explain the effects on the equilibrium quantity and price caused by an increase in supply.
10mks
2. a) Explain FOUR circumstances when a manufacturer would prefer promoting sales of his
products using personal selling method. 8mks
b) Maendeleo Traders have the following information in their books of account on 31st December
2002.
Kshs.
Stock (01/01/2002 6,000
Sales 100,000
Return-in 2,000
Return-out 2,800
Carriage-in 1,000
Carriage-out 1,500
Purchases 88,000
Stock (31/12/2002) 4,000
Commission earned 3,500
Discount allowed 2,200
Sundry expenses 4,000
Discount received 4,400
Postage 800
Stationery 1,200
REQUIRED
(i) Prepare a trading profit and loss account for Maendeleo Traders 10mks
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 (ii) Calculate - Mark –up 1mk
(ii) - ROSTO 1mk
3. a) Explain FIVE differences between public corporations and co-operative societies
10mks
b) Explain FIVE sources of monopoly. 10mks
4. a) Explain FIVE factors that can contribute to the expansion of firms in a given industry.
10mks
b) Highlight FIVE principles of taxation. 10mks
5. a) Below are the national income estimates of country Q during the year 2004.
Value in Kshs. 000,000
EXPORTS - 125,000
Consumption expenditure - 312,000
Investment - 150,000
Government spending - 208,000
Imports - 105,000
Depreciation - 5,000
Net indirect taxes - 25,000
Given that the country has a population of 30 million people,
i) Calculate the GNP per capita of the country. 4mks
ii) Outline FOUR limitations of using GNP per capita in measuring the standards of living in a
country. 8mks
b) Explain FOUR services offered by wholesalers to producers. 8mks
6. a) Discuss FIVE functions of the central Bank. 10mks
b) Highlight FIVE factors that have contributed to the continued popularity of postal service in
Kenya. 10mks

MARKING SCHEME
SAMPLE PAPER 1
565 / 2
1. a) Benefits of whole life policy
- Dependants will be paid sum assured on maturity
- Payment of premiums waivered in case of disability.
- Termly (period) bonus paid to assured
- Can opt for surrender value incase he wants to terminate prematurely
- Policy can be used as security of getting loan
- Enjoy tax benefits and relief.

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 b) (i)
`
Price
Do So
S1

P0

P1 So
S1 Do
Quantity
Q1 Q0
DoDo 1mk

SoSo 1mk

S1S1 1mk

The equilibrium Quantity decrease from Qo to Q1

Equilibrium price reduces from P0 to P1
2. a) Circumstances favouring personal selling
- Need to seal immediate contract
- Need to get immediate feedback
- Need to demonstrate on usage of good esp. technical goods.
- Need to counter stiff competition through persuasion
- If market is small and concentrated.
b) Maendeleo traders
Trading profit and loss account
For the period ending 31st – 12 – 2002

Opening stock 6000 Sales 100,000

Purchases 88,000 Return –in 2,000
Return out 2,800 Net sales 98,000
Net purchase 85,200
Carriage in 1000
86200 86,200
C.O.G.A.S
72,200
Closing stock
4,000
C.O.G.S
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 68200 98,000
Gross profit
29,800 Gross profit 29,800
Commission earned 3,500
98,000 Discount received 4,400

Discount allowed
2,200
Sundry expenses
4,000
Postage
800
Stationery
1200
Net profit
29,500

37,700 37,700

i) Mark – up GP = 29,000 = 43.69%

COGS 68,200
ii) ROSTO = COGS = 6820
AS 6000 + 4000 = 13.64 times
2

3a) Public corporations Co-op societies

- Formed by act of parliament - Formed under co-op ACT
- aim to offer essential services - Aim to service member interest
- Mostly monopolies - Are not monopolies
- managed by state appointed directors - Managed by elected committee member
- Initial capital from the government - Initial capital from members
- Profit & loss government contribution
- Profit and loss to members
b) - Exclusive access to raw materials
- Exclusive knowledge/ access to the technology
- High capital requirement that others cannot afford.

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 - Govt okeyed / created monopoly
- Cut – throat competition that knock out competitors.
4a) Factors contributing to expansion of firms
- Increase in the population of consumers
- Improvement in transport and communication network
- Increased sources of capital needed for expansion
- Improvement in the service industry which support firms
- Increased availability of raw- materials for production
b) Principles of taxation
- Productivity: - must yield high collection
- Certainty: - time for reception must be anticipated
- Equality: - must ensure everybody pay due tax
- Convenience: - should be at the time when tax payers are able to pay
- Flexibility: - must have ability to be varied incase of changes in economy
- Economy:
- Simplicity:
- Diversity.
5.a) i) GNP = C + G +1 + X – M

= ( 312000 + 208000 + 150000 + 125000 – 105000)
= Ksh 690 000 millions

Per capital GNP= GNP

Population size
= Ksh 690 000 millions
30 millions people
= Ksh 23000
(ii) - National income and wealth is never equally distributed among residents of a country.
- Material welfare of the people cannot be measured on a mathematical scale in the same
way as per capital GNP.
- Wants and tastes of people living in a country are never exactly the same.
- Prices of products in different parts of a country do vary leading to different costs of
living
- The purchasing power of the people is sometimes lowered through taxes and increased
through subsides
- Sometimes an increase in quantity of output is achieved through a decrease in product
quality.
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 - Sometimes a rise in production is realized through stressful, dangerous and unpleasant
working conditions.
b) Services by wholesalers to producers
- They finance producers by buying goods
- Take over storage expenses from producer
- Save producers risks of pricing, losses by buying goods
- Prepares goods for sale on behalf of producers
- Help in getting market feed back from consumers
- Transport goods for producers
6. a) Functions of central bank
- Banker to the government
- Financial advisor to the government
- Lender of last resort to commercial banks
- Banker to commercial bank
- Offer clearing house services to com. Bank
- Lender to government
- Custodian of foreign exchange reserve
- Issue of replacement of currency
b) Popularity of postal services
- Have a wide network therefore serve wide region
- Have low charges on its services therefore affordable to many
- offer variety of services to cater for peoples different needs
- Are reliable in services, items assured of reaching
- Safety of goods against loss minimizes losses.

SAMPLE PAPER 2
BUSINESS STUDIES PAPER 2
562/2
1. (a) Explain FIVE services offered by commercial banks to business people. ( I0mks)
(b) Describe FIVE factors that affect the elasticity of demand.

2. (a) Study the diagram given below which shows equilibrium of a firm and answer the questions that follow.

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 (i) State the market structure represented by the above diagram. [ 1 mk]

(ii) With a reason, state whether the firm is operating in the short run or long run. (l m k ]
( i i i ) Outline FOUR features of the above market structure. (8mks)
(b) Kenya's development plans are praised world wide. Highlight FIVE problems that
hinder their implementation. [ I 0mks]

3. (a) Explain FIVE ways traders can adopt to prepare goods for sale. [ 1 0mks]
(b) Explain FIVE benefits that Kenya is likely to get from free trade. [ I 0mks )

4. (a) Describe FIVE circumstances under which limited liability companies can be
liquidated. [I 0mks]
(b) Discuss FIVE: insurance policies that a wholesaler in Lodwar town can take.

[l0mks]
5. (a) Highlight FIVE measures that a government may use to control inflation.
(10mks]
(b) Discuss FIVE causes of under employment in Kenya. [ l0mks]

6. (a) Explain FIVE circumstances under which one may use signs in communication. [I0mks]

(b) The following information has been extracted from the books of Otieno Traders on 3 Ist may, 2006.
Shs.
Salaries 15 000
Discount received 16 000
Purchases 195 000
Returns inwards 4 970
Returns outwards 3 000
Sales 268 970
Stock ( I s t June 2005) 24000
Stock (31st May 2006) 46000
Discounts allowed 5 000
Insurance 14000
Commission earned 30 000
General expenses 11 000
Mortgage loan 80 000

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Additional information:
(i) Interest on mortgage loan 20% p.a.
(ii) Outstanding salaries Shs. 5 000
(iii) Prepaid insurance Shs. 4 000

Prepare:
A trading profit and loss account for the year ended 31st May 2006. [ I 0mks)

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MARKING SCHEME
SAMPLE PAPER 2
565/2
I. (a) Services offered by Commercial banks to business people.
• Accept deposits and keep money safely i.e. Account services.
• Lending money
• Provides means of payment/ transfer of money e.g. standing orders, cheques, credit cards, etc.
• Making FOREX available to importers
• Collecting money on behalf of clients e.g. rent dividends, etc.
• Provide safe custody for valuables e.g. title deeds, jewellery, certificates, wills, etc.
• Acting as guarantors of referees when looking for credit.

. Advantages of hawkers over unit shop traders.

• Hawkers incur less operational expenses e.g. no rent.
• Require less capital to start e.g. Sh. 500.00
• Prices are negotiable i.e. not fixed
• Make on the spot decision/ flexible
• Looks for market every where
• Sell strictly on cash hence no bad debts
• Are more persuasive and convincing
2. Uses of computers in communication.
• Internet: Interconnection of several computers over a wide area facilitating flow of information
e.g. E-mail.
• Internet: interconnection of computer within a small geographical location to ease communication
in different departments.
• Website: A virtual location in the internet to make information available for prospective
buyers.
• Tele-conferencing: Holding conferences through computers as participants are in
different geographical areas.
3.

Internal External
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 (a) 
(b) 
(c) 
(d) 
4. Advantages of endowment policy over whole life policy.
• Period is short
• Assured enjoys the savings a lone
• Sum-assured is payable at intervals which are pre-determined
• It is a saving plan
5. Factors causing supply curve shifting to the right.
• Poor technology
• Increase in cost of production
• Lack of factors of production
• High taxes
• Low subsidies
• Unfavourable climate
• Unfavourable season/ off peak season
6. Relevance of infrastructure in business location.
• To ensure steady supply of goods and services
• To guarantee security
• For quick delivery of goods and services to the market
• For easy/ quick delivery of raw materials
• For easy mobility of workers/ traders
• To reduce transport and communication costs.
7. Advantages of internal memo over letters.
• Brief
• General/ i.e. information is meant for all
• Suitable to pass information between departments
• Cheap
8. Differences between partnership and private limited companies.
Partnership Private Ltd Co.
- Formation is easy Too involving
- Membership is mainly 2-20 Membership mainly 2-50
- Not a legal entity It is a legal entity
- Activity not restricted Activity restricted to MOA
- Capital base is altered ONLY by partners Capital base can only be altered during AGM
- Unlimited liabilities Limited liabilities
- Any partner can act on behalf of the partnership Only authoriized directors can act on behalf of Co.
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9. Geographical factors hindering mobility of Labour
• Language barrier
• Adverse climatic conditions
• Ignorance
• Social ties to the family and community
• Security
• Political factors
• Government policy e.g. migration rules
• Transport cost
10. Ways in which the government assists in developing entrepreneurial skills.
• Providing grants of cheap credit
• Provision of good infrastructure/ security
• Provision of relevant education and training/ regular workshops
• Protection of local markets/ passing anti-dumping laws
• Lower taxation crucial business
• Supporting local research and innovations/ patenting local technologies
• Signing bilateral and multilateral agreements
11. Sources of public finance.
Fines
Rent and rates
License fees
Dividends and profits from government investments
Taxes
Interests earned on loan advanced by the government
Government borrowing
Proceeds from sale of government assets
12. Limitations of billboards
• Expensive
• Speeding motorists may not be able to read them
• Security measures required
• Unsuitable to rural-folk (people)

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13..

AC

pe

qe

14. Factors accounting for the under-development of Kenya.

• Inadequate arable land and industrial minerals eg. Iron ore and coal, gold oil etc.
• Limited market due to low savings.
• Unfair world economic order/ trade liberalization that has led to the collapse of local
industries.
• Lack of entrepreneurial skills
• Poor government policy/ corruption in high places/ unattractive investment climate.
• Lack of infrastructure which increases production costs.
• Rapid population growth which exerts too much pressure on limited resources
15. Problems encountered in measuring national income.
• Exclusion of all unpaid services e.g. house help, self-employment.

• Subsistence production not accounted for

• Some activities that generate wealth but are considered illegal are excluded eg.
Prostitution, illicit brews, drug trafficking, etc.
• Difficult to accurately value stock of inventory
• Inflation can lead to an increase NI i.e. problem of changes in prices.
• Difficult to measure the cost of wear and tear of capital goods i.e. Depreciation.
• Difficult to evaluate the net effect of foreign trade (X-M)
16. Benefits of ATM.
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• Fast and efficient

• Provide 24hrs service
• Reduce wage bill
• Top secret is allowed to consumers A/C
• Due to its cheapness it attracts more customers
17. Circumstances under which consignment can be air-lifted.

• If distance involved is great or long.

• Incase goods are required urgently.
• Where the consignment is valuable and needs security
• Where products are perishable
• Where there is no other alternative means
18. Functions of a bill of landing.
• Evidence that goods have been received by the ship owner.
• Evidence that contract has been entered between the ship owner and the shipper.
• Enables the named person therein/ his agent to claim goods when they arrive at the
port of distribution.
19. Difficulties faced in the satisfaction of human wants.
 Unlimited wants
• Scarce resources
• Opportunity cost
• Recurrent
• Vary with time, age, gender etc.
• Habitual

20. TERMS
(a) Departmentalization
(b) Job specialization
(c) Delegation
(d) Co-ordination

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21..

ASSETS CAPITAL LIABILITIES

(a) Increase Increase No effect

(b) Decrease/ Increase No effect No effect

(c) Decrease No effect Decrease

(d) No effect No effect Increase/ decrease

21. Total debtors control A/C

Shs. Shs.

Premises
Balance b/d 12000 Bad debts 2000

M/ Vehicle
Dishonoured cheques 14000 Dis. Allowed 15000

Stock
Cash 45000

Prepayment (salary)
Ret. Inwards 3000
Debtors
Cash in hand
Balance c/d 18000

Revision Business Studies Paper 2 15 565/2

Total
debtors
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24. CASH BOOK

Date-:
PARTICULARS D/A1I CASH BANK DATH PARTICULARS S/Rcc CASH BANK

2006 28 800

May 1 Balance 1 2 000 65 000 May Miami Traders 1 200

b/f 18

12 Hjore 2 48000 2 bank "C" 10000

000 7

20 Sales 18000

27 Cash "C" 1 0 000

2 3JLOJQ 121000 3 Balance c/f 20 94 200

000 1 000

(b) Factors affecting elasticity of demand.

• The necessity of the commodity
• Ease of substitute
• Durability of commodity
• Habitual commodities
• Consumers' income
• Significance of the commodity on the individual's total expenditure.
2. (a)
(i) Perfect competition
(ii) Short run because it is supernormal profits ie AR>AC
(iii) - Large number of buyers and sellers
- Homogeneous/ uniformity of the products
- Perfect knowledge of the market

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- Freedom of entry or exit

- Uniformity of buyers and sellers
- No government interference
- No excess supply/ demand
- Perfect mobility of factors of production
- No transport costs
(b) Problems hindering implementation of development plans.
• Reliance on donor funding
• Lack of domestic resources
• Local people NOT involved in planning
• Natural calamities
• Inflation
• Over-ambitious plans e.g. Kenya should be industrialized by the year 2010
• Lack of co-operation among the executing parties
• Lack of political will
3. (a) Ways of preparing goods for sale.
• Breaking bulk
• Packing
• Branding
• Sorting
• Grading
• Blending
(b) Benefits of free trade.

• Specialization
• Provision of cheap and quality goods
• Efficient allocation of resources
• International peace and understanding
• Creation of employment
• Living standards are improved
• Leads to industrialization
4. (a) Circumstances under which limited liability companies are liquidated.
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• Bankruptcy
• Ultra-vires
• Amalgamation
• Court order
• Decision by share holders
• Completion of intended purpose/ period
(b) Insurance policies.
• Fire insurance policy
• Bad debt policy
• Fidelity guarantee policy
• Comprehensive motor vehicle policy
• Consequential loss policy
• Cash/goods in transit policy
• Public liability policy
• Personal accident policy

5. (a) Measures taken by government to control inflation.

• Tax increase
• Export control
• Import control
• Price control
• Selling treasury bonds
• Increasing bank reserves
• Increasing bank rates
• Import substitution to curb import inflation
• Imposing tariffs
• Imposing impact quotas
• Rationing FOREX
• Bureaucratic obstacles

(b) Causes of under-employment in Kenya.

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• Poor technology use in Kenya leading to low productivity/ use of poor tools or
equipment.
• Low staff motivation
• Lack of alternative jobs where one can be fully utilized
• Overstaffing
• Trade union advocacy to employ more
• Lack of political pressure to create more jobs.

6. (a) Circumstances under which one may use signs in communication.

• When the recipient is deaf
• If communicator is dumb
• Incase communicating a secret message
• Where communicators are far apart but can see each other
• When silence is vital e.g. in hospitals
• Where environment is noisy e.g. in factory

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Otieno Traders
Trading, profit and loss account
As at 31/5/2006

Shs. Shs.
Opening stock 24, 000 Salaries 268 970
Add: Purchases 195 000 Less: Return inwards 4 970
Less return out 3 000 192 000
Goods available 216 000

Less: Closing stock 46 000

Cost of goods sold 170 000
Gross profit c/ d 94 000
264 000 264 000

Operating expenses Gross profit b/d 94 000

Salaries 15 000 Add: Discount received 16 000
Add: Outstanding 5000 20 000 Comm. Returned 30 000
Disc. Allowed 5 000
Insurance 14 000
Less: Prepaid 4000 10 000
General expenses 11 000
Mortage interest ( 20 / 100 x 80 000) 16
000
Total expenses 62 000
Net profit c/d 78 000
140 000 140 000

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SAMPLE PAPER 3
BUSINESS STUDIES PAPER 2
565/2
BUSINESS STUDIES
1. a) Explain FIVE ways in which central Bank of Kenya regulates the operations of
commercial banks in Kenya.
10mks
b) The table below represents a farmer’s supply of cabbages in a local urban center.
Year Quantity of cabbages (Tonnes)
2001 20,000
2002 15,000
2003 10,000
Assuming the price remained constant, explain five possible reasons for the trend in the
supply of cabbages.
10mks
2. a) Explain FIVE differences between a public corporation and a public limited
company.
10mks
b) The following trial balance was prepared from the books of Triumphant NO-
TABLES Enterprises as at 31st Dec. 2005.
Triumphant Notables Enterprises
Trial Balance
As at 31st Dec. 2005
Dr Cr
Sales 900,000
Purchases 600,000
Returns inwards 80,000
Returns outwards 20,000
Carriage inwards 40,000
Carriage outwards 3,000
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Stock (Jan 2005) 100,000

Rent 60,000
Delivery van 180,000
Bank 60,000
Creditors 170,000
Debtors 120,000
Interest Expenses 18,000
General expenses 7,000
Capital 178,000
1,268000 1,268,000

Stock on 31 Dec. 2005 was valued at sh. 135,000. Prepare a trading profit and loss
accounts for the year ended 31 Dec. 2005.
10mks
3. a) Highlight five reasons why a distributor of consumer goods would prefer to locate
his or her warehouse near the consumers.
10mks
b) Explain five factors that have limited the adoption of containerisation in the
transportation of goods. .
10mks
4. a) Explain five benefits that accrue to a company by using a prize winning competition
to promote its products.
10mks
b) The following transactions relate to Expert Traders for the month of may 2005.
May 5: Sold goods on credit to Paul sh. 12,000 and Jane sh. 16,000
8: Bought goods on credit from Shah traders sh. 40,000
10: Purchased goods on credit from Grace sh. 34,000 and Peter traders sh.
31,050
16: Goods worth sh. 6,000 were returned to Shah traders and goods worth sh.
3,000 to Grace.
20: Goods sold on credit to Paul sh. 8,000 Tom sh, 11,000 and Joseph sh.
13,000.
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26: Goods returned by Betty sh. 2000

Prepare the relevant journals. 10mks
5. (a) The following assets and liabilities relate to Manyonge a trader who does not
maintain a complete set of accounts.
1998 shs.
Outstanding general expenses 8,250
Creditors 32,000
Debtors 18,000
A cashbook summary extracted on the same revealed the following.

Receipts
Cash sales - sh 35,000
Purchase - sh.31,200
Paid creditors - 54,000
At the end of the year, the following information was available:
Discount received amounted to sh. 7,600
Discount allowed shs. 2,500
Creditors sh. 25,000
Debtors shs. 23,000
Outstanding general expenses shs 10,700
Prepare:
(i) General expenses Account
(ii) Total Debtors Account
(iii) Total creditors Account.
(b) Outline six measures that a country may take to reduce unemployment.10mks

6. Country Z is a developing country and it intends to liberalize its economy. Discuss the
effects of such a trading policy to the economy of the country.
20mks

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MARKING SCHEME
SAMPLE PAPER 3
565/2
1. Ways in which the central bank of Kenya regulates the operation of commercial bank in
Kenya.
a) i) Bank rate

By varying the bank rate, the central bank gives an indication to the
commercial banks as to the rates and interests to charge to their
customers
ii) Cash or liquidity ratio
By varying the cash or liquidity ratio, the bank may either increase or
decrease credit expansion
iii) Special deposits/ compulsory deposits

By calling for special deposits from commercial banks, it reduces the

cash base for them, and therefore reduces their ability to lend

iv) Selective credit control/ credit rationing

The central bank can determine the ceiling or priority sectors where the
lending has to be channeled

v) Direct supervision/ instruction

The central bank can direct supervision of commercial banks, to ensure
that they follow the laid down regulations

vi) Open market operations

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The central bank buys and sells treasury bills, to increase or decrease the
lending ability of commercial banks

vii) Moral persuasion

Under special circumstances, the central bank may persuade commercial
banks to regulate their lending habits
b) Possible reasons for the trend in the supply of cabbages
i) Unfavorable weather, leading to a reduction in the production of
cabbages
ii) Increase in the cost of producing cabbages
iii) Application of poor technology in cabbage production
iv) Increased competition from other substitutes to cabbages
v) A shift in the farmer’s priority, from cabbage production to other things
vi) Unfavorable government policy, like increase in subsidies or increase in
taxation
2. Difference between a public corporation and a public limited company
a) i) A public corporation is formed under an Act of Parliament, while a
public limited
company is formed under the company’s act
ii) A public corporation is fully owned by the government, while a public
limited company is owned by private persons who own shares
iii) A public corporation is initially financed by the state or through state
guarantees, while a public limited company is financed through the issue
of shares, selling debentures or other loans
iv) A public corporation has its management appointed by the government
while in a public limited company, shareholders elects the directors
v) A public corporation is set up to offer essential services to the public,
while the public limited company is formed to make profits
vi) Profits made by public corporations go back to the government, while
profits made by public limited companies go to the shareholders as
dividends

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vii) Public corporation’s financial statements are presented in parliament,

while public limited companies must publish their financial statements in
the press
b) Nzwili Traders
Trading, profit and loss account
For the year ended 31st Dec 2005
Opening stock Sales 900,000
100,000 Less returns in 80,000
Purchases 600,000 Net sales 820,000
Less returns out 20,000
580,000
Add carriage in 640,000
40,000
Goods available for sale
720,000
Less closing stock 820,000
135,000
Cost of sales
585,000
Gross profit c/d
235,000

820,000

Carriage outwards 3,000 Gross profit b/d 235,000

Rent 60,000
Interest expenses
18,000
General expenses
7,000
Net profit 147,000 235,000
235,000

3. Reasons why a distributor of consumer goods would prefer to locate her warehouse near
the consumer
a) i) Transport cost
She may save on transportation, since her vehicle would not have to
move over long distances
ii) Minimal damages
The possibility of the goods getting damaged is low, since the distance
over which the goods are moved is less*TRZ*
iii) Continuous supply

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The distributor is in a better position to ensure the continuous supply of

the goods and hence meet the needs of consumers
iv) More sales/ profit
The distributor is likely to sell more goods, since the retailers can easily
get to her conveniently, and even buy in small quantities that would have
been uneconomical to buy from far
v) Minimal loss
There is less possibility of loss of goods on transit, since the distance is
short
b) Factors that have limited the adoption of containerization
i) Initial cost/ expensive
The initial cost of acquiring the containers is high
ii) Volume of business
This may be too small to warrant such an investment
iii) Equipment
The specialized equipment for handling containers is expensive to buy
iv) Ports
It requires total re-designing of existing ports which could be quite
expensive or the technology may be lacking
v) Skilled personnel
The management skills that are required to monitor the system may be
lacking, or are expensive to acquire or hire
4. Benefits of using a prize – winning competition for a company to promote its products
a) i) Increased sales
Many people buy the products, to increase their chances of winning
ii) Prolonged duration of the competition
The date of the draw can be postponed to allow for more sales
iii) Creation of consumer brand loyalty
People may become used to buying the products during the period of the
competition, and are likely to continue buying the products after the
competition
iv) Promoting a company’s image
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These competitions tend to help create a good company image

v) Cost
It is relatively cheaper to use this kind of promotion compared to others,
because of the value of the prizes
vi) Creation of product awareness
The competition creates product awareness to potential consumers of the
products

b) Sales journal

DATE Particulars Amount

Date Paul 12,000
May 5 Jane 16,000
May 11 Paul 8,000
May 20 Tom 11,000
May 11 Joseph 13,000
May 11 60,000
Total to sales a/c

Purchases journal
DATE Particulars Amount
May 8,
May 13 Shah Traders 40,000
May 11 Grace 34,000
Total to Peter Traders 31,000
purchase a/c 105,000

Sales Returns journal

DATE Particulars Amount

May 10 3,000

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May 26 Paul 2,000

Total to sales a/c Betty 4,000

Purchases Returns journal

Date Particulars Amount
May 16 Shah traders 3,000
May 16 Grace 6,000
Total to purchase 9,000
a
/c

5 a) General expenses account

Bank/ cash 35,000 Balance b/d 8,250
Balance c/d 10,700 37,450
45,700 45,700

Total debtors account

Balance c/d 18,500 Bank 138,000
Credit sales 140,000 Discount 2,500
158,500 Balance c/d 23,000
158,500
Total sales = 140,000+31,200
=Sh.301,000

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Total creditors account

Bank/ Cash 54,000 Balance b/d

Discount received 7,600 32,000
Balance c/d 25,000 Credit purchases
86,600 54,600

Total purchases = 54,600+31,200

=Sh.85,600 86,000

b) Measures that a country may take to reduce unemployment

i) Increase government expenditure to stimulate aggregate demand, hence
the level
of production
ii) Encourage local private investment to increase productivity
iii) Adopt measures that will attract foreign capital into the country so as to
create more employment opportunities
iv) Find market for locally produced goods through aggressive export
promotion in order to expand production capacities of local industries
v) Protect local industries from foreign competition, in order to maintain
employment levels
vi) Diversify the economy

6.a) Positive effects of liberalization

i) Opening up their economies to the global economy has enabled many
developing

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countries to develop competitive advantage in the manufacturing of

certain products
ii) Countries that have opened up their economies experience faster growth
and more poverty reduction
iii) In countries where the economy has been opened up, new jobs are
created for unskilled workers, rising them into a growing and expanding
middle class
iv) Countries with open economies benefit from improved access to other
countries markets
v) Countries that liberalize their economies are free to join the world trade
organization

b) Negative effects of trade liberazation

i) Local infant industries may suffer and die out from the increased
competition from
more established foreign companies
ii) Dumping of goods may be practiced by the developed economies under
the guise of free trade
iii) There is a danger of increased dependency on foreign goods, whose
supply may be quite uncertain
iv) Liberalization is a one sided game that allows developed countries the
unfair advantage of flooding the internal markets of other countries with
their finished products

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SAMPLE PAPER 4
BUSINESS STUDIES PAPER 2
565/2
1. (a) Explain four negative effects of economic development (8mks)
(b) Outline six factors that influence decisions on what goods and services to produce
(12mks)
2. (a) Use the demand and supply schedule given below to draw a diagram showing the
following
(i) Demand and supply curves
(ii) Equilibrium quantity, equilibrium price and equilibrium point
(iii) Excess demand and excess supply

Price Quantity demanded Quantity supplied

450 10 70
400 20 60
350 30 50
250 40 40
150 50 30
50 60 20
10 70 10
(8mks)
(b) Explain six functions of micro finance institutions (12mks)
3. (a) Describe five features of perfect competition (10mks)
(b) Outline five factors that influence the level of national income (10mks)
4. (a) Explain five factors influencing the choice of distribution channel 10mks)
(b) The following transactions were carried out by Kiplangat traders during the month of
July 2005.
July 1: Started a business with Shs. 10,000 in cash
2: Opened a bank account for the business by depositing Shs. 20,000 from personal
savings
10: Bought goods worth Shs. 10,000 and paid by cheque
20: Sold goods worth Shs. 20,000 which were paid for in cash
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26: Paid Shs. 5,000 as salary to a worker by cheque

27: Took Shs. 5,000 in cash for personal use
Enter the above transactions in their respective ledger accounts and balance them off
(10mks)
5. (a) Explain six measures to solve unemployment problems in Kenya (12mks)
(b) The following table shows relationship between output, total cost, marginal cost, the average fixed cost,
average variable cost and total cost
Unit of Total Total Total Average Average Marginal
output fixed variable cost Shs. fixed cost variable costs Shs.
cost Shs. cost Shs. Shs. cost Shs.
0 100 0 - - - 0
1 100 110 (a) (e) (j) -
2 100 260 (b) (g) (k) (m)
3 100 380 (c) (h) (l) (n)
4 100 460 (d) (i) (m) (o)
Draw a similar table and use the information provided to complete it (8mks)
6. (a) Enter the following transactions in the petty cash book of Maendeleo stores for the
month of July 2003 using the following analysis columns
Telephone and postage, office stationary, traveling expenses and office expenses. The
business operates the petty cash book on an imprest system of 4000/= replenished on a
weekly basis
July 1st-Received a cheque from the cashier to start the imprest
July 1st-Paid for taxi hire250/= and 130/= for office cleaning
July 2nd-Bought postage stamps for 210/= and a ball of string for use in the office 100/=
July 3rd-Postage of a parcel cost 100/= and paid a telephone bill 900/=
July 4th Purchased envelopes for 150/= and one ream of photocopying paper 500/=
July 5th-Paid for bus fare 500/= and made a telephone call costing 50/=
July 6th-purchased a window cleaning cream for 250/= paid bus fare 200/=
July 8th-Received a cheque to replenish the imprest
July 8th-Bought various office stationary for 400/=
July 9th-Purchased postage stamps for 210/= and paid 950/= telephone bill
July 10th-paid train fare 600/= and taxi fare 250/=
July 11th Paid for office cleaning 150/=
July 12th- Purchased two reams of writing paper 600/= and office dusters 300/=
July 14th - Obtained a cheque from the cashier to replenish the imprest
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Required
Prepare the petty cash book for the two weeks 8mks)

(b) The following trial balance relates to Leshao traders for the year ended 31 st January
2005
PARTICULARS DR CR
Capital 110,000
Land and buildings 70,000
Machinery 21,600
Furniture 20,000
Debtors 78,000
Creditors 50,000
Opening stock 1,100
Bank 60,000
Cash 9,000
Sales 15,400
Sales returns 400
Purchases 8,000
Purchases returns 1,200
General expenses 1,200
Carriage inwards 400
Carriage outwards 900
Rent received 2,500
Commission received 1,000
Salaries and wages 6,000
Electricity 700
Insurance 1,500
Postage 300
Drawings 1000
Bank loan 100,000
Total 280,100 280,100
st
Note: Closing stock on 31 January 2005 was valued at Kshs. 2,500
Prepare
a) Trading, profit and loss account for the year ended 31st January 2005 (8mks)
b) Balance sheet as at 31st January 2005 (4mks)

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MARKING SCHEME
SAMPLE PAPER 4
565/2

1. a) i) Degradation of the environment

ii) Overcrowding in slums
iii) Rendering knowledge and skills obsolete
iv) Creating social tensions e.g. income inequality, political instability,
social habits and beliefs change

b) i) Demand patterns:- If a commodity has a demand, it will certainly be

produced
ii) Profitability of the venture:- The business can only continue with those
products that yield some profits
iii) Level of competition:- Young firms produce goods whose competition is
minimal
iv) Government policies:- The government encourage or discourage the
production of certain goods and services
v) Economic factors:- e.g. state of inflation, size of national income, income
distribution e.t.c.
vi) Availability of technology:- Appropriate technology determine what
goods or services a firm can produce
vii) Social cultural factors:- These factors have to do with the peoples core
beliefs and attitudes
viii) Availability of factors of production:- e.g. land, capital, labour and
entrepreneurship
ix) Environmental issues:- Production process should not pollute the
environment
x) Cost of production
xi) Amount and type of capital in the business – financial and physical
capital facilitates the production process
Must be well explained
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2. a)

EP

Equilibrium price = 250

Equilibrium quantity demanded and supplied = 40

Award as follows:-
Equilibrium price (250) 1 mk
Equilibrium quantity (40) 1 mk
Supply curve 1 mk
Demand curve 1 mk
Excess supply 1 mk
Excess demand 1 mk
Equillibrium point 1 mk
Use of correct scale 1 mk
3. a) i) Large number of buyers and sellers
ii) Homogeinity (Uniformity) of the product
iii) Perfect knowledge of the market

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iv) Freedom of entry or exit

v) Uniformity of buyers and sellers
vi) No government interference
vii) No excess supply or demand
viii) Perfect mobility of factors of production
ix) No transport costs
x) No preferential treatment
3. b) i) Size of the working population
ii) Innovative and technical knowledge
iii) National resources such as gold, oil, fertile soils, power, favourable
climate e.t.c.
iv) Capital equipment such as computerized machinery and other modern
equipments increase output of goods and services
v) Political stability flourishes business activities in the country. Promote
confidence and encourage production hence high income level
vi) Terms of trade i.e. favourable balance of payments (BOP) boosts the
national income and vice versa
vii) Foreign investments refer to a country’s investment in other countries.
Those countries with a lot of foreign investment and a lot of investments
abroad, are likely to have high national income because of the high net
inflows
viii) Entrepreneurship – Entrepreneurs have the ability to organize factors of
production which have a bearing on the country’s national income
4. a) i) The value and the technical nature of the product:- Technical and
high value goods
sell directly to the final consumer
ii) Nature of product: - Perishable commodities are usually sold directly to
the consumer or through retailer
iii) The intermediaries: - As different intermediaries perform functions
differently, the firm may have to select the channel that would be
convenient to it

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iv) Resources and size of the firm: - Size of the firm determines the size of
its market and the channel to be used
v) Competitors: - Where a firm wishes to have its product compete directly
with that of a competitor, it would select a channel that is used by the
competitor
vi) Government policies: - The distribution of certain products is controlled
by government policies. Where such products are involved, the chain op
distribution should be consistent with government policy
vii) Geographical distribution of consumers:- If consumer’s are
concentrated within a small region, then a shorter chain of distribution
would be appropriate
viii) Fashion, tastes and preferences: - If a commodity has a high risk due to
changes in fashion, it will need to be sold as fast as possible, thus a
shorter chain of distribution

b) Capital Account
Dr Cr
DATE DETAILS F AMOUNT DATE DETAILS F AMOUNT
2005 2005
Jan Bal c /d 30000 Jan 1st Cash 10000
31st Jan 2nd Bank 20000
30000 30000
Feb 1st Bal b /d 30000

Dr Cash Account
Cr
DATE DETAILS F AMOUNT DATE DETAILS F AMOUNT
2005 2005
Jan 1st Capital 10000 Jan 27th Drawings 5000
Jan Sales 20000 Jan 31st Bal c /d 25000
20th 30000 30000

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Bal b /d 25000
Feb 1st
Bank Account
Dr
Cr
DATE DETAILS F AMOUNT DATE DETAILS F AMOUNT
2005 2005
Jan 2nd Capital 20000 Jan 10th Purchases 10000
Jan 26th Salaries 5000
Jan 31st Bal b /d 5000
20000
Feb 1st Bal b /d 20000
5000

Dr Purchases Account Cr
DATE DETAILS F AMOUNT DATE DETAILS F AMOUNT
2005 2005
Jan 10th Bank 10000 Jan 31st Bal c /d 10000
10000
Feb 1st Bal c /d 10000 10000

Dr Sales account Cr
DATE DETAILS F AMOUNT DATE DETAILS F AMOUNT
2005 Shs 2005 Shs
Jan 31st Bal c /d 20000 Jan 20th Cash 20000

20000 Feb 1st 20000

Bal c /d
20000

Dr Salaries account Cr

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DATE DETAILS F AMOUNT DATE DETAILS F AMOUNT

2005 2005
Jan 26th Bank 5000 Jan 31st Bal c/d 5000
5000 5000

Feb 1st Bal c /d 5000

Dr Drawings account
Cr
DATE DETAILS F AMOUNT DATE DETAILS F AMOUNT
2005 2005
Jan 27th Cash 5000 Jan 31st Bal c /d 5000
5000 5000

Feb 1st Bal c /d 5000

5. a) i) Managing population growth

ii) Diversification of agriculture and industrial activities
iii) Education opportunities e.g. training in different courses
iv) Provision of social amenities in rural areas
v) Creation of employment opportunities in many sectors
vi) Delocalization of industries
vii) Use of appropriate technology
viii) Use of labour intensive techniques
ix) Encouraging employment creation in the private sector
x) Adopting relevant education system as per the labour market e.g. 8.4.4
system
xi) Increasing government expenditure on projects that would create jobs
e.g. road and dams construction
xii) Encouraging direct foreign investment
b) a) TC=TFC +TVC
= 100+110 =210
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b) TC= TFC+TVC
=100+260=360
c) TC=TFC+TVC
=100+380=480

d) TC=TFC+TVC
=100+460=560
e) AFC=TFC
Q
100 =100

1
f) AFC=TFC
Q
100 =50
2
g) AFC=TFC
Q
= 100 =33.3

h) AFC= TFC
Q
= 100 =25

4
i) AVC= TVC
Q
= 110 =110
1
j) VC=TVC
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Q
= 260 =130

2
k) AVC=TVC
Q
380 = 126.7

3
l) AVC= TVC
Q
= 460 =115

4
m) MC =TC
Q
= 360-210 = 150 = 150
2-1 1
n) MC =TC
Q
= 480-360 = 120 = 120
3-2 1

o) MC =TC
Q
= 560-480 = 80 = 80
4-3 1

6. a) PETTY CASH BOOK

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Dr
Cr
DATE PART FOLIO AMOU DATE PART FOLIO TOTAL TEL& OFF TRAV EL OFF
NT POST STATION EXp EXP

JUL Bank CB1 4000 Jul 1 Tax hire 250 250

1 Jul 1 Office clean 130 130
Jul 2 Postage stamp 210 210
Jul 2 String 100 100
Jul 3 Parcel 100 100
Jul 3 Telephone bill 900 900
Jul 4 Envelopes 150 150
Jul 4 Photocopy paper 500 500
Jul 5 Bus fare 500 500
Jul 5 Telephone call 50 50
Jul 6 Window cream 250 250
Jul 6 Bus fare 200
Jul 7 Total 3340 1260 650 950 480
Bal c/ d 660
4000

Jul 8 Bal c /d 4000

660 Jul 8 Office station 400 400

3340
Jul 8 Bank Jul 9 Post stamps 210 210
Jul 9 Telephone bill 950 950
Jul10 Train fare 600 600
Jul10 Taxi fare 250 250
Jul 11 Office cleaning 150 150
Jul 12 Writing paper 600 600 300
Jul 12 Office duster 300
Jul 13 Total 3460
Jul 13 Bal c /d 540
1160 1000 850 450
4000
Bal b /d 4000
540

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6. b) LESHAO TRADERS
TRADING, PROFIT AND LOSS ACCOUNT
FOR THE PERIOD ENDED 31ST JAN 2005

Shs Sales 
Opening stock  15400
1100 Less sales returns 
Purchases 8000 400
Add: carriage inwards 400 
8400 15000
Less: purchases returns 1200
7200
Cost of goods available for sale
8300
Less closing stock
2500
Cost of goods sold
5800 15000

Gross profit c /d
9200 Gross profit b /d 
9200
15000 Rent received 
2500
General expenses Commission received 
1200 1000

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Carriage outwards
900
Salaries and wages
6000
Electricity
700 12700
Insurance
1500
Postage
300
Net profit
2100

12700

LESHAO TRADERS
BALANCE SHEET
AS AT 31ST JAN 2005
Fixed assets Shs
Land and building Shs
70000 Capital
Machinery 110,000
21600 Add: net profit
Furniture 2100
20000
112,100
111,600 Less drawings
1000
Current assets
Stock 2500 111,100
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Debtors 78,000 Long term liabilities

Bank 60,000 Bank loan
Cash 9000  100,000
149,500 Current liabilities
Creditors
261,100 50000

261100

SAMPLE PAPER 5
565/2
BUSINESS STUDIES PAPER 2

1. (a) Describe five factors that determine price elasticity of demand. (10mks)
(b) A farmer in Kitale has maize to transport to Mombasa. He could either use road or
railway transport. Explain to him five merits of using road instead of railway to
transport the maize.
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(10mks)
2. (a) From the balances extracted from Malimingi Traders books, you are required to
prepare a statement of affairs as at 31/12/2005.
1/1/2005 31/12/2005
Ksh Ksh
Stock 200,000 250,000
Debtors 40,000 50,000

Premises 60,000 50,000

Creditors 70,000 40,000
Motor vehicle 400,000 350,000
Net profit _______ 40,000
Drawings _______ 10,000
(8mks)
(b) Explain five factors that influence the level of the National Income of a country.
(10mks)
3. (a) Explain five roles of the central Bank of Kenya to the country. (10mks)
(b) From the following account balances extracted from the books of Mwema Traders
for the year ended 31st Dec. 2005. Prepare a trading and profit / loss accounts.
shs
Rates 50,000
Water 60,000
Wages 80,000
Discount on debtors 6,000
Stock 1/1/2005 800,000
Stock 31/12/2005 40,000
Purchases 600,000
Carriage on purchases 100,000
Sales during the year 2,000,000
Return into the business 2,000
Commission received 4,000
Carriage outwards 1,000
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General expenses 6,000

Repairs to vehicles 20,000
Bank loan interest 5,000
(10mks).
4. (a) Explain five circumstances under which an insurance contract may be terminated.

(10mks)
(b) Explain five negative consequences of a rapidly increasing population. (10mks)
5. (a) With the aid of diagrams, explain the relationship between the industry’s
equilibrium and a firm’s equilibrium under perfect competition.
(10mks)
(b) Highlight five points on the importance of a local purchase order. (10mks)
6. (a) Explain any five principles of government expenditures. (10mks)
(b) The following are transactions of Sukuma Week business for the month of June
2005.
June
1st Purchased stock for sh. 84,000 in cash and was given 2% cash discount.
2nd paid workers’ wages by cheque shs. 20,000
3rd Sold goods worth sh. 240,000 and received cash after allowing 4% cash
discount.
4th Received sh. 400,000 by cheque from a debtor after 2% cash discount allowed.
5th Bought office furniture for sh. 20,000 in cash.
6th sold an old business van for sh. 320,000 receiving the money through the bank
7th Purchased more stocks worth sh.20,000 by cheque.
8th Withdrew sh. 40,000 from bank to cash till.
9th Took sh. 80,000 to bank from the business.
10th Took stock of goods worth sh. 2000 from the business for personal use.
11th Paid electricity bill worth sh 3750,in cash sh. 2000 and the rest by cheque.
12th Received a cheque from Mwendwa a debtor worth sh. 60,000 in settlement of
his debt
of sh. 66000.
13th Was given a loan of sh. 100,000 in cash from his bankers.
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14th Received payment from a debtor Poro sh. 46,000 by cheque.

15th All the cash at bank was taken to the business for office use except sh. 50,000.

Required: Enter the above transactions in the two-column cash book. (10mks)

MARKING SCHEME
SAMPLE PAPER 5
565/2

1 a) - Availability of close substitutes. If the substitute is available in the

relevant price
range, quantity demanded will be elastic.

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- The number of users of a commodity. The greater the number of users

of a commodity the greater its elasticity
- The length of adjustment time. The longer the time allowed for
adjustment in the quantity demanded for a commodity the greater its
price elasticity is likely to be.
- The level of prices. If the ruling price is at the upper end of the demand
curve, quantity demanded is likely to be more elastic than if it was
towards the lower end.
- Proportion of a consumers’ income spent on the commodity. Where
the proportion is very small the quantity demanded will be inelastic.
- The extent in which a product is habit forming. Incase of addiction,
price elasticity of demand is likely to be low.

b)
- Road is faster than railway which is slower, so he can deliver his goods
(maize) in good time to avoid damage.
- If the farmer has small quantity of maize to transport, it could be more
convenient to transport by road.
- Road is flexible in that maize can be collected at his door-step or
delivered at door step of the same.
- No fixed time or schedule and therefore collection / delivery can be done
conveniently to both parties.
- The farmer can consider owning/ hiring his own trucks and Lorries hence
he can have more control over transport problems
- Due to fewer time in offloading in road transport chances of
loss/damage/pilferage are minimized or cost of handling is minimized.

2 a) i) Maji mingi traders

statement of affairs as at 1st Jan 2005

Assets
Capital
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630,000 1


Stock 200,000  Creditors
½ 70,000  ½
Debtors 40,000 
½
Premises 60,000
½
Motor vehicle 400,000
½
700,000
¼ 700,000 ¼

ii) Maji mingi traders

statement of affairs as at 1st Jan 2005

Assets
Stock 250,000½ Capital 630,000½
Debtors 50,000½ Add. N.P 40,000½
Premises 50,000½ Less drawn 10,000½
Motor vehicles 350,000½ Net capital
660,000½
Creditors 40,000½

700,000
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1⁄ 4 700,0001⁄ 4

2. b) - Quantity and quality of factors of production

- The quantity and quality of e.g. land ,will determine the quantity and quality
of agricultural products hence the size of national income.
- State of technical know how/ technology – A country with poor technology
will have low national income.
- Political stability-Essential pre-requisites for maintaining production at the
highest level.
- Entrepreneurship- Availability of entrepreneurs who have the ability to
organize other factors of production will have a bearing on the country’s
National income
- Labor supply- Quality and quantity work force in a country. More skilled
labor force will produce higher quality goods and services.
- Capital- Amount and quality of available machines will lead to higher
national income.

3. a) Roles of Central Bank

- It spurs economic growth and development as it ensures commercial
banks are well run.
- The central bank stabilizes currency and the economy through imports
and export policies
- It ensures smooth operations of the money market by adopting policies
which enables people to get short term loans from development.
- It ensures equitable development of the country as it makes finance
available or focus on areas that need special attention.
- It regulates and finances banks and other financial institutions. This
ensures them needed finance for expansion of economic activities in the
country.
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- They regulate money supply in the country which is important in

ensuring that there is enough finance for investment.

b) Mwema Traders
Trading Profit/loss accounts
For the year ended 31/12/05
Os Sales 2,000,000
800,000
Add purchases 600,000 Less SR 2000
Add C.I 100,000 Net sales 1,998,000
700,000
C GAS
1500,000
Less c/s
40,000
Cos
1460,000
GP c/d
5,38,000
1,998,000
1,998,000
Expenses
Rates GP b/d 538,000
50,000
Water Comm received 4,000
60,000
Disc. All
6,000
Carriage out
1,000
Gen. exp
6,000

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Repairs
20,000
Bank loan int
5,000
NP c/d
394,000
542,000
542,000
N. p b/d 394,000

4a) - When the insured fails to renew the contract.

- When the insurance company is finally wound up
- When the policy matures thus signifying the end of the policy
arrangement
- If the insured decided to discontinue the contract thus stopping to be
party to the
contact
- Where the insured ceases to have insurable interest in the property i.e.
incase the property is sold
- When the insured has not acted in utmost good faith and is discovered
- When the court of law of orders termination of contract thus rendering it
null and void
- When the risk insured has occurred and compensation period thus
bringing an end to the contract.

b) - Dependency burden: When increase of population is caused by new

births and
elederly
people living longer, a big proportion of population is to be supported by
the few working adults.
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- Low living standards: The standard of living usually decline because of

the level of savings declining.
- Unemployment: With rapid increase in population, the majority of the
people are young and therefore dependants.
- Social problems: Due to overcrowding in the residential areas which is
caused by a rapid increase in population, social problems such as housing,
pollution, crime e.t.c.
- Food shortages: Population increase can outdo the rate of food
production.
- Strain on social amenities: Rapid population growth creates strain on
social facilities e.g. schools, hospitals e.tc.

5. a)

Dindustry S Revenue Firm

MC
Cost
AC
Price Pe P=
ATR = AR
S
p
D
O
qe Qty qe Qty

i) In the industry, the equilibrium price and output are determined by the
interaction of the forces of dd and ss (ope and oqe)

ii) An individual firm in the industry will take the price as given (ope)

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iii) However to determine the equilibrium output, it will equate

MC=MR=AR, hence it will produce Oqe

5b) - LPO is evidence of contract between the seller and the buyer.
- LPO indicates the quantity of each item required by the buyer.
- LPO shows cost per item and total value of goods requested by the
buyer.
- LPO assists the buyer to verify the goods delivered.
- It indicates the terms and conditions of sales arranged between the buyer
and the
seller.
- It helps the seller to write the invoice requesting the buyer to pay for the
goods.
- A verbal LPO enables the seller to write both bought and sold notes
document to confirm purchase and sale arrangement between seller and
buyer.

6a) - Maximum benefit: Govt should spend its revenue on projects that
benefit many
people in the country.
- Economical use: A good public expenditure principle ensures that costs
of administration are minimal to the amount of revenue available
- Elasticity/Flexibility: Public expenditure should respond readily both
upwards and downwards to changes of the economy.
- Sound proper financial management: It is achieved by insuring that
public accounts are maintained accurately through auditing and proper
accountability.
- Sanctions: Before public expenditure can be incurred, it must be
approved by relevant authority.
- Budgeted control: All expenditures should be properly reported with
their deficities and surplus from budgeted figures.
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Sukuma wiki business

Two column cash book for the month of June 2005
b)
Date Details Cash Bank Date Details Cash Bank
2005
June
3 Sales 230400 1 st purchases 82320
4 Debtor 400,000 2nd Wages 20,000
6 th t Van 320,000 5th Furniture 20,000
8 th Bank(L1) 40,000 7th purchases 20,000
9 th Cash(L2) 80,000 8th Cash (l) 40,000
12 th Mwedwa 60,000 9th Bank(c) 80,000
13 th Loan 100,000 46000 10th Drawing / 20,000

14 th Poro 11th electricity 2000 1750
30 th Bank(l3 ) 774250 30th Cash (c) 4250
30th Bal c/d 958 50,000
330
1144650 906000 1144650 906000
31st Bal b/ d 958330 5 50,000
July

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SAMPLE PAPER 6
BUSINESS STUDIES PAPER 1
565 / 2
1. a) Discuss FIVE functions of the budget as a planning tool. 10mks
b) Explain five adverse effects of a large population on the economic development of a
country. 10mks
2. a) Explain FIVE reasons for trade restrictions. 10mks
b) Highlight FIVE differences between a private limited company and public
corporation
10mks
3. a) Explain FIVE uses of national income statistics.
b) Discuss FIVE advantages of mobile phones in communication 10mks
4. a) Describe FIVE steps followed in personal selling. 10mks

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b) Explain FIVE contributions of appropriate technology to the success of business

enterprise.
10mks
5. a) Discuss FOUR types of marine Insurance. 8mks
b) Enter the following information to the relevant books of original and post to the
ledger
10mks
Feb 1 Sales to Ng’eno goods worth shs.4500 invoice no. 458
Feb 4 Sales to Njuguna goods worth shs.7,200 invoice no 213
Feb 12 Credit sales Ng’eno shs.8,000 invoice no. 469
Feb 17 Invoice no.214 to P.K Ndoto shs.9,200
Feb 24 Credit note no.102 from J. Ngeno shs.450
6. a Explain FIVE shortcomings of self employment 8mks
b) from the following trial balance of Utumishi enterprises, draw up a trading, profit
and loss for the year ended 31st December, 2004

Utumishi
Trial balance
As at 31-12-2004 *NDI*

General expenses 41,700

Opening stock 28,000
Motor expenses 51,450
Salaries 249,200
Insurance 27,440
Purchases 1,286,950
Sales 1,877,050
Motor vehicle 196,000
Creditors 361,200
Debtor 286,300
Premises 1,400,000
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Cash at bank 96,250

Cash in hand 1,750
Capital 1,704,290
Drawings 304,500
3,942,540 3,942,540

Stock on 31st Dec. 2004 was valued at sh.40,000

MARKING SCHEME
SAMPLE PAPER 6
565 / 2

1. a) Functions of a budget as a tool of planning

- Outlining government expenditure- If details various expenditure programmes &
all development programmes
- Outlining government revenue- If details various sources of government revenue
- Enabling the government planning- a budget enables the government to plan
various activities & programmes that lead to economic growth & economic
development in a country.
- Provides a measure of evaluating projects
- Basic resource allocation function a budget makes it possible to have an
overview of choices priority in areas of need
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- Stimulating economic activity e.g through deficit budget.

- It is an instrument used by the government to regulate the economic no matter
such as price stability & income redistribution
- Stimulates the effort of the people
- Presentation of a case for additional foreign development aid
- Introducing changes in taxation system
- Regulating money supply – so as help in controlling inflation
- Approval mechanism in built in the budgetary process providing a basis for
accountability in the use by public funds

b) - Negative effects of a large population

- poor education and training
- High levels of unemployment
- Increase in the levels of crime
- Poor housing
- Lack of good infractucture
- Poor services of delivery
- Increase in land fragmentation

2. a) Reasons for trade restrictions

- Prevent dumping of goods in the country
- Protect infant industries
- Correct deficit in balance if payment
- Conservation of foreign exchange reserve
- Creation of employment
- Raising government revenue
- Protect strategic industries from competition
- Preserves morals and culture
- Encourage diversification of industries
- For native security.
b) Difference between a private limited company and a public corporation
Public corporation Private limited company
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It is formed by an act of parliament It is formed under the company’s

act
It is not profit – motivated provides services to It is profit motivated
the general public.
It is financed by the government Capital is raised through the sale of
shares
Board of directors is appointed by the Directors are elected by
government shareholders
Losses are subsidized / borne by the Losses may lead to collapse of
government business
It is owned by the government It is owned by shareholders

3. a) Uses of N.I statistics

- Indicators of the standards of living
- To compare the standards of living of different countries
- Assessing the performances of the economy overtime i.e measure economic
growth
- Assisting the government in planning the economy i.e making economic
policies, preparing
national budget and development plans
- N.I statistics provide information on the distribution of income which helps the
government to
address income disparities.
- N.I statistics provide information on the types of factor incomes within the
economy
- N.I statistics assists entrepreneurs to understand market trends and thereby make
appropriate investment decisions
- Provides information on the relative sizes of the various sectors & economy and
their contribution.
b) Advantages of mobile phones in communication
- It is portable hence convenient
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- Has short message services

- Can be used for other purposes e.g. calculator watch e.t.c
- Can be used anywhere where there is network
- Cheap / affordable
- Can be used for storing information.
4.a) Steps involved / procedure of personal selling
A Identifying customers through newspapers
Post records, interviews and meetings
Preparing the presentation – know the product well e.g. quality, quantity ,uses
etc.
B Establishing customer’s contract – get the best time when customer may be
receptive
Arousing interest in the product, arouse deserve to make a purchase.
C Dealing with objection – handle objection pertaining to price , quality, design,
color etc.
D Closing the sale- ask the prospect to make a firm commitment to purchase the
product.
E After-sales services- sales person should follow up any terms or condition
provided in the order
e.g. delivery dates & installation
4. b) Contributions of appropriate technology to success of business enterprises
- Facilities management control- IT facilities transmission of information which is
important in decision making the computers, pages, telephones etc.
- Simplifies business transactions – technology reduces the complexity of many
business transactions that would otherwise be time- consuming e.g. ATMs. E-
ticketing, etc
- Diversifies the types of goods and services available
- Facilities the efficiency and effectiveness of business production process /
harassed output automation of business operations has resulted in increase levels
of output.
- Improves services delivery especially where customers in retail outlets
concerned.
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- Facilities control of business operations e.g. automation machines are able to

detact deviations in the production process
- Standardization – Products produced by machines are standardized and their
quality can be maintained.
- Facilitates mobility within and outside the business premises e.g. of escalators,
lifts, vehicles, rains, aircrafts, etc.

5. a) Types of marine insurance

- Hull insurance – is a cover to the body of a ship against loss or damage that may
be caused by sea perils.
- Cargo insurance- this provides coverage for goods on transit against loss or
damage.
- Freight Insurance – is coverage for transportation services by the shipowner to
consignor or consignee who might default in paying such freight charges.
- Shipowner’s liability- this type of cover is available to a ship owner in order to
insure against claims that might be brought against his / her in case his/ her ship,
or the negligence of his / her employees, has caused damage to or loss of other
people’s property third party insurance.

b)
Books of Original Entry
Sales Day book
Date Particulars Invoice L.F Amount
No.
Feb 1 Ngano 458 4,500
Feb 4 Njuguna 213 7,200
Feb 12 Ngeno 469 8,000
Feb 17 P.K Ndoto 214 9,200
Total transferred 28,900
to Sales Account
Sales Returns Journal
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Date Particulars Credit Note L.F Amount

Feb 24 Ngeno 102 450
Total transferred 450
to Sales Returns
Account
Sales Account
Date Particulars Sh. Date Particulars Shs.
Feb 28 Sales journal 28,900
Sales Returns Account
Date Particulars Sh. Date Particulars Shs.
Feb 28 Sales Returns Journal 450

6.a) Shortcomings of self- employment
- Possible loss of invested funds
- Long working hours
- Uncertain income
- Routine chores
8 mks

b) UTUMISHI ENTERPRISES
TRADING, PROFIT AND LOSS A/C
FOR THE YEAR ENDED 31-12-2004

Opening stock Sales 1,877,050

28,000
+ purchases
1286,950
G.A.F.S
1,314,950
- Closing stock 1,877,050
40,000
Cost of sales
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1,274,950
Gross profit
602,100

1877,050
General expenses
41,700
Motor expenses
51,450
Salaries
249,200
Insurance
27,440
Total expenses
369,790
Net profit
1,507,260
1,877,050
1,877,050

12 mks

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SAMPLE PAPER 7
BUSINESS STUDIES PAPER 2
565/2
Paper 2
1. (a) Explain six circumstances which may make an insurance company not to compensate
the
Insured in the event of loss. (12mks)
(b) Explain four factors that influence the incidence of tax. (8mks)
2. (a) Explain five monetary instruments used by the government to reduce the supply of
money in
an economy. (10mks)
(b) Explain five reasons why firms with popular products find it necessary to continually
advertise
the same products. (10mks)
3. (a) The Kenya shilling has been depreciating in relation to the Sterling pound.
(i) Define the term depreciation. (2mks)
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(ii) Explain four disadvantages of this process to Kenya's economy. (8mks)

(b) Explain five assumptions of monopolistic competition. (10mks)

4. (a) Discuss five causes of unemployment in Kenya. (10mks)

(b) Air transport is popular among businessmen even though it is expensive. Explain five
reasons
why businessmen opt for air transport. (10mks)
5. (a) Explain five characteristics of under-development. (10mks)
(b) Explain five advantages that accrue to a country as a result of foreign firms locating
their
enterprises in the country. (10mks)
6. The following information relates to Soittara Enterprises for the year ending 31 st December
2005.
Sh.
Gross profit 18000
Transport out 3000
Discount allowed 2000
Rent received 5000
Sundry expenses 3000
Salaries 5000
Insurance 2200

Required:
a) (i) Prepare the profit and loss account for Soittara Enterprises for the year ending 31 st
December
2005. (5mks)
(ii) Give the importance of the profit and loss account. (5mks)
b) Discuss five problems encountered when computing the consumer price index of
commodities.
(10mks)

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MARKING SCHEME
SAMPLE PAPER 7
565 / 2
Paper 2
1..a) W h e n i n s u r e d had no insurable c interest in t h e property destroyed as he w i l l not
suffer financial loss / w h e n t h e property does not belong to h i m
ii) When t h e insured d i d not disclose a l l t h e relevant facts when filling t h e
proposal forms.
iii) When t h e property has been destroyed by an act of God.
v) W h e n t h e p o l i c y w a s not in force at t h e t i m e of lose or p r e m i u m had not been
paid
vi) When t h e loss occurred due to willful a c t i o n by t h e i nsure d i . e . when t h e
insured purposely causes the loss or contributes to t h e loss.
vi) When t h e i n s u r a n c e c o m p a n y is i n s o l v e n t / b a n k r u p t hence u n a b l e to meet
i t s financial obligation

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vii) Late c l a i m where the insured fa i l s to c a i m w i t h i n t he st i pul a t e d

period/ time
vii) Improper procedures where t h e insured fails to follow t h e l a i d down (l e ga l )
procedure when c l a i m i n g .

b.i) Price control

I t s prices are fixed any tax t h a t is levied on goods a nd services is borne by t h e producer.
If t h e prices are n o t fixed the producer can s h i f t some of t h e t a x b u r d e n to t h e
consumer

ii)Time
In t h e short r u n t h e producer bears a l l t h e t a x burden s i n c e he fears t h a t an
increase in price may lead to a f a l l in demand In t h e long r u n he can a d j u s t h i s
o u t p u t a n d also s h i f t some b u r d e n to consumers
i i i ) Nature of tax
A l l direct taxes are borne by t h e paver but indirect taxes are shared between
producer and consumer

i v ) Market form / type of m a r k e t

A monopolist is able to shift the whole burden to consumer because he is the
only producer In perfect competition the producer shares the burden w i t h
t h e consumer

2 a) ( i ) Open market operations

The C e n t r a l B a n k sells government securities to t h e p u b l i c in exchange of
money T h i s reduces money supply in t h e economy.

( i i ) Bank rate

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Through t h e Central Bank, t h e government authorizes Commercial

banks to increase interest rates on loans. This discourages borrowing
consequently reducing money supply.

( i i i ) Special / compulsory deposits

The Central Bank increases Commercial b a n k s deposits. T his leaves them
with
l i t t l e money to lend

(iv ) Reserve requirement / cash ratio / l i q u i d i t y ratio

When t h i s is increased by the C e n t r a l Bank, t h e Commercial b a n k s are left
with
l i t t l e money to lend.

( v ) Margin requirement
This is t h e difference between the total value of security and total amount of
loan advanced. The CBK can instruct the Commercial banks to raise t h i s
margin to) discourage borrowing
( v i ) Selective credit control
The CBK restricts the commercial banks to lend to a few investors, which
will
reduce monev in circulation
(vii) Moral Suasion / publicity ./ directives / requests
The CBK mav appeal to Commercial banks to exercise caution in their
lending
activities m order to conform to the prevailing economic situation

2 b) i) To briny to notice new customers on the existence of the product

II) To increase demand so as to justily mass production that leads to economies
of scale
iii) To educate the consumers on the proper use of the product
iv) To retain market / consumer loyalty
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v) To cope with competition

vi) To announce changes / improvements of the product
vii) To announce new uses of the product
v iii) To create / maintain company image /' reputation
ix) To correct any misleading information about the product
x) To caution the consumers about imitations
xi) To remind the consumers about availability of the product

3. a) i) Depreciation is the loss of va l u e of a country's currency against another

country's currencv
NB: Loss of value must be highlighted in t h e answer/defn
Comparative currency
ii) Disadvantages
- It can be e n l l a t i m a n y
- Low export earnings
- Discourages local investors / investments
- It leads to low domestic savings
- Low of c o n f i d e n c e in t h e local c u r r e n c y
- Poor / deteriorating terms of trade
- Leads to h i g h c o s t of B a n k credi t e g interest w i l l rise
- Leads t o reduction in t h e real i n c o m e
- S t a n d a r d of l i v i n g wi l l d e t e r i o r a t e

b) i) Large number of sellers in the market who operate

independently
ii) There is product differentiation
iii) There are no barriers to entry or exit from industry
iv ) Fi r m set their own prices depending on cost of production and demand for
the product in t h e market
v) No firm has control over the factors of production
vi) I he firms engage in non-price competition
vii) They acquire the factors of production at prevailing market conditions
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4. a) ( i ) High population growth rate

( i i ) Low aggregate demand for goods and services
( v i ) Mininium wage laws
( iv ) Shortages of c a p i t a l
( v ) Inappropriate education system

(vi) Inappropriate technology

b) (i) When the goods are perishable
(ii) If t h e goods are of a high v a l u e
( i i i ) If t h e goods are fragile
(iv) If t h e goods are required urge nt l y
(v) If t h e distance involved is very long
(vi) When it is t h e o n l y mode of transport a v a i l a b l e
(vii) When t h e goods require m a x i m u m h a n d l i n g

5. a) - D o r m i n a n c e of M N C ' s
- Low levels of savings
- Hi gh level of dependency
- Inequalities of income and wealth distribution
- Insufficient access to export market
- M a i n l y a source of raw materials
- Inadequate infrastructure
- Low per capita income
- Deficiency of capital equipment/ resources
- Excessive dependence in agriculture
- Rapid rate of population growth
- Large scale unemployment
- Underutilisation of natural resources
- (Generally foreign trade oriented
- Imbalanced import and export sector
- Low levels of technology and skills
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- Ina ppropria te education system

- Low labour remuneration
- Brain drain

5. b) - Creation of employment opportunities

- Acquisition of technology / skills
- Exploitalion of natural resources e g Tiomin
- Improvement of infrastructure
- Earns revenue to the government through taxation
- Diversification of the economy
- Improves the balance of payment position
- Improves the standards of living via variety of goods produced
- Provision of market for locally produced goods
- Provides International relations hence unity

SOITTARA ENTERPRISES
Profit and Loss Account
For the period endings 31 . 12 . 2005

Dr Cr
Shs Shs.
Discount Allowed Gross Profit / b/d 18000
2000 Rent received 5000
Transport out 3000
Sundry Expenses
3000
Salaries
5000
Insurance
2200
Net Profit
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7800

23000 23000

N B : Any wrong entry deduct '/2 mark each.

- It indicates t h e gross profit or loss profit forward from t h e t r a d i n g account
- It discloses other incomes earned by the business besides gross profit
- It gives a business s overhead or operating expenses
- It facilitates the determination of either net profit or loss.
- The information contained in it assists owners in making relevant decisions
concerning the operations of the business
- Enables t h e businessman pay the correct amount of taxes as required by t h e
law.

i) The problem of w e i g h t s / selection of t h e commodities to use

ii) The basket and w e i g h t i n g are rarely e s t i m a t e s i.e. does not reflect r e a l i t y
iii) The prices of t h e c om m odi t i e s change f r e q u e n t l y / become u n r e a l i s t i c w i t h
increases
w i t h change from t h e reference d a t e
iv ) The chosen ba ske t is o n l y a p p l i c a b l e to t h e base year
v) Difficulties in recording price of every single type good or service.

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SAMPLE PAPER 8
BUSINESS STUDIES PAPER 2
565/2
Paper 2

1. a) Discuss FIVE reasons for the existence of small firms in an economy. 10mks
b) Discuss FIVE causes of inflation in a country. 10mks
2. a) Explain FIVE benefits that would accrue to a business person who transports goods
by liners rather than tramp streamers. 10mks
b) Explain FIVE sources of finance open to Kenya government. 10mks
3. a) Highlight FIVE indicators used to evaluate a country’s economic development.
10mks
b) Prepare a duly balanced three column cash book from the following information.
Jan 1: Balance b/d cash shs.4,000 bank shs 27,000
“ 4 Settled Olweny creditors account of shs. 8,000 by cheque having
deducted 6%
cash discount.
“ 8: Received shs. 6000 cash from Mutoma traders
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“ 16: Deposited shs. 4,500 to the bank account

“ 24: Withdrew shs. 9,200 from the bank for private use.
“ 29: Received shs. 19,950 from Kawawa by a cheque after allowing 5%
discount.
“ 31: Banked all the cash leaving only sh 1,500 in the office.
10mks
4. a) Explain FIVE methods of trade restriction.
10mks
b) Highlight FIVE problems encountered when measuring the national income of a
country.
10mks
5. a) Discuss FIVE roles played by commercial banks in facilitating home trade.
10mks
b) The following information relates to the business of Omondi for the week ended
3oth May,
2004.
2004
May 25: Started business with shs.24,000
“ 26: Bought goods for shs. 18,000
“ 27: Cash sales shs. 18,900
“ 28: Paid for rent sh. 150 cash
“ 29: Received cash shs. 5625 from sales
“ 30: Paid commission shs. 900
Required:
(i) Ledger accounts to record the transactions above.
(ii) Trial balance as at 30th May, 2004.
10mks
6. a) Outline FIVE reasons why a business would like to operate its own warehouse.
10mks

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b) The following Trial balance was extracted from the books of Likoni Traders on 31st
December 2004.

Likoni Traders Trial balance as at 31st December, 2004

Dr Cr
Shs Shs
Purchases 70,000
Capital 88,800
Returns inwards 1,500
General expenses 5,200
Cash in hand 2,500
Return outwards 2,400
Bank Overdraft 7,500
Salaries 14,000
Debtors 10,500
Creditors 8,500
Fixed Assets 82,000
Sales 95,000
Stock (1:04) 12,500
Bad debts 4,000
202,200 202,200

Additional information
Closing stock was valued at shs. 6,500
Salary outstanding was shs. 2,800
Prepare
i) Trading, profit and loss account for the period ended 31st December, 2004. 6mks
ii) Balance sheet as at 31st December 2004 4mks

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MARKING SCHEME
SAMPLE PAPER 8
565/2.

1. a) i) The size of the market / the extent of market for goods / services . where the
demand
for the product is small / small market.
ii) Nature of the product where the nature of the product dictates the size of market.
iii) Simplicity of the organization where the firm intends to take advantage of the market
simplicity.
iv) Flexibility where the owner of the firm wishes to maintain flexibility so as to take
advantage of new opportunities.
v) Quick / fast decision making. To avoid delay in decision making.
vi) Rising cost of product. Where the cost of production is on the rise too fast.
vii) Legal constraint. Where the law restricts the growth of a firm.
b) i) Increase in the demand for goods / services without corresponding increase in supply of
these goods / services (i.e. demand- pull inflation)
(ii) Increase in the cost of factors of production such as labour / raw materials / taxes (i.e.
Cost- push inflation)
(iii) Increase in the cost of imported finished goods / raw materials (i.e. imported inflation)
(iv) Increase in the supply of money and there is no corresponding increase in the output of
goods/ services / when there is a lot of money in the economy.
(v) Increase in hoarding / black market / smuggling these create artificial shortages of
goods
Which in turn lead to price increases.
2. a) i) It has fixed schedule / timetable, which enable the trader / shipper to plan the
transportation.
ii) It has fixed fare / rates, which enables the trader to budget his finances well.
iii) Its freight charges/ rates are relatively low / cheaper.
iv) It can carry bulky / heavy / more goods at a time
v) They are more reliable than tramps, making the traders more confident.
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vi) They cover longer distances.

vii) It provides discounts to its regular users.
b) i) Taxes / duties levied on imports / exports
ii) Fines imposed by courts on offenders
iii) Rent / rates paid for the use of govt. property.
iv) Licence fees paid by those who want to operate business.
v) Dividends / profits earned from govt. investments
vi) Proceeds from sale of govt. property
viii) Interests on loans advanced by the govt. on firms.
ix) Government internal / external borrowings
x) Grants / Aids received by the government.
3. a) i) Improved level of literacy
ii) Improved / increased standards of living
iii) Improved infrastructure.
iv) Improved methods of production
v) Improved health care
vi) Reduced infant mortality rates
vii) Increase life expectancy
viii) Reduced in equalities in income distribution
ix) Change in people’s attitude, making them more receptive to changes.

b) Three column cash book

Date Particulars Folio Disc Cash Bank Date Particulars Folio Disc. cash Bank
Jan Balance 4,000 27,000 Jan Olweny T 480 7,520
1 b/d   4  
Jan Mutoma 6,000 Jan Bank 4,500
8  16 
Jan Cash 4,500 Jan Drawing 9,200
16 24 
Jan Kawawa 1050 19,950 Jan Bank C 4,000
29  31 

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Jan Cash c 4000 Bal. c/d 1,500 38,730

31  
480 10,000 55,450
1050 10,000 55,450 

Bal. b/d 1,500 38,730


N/B particulars should be correctly recorded.

4 a) i) Imposition of tariff barriers
ii) Use of government subsidies
iii) Control of foreign exchange
iv) The use of quota system to control imports
v) The application of strict product standards regulations
vi) The application of total ban to control the importation of certain products
vii) Enacting legislation to restrict trade
viii) The creation of lengthy procedures to discourage importers.
b) i) It is not easy to estimate the amount of depreciation
ii) It is not easy to estimate the value of the subsistence output since they are not
exchanged .
iii) Double counting may occur when using either income or output approaches.
iv) Individuals / firms may not give complete / accurate data
v) There may be change in the value of money during inflationary times
vi) There arises a problem of what to include in the national income statistics
5. a) i) Lending in terms of direct loans / overdrafts / discounting bills of exchange.
ii) Transfer of money in terms of cheques / standing orders / credit transfers/
telegraphic transfers etc.
iii) Collecting money on behalf of traders
iv) Remitting money on behalf of traders
v) Providing custody of valuable documents of traders
vi) Selling shares on behalf of business
vii) Providing useful business advice / investment advice to their customers / traders
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viii) Acting as referee on behalf of business.

ix) Providing night-safe services / facilities
x) Acting as guarantors for traders
xi) Sells foreign currency to traders engaged in foreign trade.

5.b) Dr. Capital Account Cr.

2004 Bal c/d 2004 Cash 24,000 
24,000.
24,000 24,000
Bal. b/d

Dr. Cash Account Cr.

2004 2004 Shs.
May 25 Capital 24,000 May 26 Purchases 18,000
May 27 sales May 28 Rent 150
18,900
May 29 sales 5,625 May 30 commission 900
May 31 bal c/d 29,475
48,525 48,525
Bal. b /d 29,475

) Dr. Purchase Account

Cr.
2004 Shs. 2004 shs.
May 26 cash 18,000 Bal. c/d 18,000

Bal. b/d 18,000

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Dr. Sales Account Cr.

2004 Shs. 2004 shs.
Bal c/d May 27 cash 18,900
24,525 
May 29 cash 5625

24,525 24,525

Bal b/d 24,525

Dr. Rent Account Cr.

2004 shs. 2004 Shs.
May 30 cash 900  Bal. c/d 900

Bal. b/d 900

Dr. Commission Account Cr.

2004 shs. 2004 Shs.
May 30 cash 900 Bal. c/d 900

Bal. b/d 900
Omondi
Trial Balance
As at 30th May 2004
Dr. Cr.

Capital 24,000
Cash 29,475
Purchases 18,000
Sales 24,525

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Rent 150
Commission 900 ______
48,525 48,525
6a). i) To cut down / reduce cost of living space in other warehouses.
ii) To exert control over its warehouses / stock
iii) To enable it store special goods
iv) To avoid delay in the clearance / release of goods from the hired warehouse
v) To avoid extra charges levied by the hired warehouse.
vi) To enable it prepare its goods to meet the required standards
vii) To accommodate more goods in the warehouse
viii) To bring in special equipment for handling / accommodate its goods/ stock

b) Likoni Traders
Trading, profit and loss account
For the period ended 31st December, 2004
Shs Shs
Opening stock Sales 95,000
12,500
Add purchases 70,000 Less returns inwards 1,500
Less returns outwards 2,400 
67,600
Cost of goods available 80,100
Less closing stock
6,500
Cost of sales 73,600
Add G. profit c/d 19,900  93,500
93,500

Expenses: Gross profit b/d 19,900

General expenses 5,200
Salaries 14,000 Net loss 6,100

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Add outstanding salary 2,800

Bad debts 4,000
26,000 26,000

Likoni Traders
Balance sheet
As at 31st December, 2004
Shs. Shs
Assets Capital 88,800
Fixed Assets 82,000 Less net loss 6,100
Current Assets 82,700
Cash in hand 2,500 Current liabilities
Debtors 10,500 Bank Overdraft 7,500
Stock 6,500 Creditors 8,500
Salary outstanding 2,800
101,500 101,500

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SAMPLE PAPER 9
BUSINESS STUDIES PAPER 2
565 / 2

1. a) Artur is an importer of an assortment of goods from different countries.

Explain five benefits he may enjoy while his goods are stored in a bonded warehouse.

10mks
b) Explain five principles of taxation. 10mks

2. a) Explain five reasons to justify the use of economic barriers to control free trade.
10mks
b) Explain five emerging trends related to product promotion. 10mks
3. a) By use of a well labelled diagram, explain the case of a firm earning above normal
profits in a perfectly competitive market structure. 8mks
b) Explain six demerits of inflation to a developing country. 12mks
4. a) Explain five ways in which the central bank of Kenya regulates the operations of
banks
in Kenya. 10mks
b) Explain five factors which are likely to influence the level of national income in
Kenya. 10mks
5. a) Explain four challenges facing the transport industry in Kenya today. 8mks

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b) Enter the following transactions in the purchases Journal of silver springs Agrovet
and post to the ledger for the month of October 2004
October 1st : Purchased a stock of 100 bags of Maclick at sh. 1200 per bag on credit
from
Muraya Traders; Invoice no.100.
4th :Purchased on credit from Unga feeds 50 bags of bran animal feed at sh. 2000
per bag; Invoice no 115. A trade discount of 15% was allowed.
11th : Purchased 70 packets of Ridomil on credit from Alpha Ltd at sh. 300 per
packet. A trade discount of 10% was allowed; Invoice no.169.
24th : Bought on credit 30 bags of layers marsh at sh. 4000 each from Chick
point at
a trade discount of 20%; Invoice no. 132. 12mks
6. a) The following trial balance was extracted from the books of Kitika traders as at
30/06/2005.
KITIKA TRADERS
TRIAL BALANCE
AS AT 30/06/2005
DR (SHS) CR(SHS)
Sales 900,000
Purchases 600,000
Return inwards 80,000
Return outwards 20,000
Carriage inwards 40,000
Carriage outwards 3,000
Stock (1st July, 2004) 100,000
Rent 60,000
Delivery van 180,000
Bank 60,000
Creditors 170,000
Debtors 120,000
Discount allowed 18,000

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General expenses 7,000

capital 178,000
1,268,000 1,268,000
Additional information
(i) Stock on 30/06/05 was valued at shs 135,000
(ii) Outstanding Rent shs 7000
Required
Prepare the profit and loss account for the year ended 30/06/2005 and the balance sheet

12mks
b) Perth a management consultancy firm has adviced Ponda Mali Company Ltd. to adopt a
comprehensive code of conduct. Explain four significances of this on Ponda Mali
Company Ltd. 8mks

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MARKING SCHEME
SAMPLE PAPER 9
565 / 2
BUSINESS STUDIES

1.a) Benefits of a bonded warehouse to an importer.

- Goods can be prepared for sale while in storage
- Owner can look for market while the goods are still in storage
- Some goods lose weight while in the warehouse so the duty to be paid becomes
lower if it is based on weight.
- Burden to pay duty passes on to the buyer if the goods are sold while still on
bond.
- The importer is allowed time to make arrangements for payment of customs duty
- Security is provided for goods so the importer is relieved of the task of providing
the same
- Some goods improve in quality while in the warehouse e.g. Tobacco, wine etc.
Any five well explained points x 2Total
(10mks)
b) Principles of taxation
- Equitable
- Certain
- Convenient
- Economic

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- Elastic
- Flexible
- Diversified Any five well explained points x 2Total
(10mks)
2.a) Reasons to justify the use of barriers to control free trade ( 10mks)
i) To correct balance of payments deficit; When a country is facing B.O.P
disequilibrium the government may introduce measure such as duties, Quotas, or
high tariffs to discourage importation of goods
ii) To protect domestic / infant industries; newly established local industries need to
be given time to grow and countries may impose restrictions to give this
industries an opportunity to establish themselves before they compete at
international level
iii) To discourage dumping; Dumping has the effect of suppressing small industries
due to unfair competition as consumer prefer to buy the cheap goods. Most
countries impose high tariffs to discourage dumping.
iv) To raise government revenue; Tariffs may be used by the government to raise
income especially when imposed on essential commodities whose demand is
fairly inelastic . Importers will continue buying the goods despite the higher
prices/ tariff rate.
v) To create employment ; Tariffs imposed on imported goods make them more
expensive and may trigger demand for domestic goods this tends to encourage
local investment more economic activity thus creating. Employment
opportunities in the country.
vi) To expand the domestic market; trade barriers may be used to encourage the
consumption of locally produced goods and thus expand the market for domestic
products due to an increase in demand.
vii) To stimulate investment; protective measures may be adopted by a country to
turn round the economy in times of recession / depression in an effort to achieve
economic recovery.
viii) To protect socio- cultural values; A ban may be imposed on foreign goods such
as porn films and illicit drugs that tends to compromise the Health, culture and
moral values of a country
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ix) To protect strategic industries e.g. Agricultural sector.

x) To encourage industrial diversification and reduce overdependence
xi) To ensure national security ; the government may protect some industries e.g.
those that extend provision to security force.
xii) To preserve balance of trade and foreign exchange reserves. Any 5 points x2 =(
10mks
2.b) Emerging issues in product promotion;
(10mks)
i) There is very stiff competition among sellers of similar products e.g mobile
phone services providers.
ii) Modern technology e.g the use of internet and networking has revolutionised
the methods of product promotion
(iii) Consumer awareness has greatly increased and product promotion has become
more accurate truthful and ethnical
(iv) Many business are seeking publicity in the media e.g T.V and Newspapers
(v) Many business organizations have embraced public relations as a tool of product
promotion
(vi) Exhibition and trade fairs have widely been used as ways of product promotion
(vii) More emphasis has been put in the use of posters, billboards and brochures as a
way of product promotion because of increased literacy
(viii) There has been increased use of the electronic media – ie. Radio and T. V
especially in advertising Any 5 points
x 2 = 10mks
3.a) - Firms are price takers
- Equilibrium price is determine by the interaction of the demand and supply
curves
- P = TR = AR
q
- dd = AR = MR

P COSTS
D S REVENUE MC
ATC



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A

P1 P1 dd
=AR= MR

C
B

S D
O q1 Out put Q  O q1
Q

A) INDUSTRY B) FIRM

CBAP1 – Above normal profits

( ½ x 16 ticks =
8mks)
3.b) Demerits of inflation to a developing country
- Wastage of time
- Increase in wages and salaries
- Reduction in profits
- Decline in standards of living
- Loss to creditors
- Retardation in economic growth
- Adverse effects on balance of payments
- Loss of confidence in the monetary system. Any 6 points well explained x
2.TOTAL

(12mks)
4.a) Ways through which the central bank regulates commercial banks
i) Bank rate
ii) Cash or liquidity ratio
iii) Special deposits / compulsory deposits
iv) Selective credit control / credit rationing
v) Moral persuasion

vi) Open market operations

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vii) Direct supervision / instructionAny 5 points well explained x 2 TOTAL

(10mks)
b) Factors which influence the level of a country’s national income.
i) Labour supply-; Quantity and quality of the labour force . more people are
expected to generate higher income, similarly, more skilled labour force is
expected to generate more income and vice versa.
ii) Capital- With more capital resources especially of high quality, a country is
expected to generate more income. Kenya & other LDC’s sufficient capital
iii) Entrepreneurship- If more citizens are willing to venture into production,
the country’s national income will be affected positively.
iv) Land- Includes all natural resources and hence forms a basis for production.
With enough natural resource endowment, a country can generate higher
incomes.
v) Level of technology- Higher of more advanced techniques in production
translate into higher output hence a higher national income.
vi) Political stability- a country at peace can always attract both local and
foreign investment .The investors contribute in the generation of national
income.
(Mention – 1mkExplanation – 1mk Any 5 five points well explained –
10mks)
5.a) Challenges facing the transport industry
(8mks)
i) Congestion and traffic jams;- Result from narrow roads and poor planning
causes delays and waste of time.
ii) Poor and delapitated roads;- Some roads are in a state of disrepair while most in
rutal areas are impassable during the rainy season. This increases the cost of
transport to cater for increases wear and tear.
iii) Road carnage and highway robbery have led to loss of life and property / goods.
iv) Pipeline leakages / spills and damage by saboteurs has led to losses, high
monitoring costs and environmental pollution.

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v) The collapse of Kenya railways due to mismanagement has led the

discontinuation of up- country commuter trains and inconveniencing passenger
transport
vi) Strikes in almost all sectors e.g. Kenya railways, matatu’s aviation and the dock
workers have led to inefficiency in the industry.
vii) Inadequate handling facilities at ports unclaimed goods and slow transit inland
have led to congestion at ports.
viii) Exhorbitant landing fees and inappropriate run-ways have limited the maximum
utilization of Kenyas airports e.g. Eldoret.
ix) Motor vehicle emissions and matatu noisy operations cause air and noise
pollution
Any 4 points x 2 =( 8mks)

b)i) PURCHASES JOURNAL (PJ)

DATE DETAILS INVOICE FOLIO AMOUNT TOTAL (Shs)

NO. (shs)
2004
October 1 Muraya traders 100 PL1 120,000
4 Unga feeds 115 PL2 100,000

 less trade discount 15,000 85,000
11 Alpha ltd 169 PL3 21,000
less trade discount 2100 18,900
24 Chick point 312 PL4 120,000
Less trade discount 24,000 96,000
31 Dr. to purchase A/C GL 319,900

14 TICKS X ½ = 7
MKS
ii) PURCHASES LEDGER (GL)

DATE DETAILS FOLIO Amount (shs) DATE DETAILS FOLIO Amount (shs)
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2004 Total creditors PJ 319,000

Oct MURAYA
31 TRADERS (PL1)
UNGA 2004 PJ 120,000
OCT 1 PURCHASES
FEEDS (PL2)
ALPHA OCT 4 PURCHASES PJ 85,000
LTD (PL3)
CHICK OCT 11 PURCHASES PJ 18,900
POINT (PL4)
PJ 96,000
OCT 24 PURCHASES

5 ticks x 1 =
(5mks)

a) i)
KITIKA TRADERS
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 30 / 06 / 2005

SHS SHS
SHS SHS

Opening stock Sales

100,000 900,000
Purchase 600,000 Less Return Inwards
Add carriage inwards 40,000 80,000
640,000 Net sales
820,000
Less Returns outwards 20,000
620,000
Goods available for sale
720,000
Less closing stock
135,000
Cost of sales
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585,000

Gross profit c/d

235,000 820,000

820,000 Gross profit b/d

235,000

EXPENSES.
Carriage outwards 3,000
Rent (60,000 + 7000) 67,000
Discount Allowed 18,000

95,000
General expenses 7,000
Net profit c/d
140,000 235,000

Net profit b/d

235,000 140,000
16 ticks x ½ =
(8mks)

KITIKA TRADERS
BALANCE SHEET
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AS AT 30 / 06 / 2005

SHS SHS
SHS SHS

FIXED ASSETS Capital

Delivery van 178,000
180,000 Add Net profit
140,000
CURRENT ASSETS CURRENT LIABILITIES
BANK 60,000  Creditors 170,000
DEBTORS 120,000 Outstanding Rent 7,000 
STOCK 135,000  177,000
315,000

495,000
495,000
8 ticks x ½ = (4mks)
b) Roles of ethics in business
- It encourages good working relationship among workers
- It encourages good working relationship between employer and Employees
- Ensuring professionals relate well to their clients
- Ensuring the rights of individuals in a working environment are protected.
- Ensure workers protect and uphold the good reputation of the business
organization.
- Helps workers develop the right skills and right attitudes towards work.
Any well explained points
Each 2 mks = Total
8 mks

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SAMPLE PAPER 10
BUSINESS STUDIES PAPER 2
565/2
1. a) Discuss five importances of entrepreneurship to an economy
(10mks)
b) Explain five measures that the government may take to curb inflation.
(10mks)

2. a) Discuss five problems linked to rapid population growth.

(10mks)
b) Explain five factors that may hinder economic development.
(10mks)

3. a) Explain the differences between non-banking financial institutions and commercial

banks.
(10mks)
b) Discuss five circumstances under which an insurance company would not
compensate the insured in the event of loss.
(10mks)

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4. a) Highlight five situations where demand may increase with increase in commodity
price.
(10mks)
b) Give five reasons for differences in terms of trade between countries.
(10mks)

5. a) Explain five benefits of localization of industries.

(10mks)
b) Explain five reasons why consumers need protection against malpractices by some
traders.
(10mks)

6. a) Explain five ways in which the government can influence the price of a commodity.

(10mks)
b) Oriabengi shop sells all its goods at a margin of 20%. For the year ended 30th April
2006, its trading activities were as follows:
Purchases 800,000
Sales 950,000
Net profit 5% of sales
Closing Stock 200,000
Calculate:-
(a) The gross profit
(b) Opening stock
(c) Mark-up percentage
(d) Net profit
(10mks)

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MARKING SCHEME
SAMPLE PAPER 10
565/2

1a) Importance of entrepreneurship to an economy.

- Creation of employment opportunities since the enterprises formed will require
human labour hence reduce the unemployment problem
- Leads to formation of small business which leads to development of skills
- Increases participation of Kenyan citizens in economic activities thus reducing
foreign dominance.
- Leads to increase in savings and investments by local Kenyans which encourage
use of local resources which would have remained idle.
- Leads to development of small scale business in rural areas hence alleviating the
problems of rural to urban migration.
- Small scale business helps in distribution of income in the society as the
successful entrepreneurial ventures encourages other people to start their own.
- Entrepreneurship improves standards of living since most of the people are
engaged in employment.
Any 5 x 2 =10mks

b) Measures that the Government may take to curb inflation.

- Price control measures.
- Regulating imports
- Controlling exports of essential commodities.
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- Decreasing general taxes on essential commodities.

- Decreasing general taxes on commodities
- Increasing bank reserves.
- Increasing interest rates in order to discourage borrowing. Any 5 explained @
2mks=10mks

2.a) Problems linked to rapid population growth:

- Income per capital is affected leading to decline at a certain level.
- The government may find it difficult to provide adequate essential social
services.
- There may be unemployment or over-employment due to migrants- this may
lead to low standards of living.
- Consumption and saving is affected by increased population leading to reduced
savings.
- Increased dependency ratio results on account of low infant mortality coupled
with increased life expectancy leading to ageing population.
- Income inequalities arise with very few rich people and a majority of poor
people.
- It may lead to overexploitation of natural resources leading to environmental
degradation.
Rapid population growth therefore leads to a vicious cycle as below:

Rapid population High dependency ratio

growth

Low incomes (per capita

income)
Poverty

Low savings
Low Investment
Any 5 points
explained@2mks=10mks

b) Factors that may hinder Economic development

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- Lack of raw materials / resource endowment

- Inadequate capital
- Reliance on poor technology
- Political instability.
- Lack of physical infrastructure
- Socio- cultural constraints.
- Limited entrepreneurial abilities
- Poor nutrition and diseases
- Administrative constraints
- Foreign exchange constraints Any 5 explained @
2 mks=10mks
3a) Differences between commercial banks and non-banking institutions
Commercial banks Non- banking institution

- Provide current account facilities to - They do not provide current

the customers account facilities
- Provide short-term and medium term -Provide medium and long term
finance . finance
- Provide finance that is not restricted to -Provide finance that is restricted
any activity for specialized purpose
- Provide foreign exchange transactions -Do not provide foreign exchange
to their customers transactions
- Do not participate in capital market -Can participate in capital market
trade. trade
- Participate in clearing house activities Do not participate in clearing
house activities.

Any 5 corresponding differences @ 2mks each

(10mks)

b) Circumstances under which an insurance company would not compensate the

insured.
- When insured had no insurable interest in the property destroyed.
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- When the loss is not as a result of the risk insured.

- When the insurance company is insolvent / bankrupt.
- When the policy was not in force at the time of the loss.
- Late claim, where the insured fails to follow the legal procedure when claiming.
- When the property has been destroyed by an act of God
- When the insured didn’t disclose all the relevant facts when filling the form.
- When the loss occurred due to willful action by the insured. (Deliberate).
Any 5 @
2mks =10mks
4.a) Situations where demand may increase with increase in price.
- Goods of ostentation i.e goods consumed for prestige.
- Inferior goods i.e good of low quality.
- Giffen goods i.e. goods of inferior quality consumed with quality goods.
- Expectation of future shortages.
- Expectation of further increases of prices.
- Necessities i.e goods that one cannot do without
- Habitual goods and services
Any 5 @
2mks=10mks.
b) Reasons for differences in terms of trade between countries.
- Nature of the commodity being exported.
- Nature of the commodity being imported.
- Demand for a country’s exports.
- Existing world economic order.
- Total quantity supplied.
Any 5 @
2mks = 10mks
5.a) Advantages of localization.
- Encourages establishment of support business enterprises banks.
- Creation of a pool of labour force.
- Other firms act as market for the produced goods/ services.
- Creation of employment opportunities.
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- Development of the necessary infrastructure e.g roads, health, education

facilities.
- Easy access to raw materials Any 5 @
2mks =10mks.
b) Reasons for consumer protection.
i) Overpricing of goods / unfair prices consumers need protection to stop
traders
from exploiting them through high prices ( for the goods they sell)
ii) Underweight goods / undersize goods/ less services.
Some traders may sell
underweight goods/ undersize goods/ less services to make more
money/ cheat customers.
iii) Inferior/ low/ poor quality goods/ services.
Some traders may cheat by selling inferior low/ poor quality goods
iv) Misleading / false advertisements consumers need protection from those
traders
who may cheat them through misleading/ false advertisements.
v) Harmful / unhygienic goods/ services.
Goods unfit for conservation may be sold to customers and cause them
harm.
vi) Socially unacceptable goods / services.
Example of such goods/ services e.g pornography. Some traders may sell
offensive goods that injure the morality of the society.
vii) Hoarding of goods/ services.
Some traders may hinder/ refuse to sell goods/ services thus creating
artificial shortages.
viii) Breach of contract.
Some traders may fail to fulfil meet their contractual obligation / guard
against unfair repossession / harassment.
ix) Unlicensed traders.
Some traders may sell illegal goods / services.
x) Unsafe building.
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Some traders may put up dangerous/ poor buildings.

xi) Inhygienic environment / permits traders to sell good/ services in dirty
environment / unhealthy environment. Any 5
x 2 =10mks
6 .a) Ways in which the government can influence the price of a commodity.
i) Price control.
The government may wish to control prices, especially of essential
commodities in order to either encourage the consumption of the
commodity or to protect the consumers against exploitation.
ii) Taxation.
The imposition of increased in tax on a commodity has the effect of
increasing its cost and hence its price. An the other hand withdrawal of
tax on a commodity would reduce its price
iii) Subsidies.
The government may meet part of the production cost of a commodity by
offering subsidies to producers. This has the effect of lowering the cost
of production.
iv) Auction.
This refers to the situation where the price of a commodity is set
through bidding. Buyers are given an opportunity to suggest the
price.The other the highest bidder buys the commodity.
v) Tendering.
This refers to a situation whereby buyers are invited to quote their prices
independent of each other all the tenderts received are opened at a
particular started time.
Any 5 x 2 = 10mks

b) i Gross profit = sales –cost of goods sold √½

Margin = G.P x 100 √½

Sales

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 Idealprice Consultants Service Beyond Your Expectation

20% = G.P x 100 √½

950,000

190,000 = G.P √√1 5 ticks @½

marks 2 ½ mks

ii) Opening stock

Since C.O.S =Opening stock + purchase – closing stock√½

Value of opening stock

=C.O.S = sales – G.P √½

C.O.S = 950,000 – 190,000 √½

=760,000

:. 760,000 =Opening stock + 800,000

=200,000√½

760000 = Opening stock + 600,000 √½

760,000 – 600,000 = Opening stock√½
160,000 = Opening Stock√√1

c) Mark –up percentage

Mark –up = G.P x 100√½

C.O.S

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= 190,000 x 100√½
760,000

= 25%√√1
d) Net profit

Net profit is 5 % of sales

N.P = 5/100 x 95000√½

= 47,500 (15 ticks @½ marks
7½ mks)
(= 10mks)

END
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