KCSE Business Studies Topical Questions and Answers

Reducing government spending.
Increasing taxation in order to reduce amount of income in the hands of people.
Controlling amount of imports to reduce foreign spending
Discourage financial institutions from lending money.
Imposing a maximum on wage bills to control cost push inflation.
Imposes tariffs on imported goods to make them expensive thus reduce their demand.
Controlling foreign exchange to limit importation of goods.
Imposes imports quotas to reduce amount of imported goods.

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List four factors that are likely to hinder economic development in Kenya.

5/11/2021

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List four factors that are likely to hinder economic development in Kenya. (4mks)

Four factors that are likely to hinder economic development in Kenya.

Low level of savings which leads to low investment, low productivity and low income.
Political instability which may discourage potential investors from investing.
Poor natural resource endowments in Kenya where some places are deserts and have no minerals.
Poor set up of economic institutions - poorly structured financial market, poorly set commodity markets, poorly established labour and capital markets inhibit economic development. In Kenya, cash crop farmers suffer because of this problem. Their produce is collected rate from their farms, inputs are provided much later the onset of the planting season, credit is given after a lot of struggle by the farmer and proceeds of the farmer produce is delayed and in some cases embezzled.
Lack of skilled manpower- hindering the exploitation of available natural resources.
High rates of population growth - where much of the income that is generated goes into providing basic requirements of life rather than to production activities.
Cultural beliefs and attitudes - which may prevent people from adopting modern methods of doing things and hence hindering economic development.

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Name four possible barriers to international trade

5/11/2021

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Name four possible barriers to international trade. (4mks)

Four possible barriers to international trade.

Language barriers.
Political differences among nations.
Wars.
Trade laws and regulations in different countries hinder international trade.
Trade restrictions imposed by governments.
Differences in currencies.
Poor means of transport and communication.
Long distances.
Cultural differences.
Physical barriers e.g mountains, rivers, lakes and oceans
Ignorance

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Outline four ways in which the Central Bank controls the operations of commercial banks

5/11/2021

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Outline four ways in which the Central Bank controls the operations of commercial banks. (4mks)

Four ways in which the central bank controls the operations of commercial banks.

By licensing commercial banks/approves establishment of commercial banks and issues them with a license.
By regulating the rates of interest that commercial banks charge their customers for loans borrowed.
By determining the cash ratio which determines the commercial banks’ ability to create credit.
By determining the liquidity ratio of commercial banks- which may limit the commercial banks’ ability to create credit.
By controlling the establishment of branches of the banks.
By determining the minimum capital requirements for the establishment of commercial banks.
By requiring the commercial banks to deposit a certain percentage for their customer’s deposits in the central bank.
By requiring that commercial banks maintain an account in the central bank, which facilitates the clearing process.
By setting the margin requirement. The central bank does this by setting the security requirements for applying for loans.

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Outline four reasons that have led to the growth of the savings and credit Co-operative Societies in Kenya.

5/11/2021

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Outline four reasons that have led to the growth of the savings and credit Co-operative Societies in Kenya. (4mks)

Four reasons that have led to the growth of the savings and credit co-operative societies in Kenya.

Because they enable people to save according to their abilities
They offer different types of loans to meet the needs of the members.
They charge relatively low rates of interest for loans borrowed.
They offer easy lending conditions with few formalities involved in the application for the loan.
The government supports their establishment so as to empower the people.
The members enjoy profits made by the co-operative in terms of dividends.
Members have a sense of ownership of the co-operative since they manage it themselves.
A loan is written off in case a member dies before he is through with repayments, unlike the case with other financial institutions, which will continue to demand payment.
The co-operative give the beneficiaries double a member’s savings if he dies while still a member.

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Indicate the book of original entry used in recording each of the following transactions of Alex Traders.

5/11/2021

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Indicate the book of original entry used in recording each of the following transactions of Alex Traders. (4mks)

(a) Purchase Journal
(b) Sales Journal
(c) Purchase Return Journal
(d) Sales Return Journal

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The average consumer price for a tin of maize for various years in Trans-mara is shown in the table below.

5/11/2021

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The average consumer price for a tin of maize for various years in Trans-mara is shown in the table below.

The average consumer price for a tin of maize for various years in Trans-mara is shown in the table above.

Calculate the consumer index using year 2008 as the base year. (4mks)

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Outline four negative effects of a high taxation in an economy

5/11/2021

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Outline four negative effects of a high taxation in an economy. (4mks)

Negative effects of high taxation in an economy

Level of savings will go down.
Level of investments will go down
Level of production will go down.
It acts as a disincentive to hard work.
Level of foreign capital inflows will go down since many foreign investors will shift their production units to other countries with lower tax regimes.
The level of smuggling may increase as importers try to evade the tax.
The increased cost of production may lead to increases in prices, which result in inflation.

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The following balances were extracted from the books of Soilo Traders on 31 December 2010.

21/12/2020

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The following balances were extracted from the books of Soilo Traders on 31 December 2010.

Additional information:
Gross profit margin is stated at 40%.
Prepare:
(i) Trading, Profit and Loss Account for the year ended 3Pt December 2010. (5+ marks)
(ii) Balance sheet as at 3P’ December 2010.

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Explain five factors that may hinder economic development in Kenya.

21/12/2020

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Explain five factors that may hinder economic development in Kenya.

Factors that may hinder economic development in Kenya include:

Inaccessibility to appropriate technology leading to low quality/quantity.
Inadequate research data. .
Poor development planning.
Inadequate skilled labour force.
inadequate natural resource endowment.
Brain drain-skilled man power seeking greener pastures elsewhere.
Low demand for goods/services.
Negative socio-cultural practices.
Inadequate/lack of foreign exchange.
Poor governance/corruption.

Explain five factors that may hinder economic development in Kenya.

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Explain five benefits that Kenya may get as a member of C.O.M.E.S.A.(10 marks)

21/12/2020

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Explain five benefits that Kenya may get as a member of C.O.M.E.S.A.

Benefits that Kenya may get as a member of COMESA include:

Free flow of goods and services.
Expanded market for goods and services.
Reduced costs of operating businesses as a result of increased scale of operation.
Production of competitive/quality goods and services.
Possibility of political cooperation.
Increased variety of goods to choose from.
Improved infrastructure to facilitate conduct of business.
Creation of employment opportunities due to increased trading.
Attracts investment due to greater demand.
Lower prices of goods due to abolition of tarrifs.
Encourages specialization where countries enjoy comparative advantage.

Explain five benefits that Kenya may get as a member of C.O.M.E.S.A.(10 marks)

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Outline five characteristics of an efficient tax system.

21/12/2020

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Outline five characteristics of an efficient tax system.

Characteristics of an efficient tax system are:

Equity - the tax should be fair and just/people should be taxed according to their income.
Economical - it should be cheap and easy to administer/cost effective/cost of collecting should be lower than the revenue.
Convenient - method of payment should be convenient to the tax payer/favourable to tax payer.
Certainty - tax payer/collector should know what, when and how to pay/collect.
Flexibility - where tax is used as an instrument of national policy, it should be adaptable to all circumstances.
Simplicity - it should be easily understood.
Elasticity - proceeds from taxation should be capable of expanding/contracting in line with changes in income/population.
Diversity/wide base. There should be wide range/variety of taxes/should net many tax payers.
Difficult to evade. Should not create loopholes for people to avoid.
Should regulate the economy.

Outline five characteristics of an efficient tax system.

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Highlight four benefits that a country would get by developing her infrastructure.

21/12/2020

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Highlight four benefits that a country would get by developing her infrastructure.

Benefits that a country would get by developing her infrastructure include:

Attraction of foreign investment.
Creation of employment opportunities.
Improved security.
improved health.
increased production levels.
Enhanced movements of goods and services.
Increased per capital! income.
Increased exploitation of available resources.
Increased entrepreneurial activities.
Easier/faster communication.
Reduced cost of production.
Equitable development.

Highlight four benefits that a country would get by developing her infrastructure.

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Outline four measures that a country can take to reduce the level of inflation.

21/12/2020

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Outline four measures that a country can take to reduce the level of inflation.

Measures that a country can take to reduce the level of inflation include:

Increase income taxes to reduce the disposable income available to consumers.
Reduce government expenditure.
Introduce compulsory saving schemes like Pension Fund.
Reduce exports.
Enforce wage guidelines to control wage increase.
Control prices by legislation.
Increase interest rates on loans.
Increase imports in case of shortages.
Raising the margin requirements.
Regulate printing and minting of money.
Use of buffer stocks to stabilize prices.

Outline four measures that a country can take to reduce the level of inflation.

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The following Trial Balance was prepared by Laketi Traders on 31 December, 2009.

20/12/2020

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The following Trial Balance was prepared by Laketi Traders on 31 December, 2009.

Using the information given above, prepare:
(i) A profit and loss account; (5 marks)
(ii) A balance sheet. (7 marks)

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Explain five disadvantages that a country would suffer if she restricted trade with other countries.

20/12/2020

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Explain five disadvantages that a country would suffer if she restricted trade with other countries.

Disadvantages that a country would suffer if she restricted trade with other countries include:

Development of monopolies - Monopolies may emerge due to lack of competition from possible rivals exposing consumers to exploitation.
Reduced consumer choice - trade restrictions reduces the variety of goods and services available to consumers leading to lower standards of living.
Trading conflicts - trading partners are likely to retaliate, leading to conflicts between the countries involved.
Poor quality goods - protected domestic industries may produce poor quality goods and services due to lack of competition from established industries.
Lack of growth of infant industries - overprotected infant industries may not grow from infancy always seeking for continued protection.
Reduced production capacity - this results from the reduced market as a result of the trade restrictions hence under-exploitation of available resources.
Misallocation of resources - it may force a country to use her resources in areas where she has no comparative advantage.
Costly to the government - this may happen if measures like subsidies are used to enhance restrictions by encouraging import substitution.
Encourages smuggling which leads to entry of counterfeit goods and loss of government revenue.

Explain five disadvantages that a country would suffer if she restricted trade with other countries.

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In the spaces provided in the table below, name the document iambi Ltd. would issue under the circumstances described:

20/12/2020

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In the spaces provided in the table below, name the document iambi Ltd. would issue under the circumstances described:

Documents to issue:

Invoice.
Debit Note.
Receipt.
Credit Note.

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The following balances were extracted from the books of Highlife General Stores on 31st December 2008:

20/12/2020

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The following balances were extracted from the books of Highlife General Stores on 31st December 2008:

Prepare the balance sheet of Highlife General Stores as at 31 st December, 2008.

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Highlight four problems of development planning that a country may experience.

20/12/2020

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Highlight four problems of development planning that a country may experience.

Problems of development planning that a country may experience include:

Inadequate data on economic performance.
Unreliable data which may not be useful in planning.
Less qualified personnel to cope with the tasks of development planning.
Private sector activities are not easily coordinated.
Political rigidity.
Inappropriate use of technology.
Unplanned population.
Over-reliance on donor funding.

Highlight four problems of development planning that a country may experience.

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State four forms of economic integration that may exist between countries.

20/12/2020

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State four forms of economic integration that may exist between countries.

Forms of economic integration include:

Common Markets - to have a common currency to increase free trade and full mobility of factors of production.
Free Trade Areas - where barriers such as tariffs and quotas are removed.
Customs Unions - member countries charge common external tariffs.
Economic Union - where common economic institutions like banks are set to deal with monetary policy.

State four forms of economic integration that may exist between countries.

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Outline one circumstance under which each of the following types of inflation may occur: Creeping inflation and Hyperinflation.

20/12/2020

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Outline one circumstance under which each of the following types of inflation may occur: Creeping inflation and Hyperinflation.

Circumstances under which each of the following types of inflation may occur include:
(i) Creeping inflation

(a) When the general price levels rise gradually over a period of time usually at single digit.
(b) Where the value of money tends to be stable over time and the effects on the economy is not severe.

(ii) Hyper inflation

(a) Where the general price levels rise at high rate usually more than two digits.
(b) Where there is drastic loss in the value of money and the effect on the economy is very severe.

Outline one circumstance under which each of the following types of inflation may occur: Creeping inflation and Hyperinflation.

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The following information was extracted from the books of Marigi Traders on 30th June 2009.

19/12/2020

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The following information was extracted from the books of Marigi Traders on 30th June 2009.

Prepare the Trading Account of Marigi Traders for the year ended 30th June 2009. (5 marks)

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Explain five disadvantages that a developing country may suffer by liberalizing foreign trade. (10 marks)

18/12/2020

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Disadvantages that a developing country may suffer by liberalizing foreign trade

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

May lead to dumping of inferior products into the country.
May cause over exploitation of resources leading to their depletion.
May lead to loss of jobs due to closure of firms that cannot cope with competition.
May contribute to worsening balance of payment situation as developing countries have fewer! lowly valued exports.
Cultural values and beliefs may be eroded due to unrestricted trade.
Entry of harmful goods. Goods with harmful ingredients such as beauty creams and drugs may find their way into the country.
Slow economic development. The country may stagnate due to over dependence on other countries for supplies.
Brain drain. The developing country looses skilled personnel to better developed countries who provide better pay and amenities.

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Most countries in the world are under-developed. Give six characteristics of these countries (12mks)

​Give five contributions of commercial banks in Kenya (10mks)

Discuss five strategies that can be used by the government to control inflation (10mks)

​List four factors that are likely to hinder economic development in Kenya. (4mks)

Name four possible barriers to international trade. (4mks)

Outline four ways in which the Central Bank controls the operations of commercial banks. (4mks)

​Outline four reasons that have led to the growth of the savings and credit Co-operative Societies in Kenya. (4mks)

Indicate the book of original entry used in recording each of the following transactions of Alex Traders. (4mks)

​The average consumer price for a tin of maize for various years in Trans-mara is shown in the table below.

​Calculate the consumer index using year 2008 as the base year. (4mks)

​Outline four negative effects of a high taxation in an economy. (4mks)

The following balances were extracted from the books of Soilo Traders on 31 December 2010.

Explain five factors that may hinder economic development in Kenya.

Explain five benefits that Kenya may get as a member of C.O.M.E.S.A.

Outline five characteristics of an efficient tax system.

Highlight four benefits that a country would get by developing her infrastructure.

Outline four measures that a country can take to reduce the level of inflation.

The following Trial Balance was prepared by Laketi Traders on 31 December, 2009.

Explain five disadvantages that a country would suffer if she restricted trade with other countries.

In the spaces provided in the table below, name the document iambi Ltd. would issue under the circumstances described:

The following balances were extracted from the books of Highlife General Stores on 31st December 2008:

Highlight four problems of development planning that a country may experience.

State four forms of economic integration that may exist between countries.

Outline one circumstance under which each of the following types of inflation may occur: Creeping inflation and Hyperinflation.

The following information was extracted from the books of Marigi Traders on 30th June 2009.

Disadvantages that a developing country may suffer by liberalizing foreign trade

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Give five contributions of commercial banks in Kenya (10mks)

List four factors that are likely to hinder economic development in Kenya. (4mks)

Outline four reasons that have led to the growth of the savings and credit Co-operative Societies in Kenya. (4mks)

The average consumer price for a tin of maize for various years in Trans-mara is shown in the table below.

Calculate the consumer index using year 2008 as the base year. (4mks)

Outline four negative effects of a high taxation in an economy. (4mks)