KCSE Business Studies Topical Questions and Answers

There has been a decline in the demand for wooden furniture. Explain five factors that may have caused this trend. (10 marks)

19/12/2020

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There has been a decline in the demand for wooden furniture. Explain five factors that may have caused this trend

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

Decline in consumer incomes.
This may reduce their purchasing power hence less able to afford the furniture.
Fall in the price of substitutes.
Furniture made from other materials like plastic and metal may be cheaper.
Increase in the price of wooden furniture.
This nukes the furniture to be out of reach for most consumers
Government policy
The government may have increased rates on timber products hence making the furniture more expensive
Unfavourable change in tastes and preferences
Consumers may be purchasing more plastic and metallic furniture.
Decline in population
A decrease in population will lead to reduced numbers of potential and actual customers
Expectations of a future fall in price.
Consumers may be anticipating a fall in price in the future hence currently suspend buying.

There has been a decline in the demand for wooden furniture. Explain five factors that may have caused this trend

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Apart from selling shares, explain five sources of finance for a public limited company. (10 marks)

19/12/2020

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Sources of finance for a public limited company

Sources of finance for a public limited company apart from the sale of shares include:

Borrowing from financial institutions in the form of loans, bank overdraft and mortgage.
Trade credit.
Buying goods for re-sale on credit so as to pay at a later date
Hire purchase.
Buying goods and paying for them on installment basis.
Debentures.
Borrowing from members of the public for which interest is paid at a fixed rate and over a predetermined period of time.
Sale and leaseback.
Selling an asset like a building and then hiring it back for a specified period of time.
Retained profits.
Profits made are not shared out as dividends but ploughed back into the business.
Discounting bills of exchange.
Receiving payment from financial institutions at a discount against bills of exchange before their maturity.
Use of reserves / provisions.
The company may make use of funds set aside for depreciation, tax and bad debts to finance its day to day operations.

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Explain five features of monopolistic competition. (10 marks)

18/12/2020

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Features of monopolistic competition

Features of monopolistic competition include:

Many sellers and buyers.
The market is comprised of many sellers and buyers who operate independently.
Free entry and exit into the market.
There are no barters to entry into, or exit from the market.
Commodities sold are very close substitutes.
Firms sell similar products but which are highly differentiated by names, shapes, colour, odour and packaging.
All firms earn normal profits in the long run.
Some firms may earn super normal profits in the short run.
Firms are independent.
There is little interdependence in terms of pricing and quantities to produce.
Entry or exit of a firm does not significantly affect the market.
None of the firms can influence the market supply by joining or leaving the industry.
No single firm has control over the factors of production.
All firms acquire the factors at the prevailing market rates and conditions.
Perfect knowledge of the market Buyers and sellers are aware of the prices, quantities and other market factors.

Explain five features of monopolistic competition

KPLC Workers at work in Kenya. KPLC is a monopoly.

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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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Explain five guidelines that should be followed by the government in its expenditure. (10 marks)

17/12/2020

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Guidelines that should be followed by the government in its expenditure

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

Maximum social benefit/optimal benefit.
Government spending should benefit as many people as possible.
Flexibility.
Should be elastic enough to accommodate changing circumstances.
Economy.
Should be capable of being changed to accommodate prevailing economic circumstances.
Equity.
Should aim at distributing incomes fairly.
Sanction.
Government spending must be approved by the relevant authority to enhance accountability.
Accounting.
Proper accounting records should be kept to facilitate good financial management
Productivity.
A larger proportion of the national income should be spent on development projects.
Surplus.
Expenditure should be less than the total revenue collected.
Elasticity.
Should be capable to being expanded/contracted depending on the size of the economy.

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The following information relates to Bahati enterprises:

17/12/2020

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The following information relates to Bahati enterprises:

Calculate:

(i) Turnover (1 mark)
(ii) Rate of Stock Turnover (3 marks)
(iii) Mark up (2 marks)
(iv) Margin (2 marks)
(v) Net profit (2 marks)

Expected Response

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Describe five accounting documents that are used in home trade. (10 marks)

17/12/2020

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Accounting documents that are used in home trade

Accounting documents that are used in home trade include:

Invoice.
This is a document sent by the seller to a buyer demanding payment for goods supplied. It shows details of the goods, quantity, unit price, value, any discount given, net payment and terms of payment sold/bought on credit/a source document for sales/purchases day bool/A Ledger.
Debit note.
A document sent by the seller to the buyer to correct an undercharge. It is issued when the invoice shows a lesser amount than what is actually owed. It is an additional invoice/may be used when empty containers have not been returned and have to be charged for.
Credit note.
A document sent by the seller to the buyer to correct an overcharge It is issued when goods are returned to the seller because they are defective, not the ones ordered or they were not required. When returning empty containers (which had been charged for). A source document for sales returns/purchases returns day books
Receipt.
This is a document issued by the seller to the buyer when payment is made for goods I services. A source document for the cash book/cash payment journal/cash receipts journal.
Statement of account
This is a document sent by the seller to the buyer showing details of transactions for the month with a running balance shown with each entry.
Payment voucher
A document used to validate payment for service/goods rendered. It is issued by a cashier and signed by the service provider/ payee/ recipient/a source document for the petty cash book/imprest used where the receipt is not readily available.
Remittance advice note.
This is a document that accompanies a cheque issued for settlement of a debt. It provides information on the payment.
AIE (Authority to incurr expenditure.
Written instructions allowing one to spend institutional funds up to a certain amount.
Bank deposit slip
As a source document for cash book/evidence of payment into the bank account.
Consignment note
supports hire of carriage services/shows transport charges.

Consignment Note

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Explain five objectives that may be achieved by establishing firms in different parts of the country (10 marks)

17/12/2020

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Objectives that may be achieved by establishing firms in different parts of the country

Objectives that may be attained by establishing firms in different parts of the country include:

To reduce rural-urban migration. Setting up firms in several parts of the country may curb the influx of people from rural to urban areas. This helps to retain the productive population in the rural areas.
To utilize local resources/factors of production/untapped resources. Establishing firms in various parts of the country will enhance the use of idle resources in those areas.
To create employment opportunities. This is a sure way of creating employment opportunities in several parts of the country which improves the standard of living.
To provide balanced regional development. Creating firms in various parts of the country will ensure that all parts growl develop at the same rate/time.
To promote development of infrastructure. Setting up of firms will encourage the growth of infrastructure like roads, power, water, railway and communication in various parts of the country which opens up the country and facilitates production/movement of goods/services/factors.
To promote development of social amenities / schools/ health facilities. When firms are set up in various parts of the country. social amenities will also be developed. This improves the social welfare of the people.
To reduce social problems hence avoiding/minimizing pollution/crime/prostitution/drug abuse/theft.
To promote urban growth hence encouraging growth of market/economy/commercial activities.
To reduce congestion in certain areas in order to ease pressure on resources.
To reduce effects of concentrated pollution which may negatively affect the environment
To minimize effects/impact of calamities/terrorism/catastrophe which may polarize the economy
To reduce income disparities/inequalities as people will be engaged in production activities.

Explain five objectives that may be achieved by establishing firms in different parts of the country

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Explain four reasons for which traders observe ethical practices in product promotion. (8 marks)

17/12/2020

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Reasons for which traders observe ethical practices in product promotion

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

To avoid misleading the consumers by not making false claims about their products.
To ensure that consumers are not offended by not making use of appeals that go against their cultural values.
To avoid exploiting certain vulnerable groups like children since they lack the knowledge and experience to understand and evaluate the purpose of persuasive appeals.
To avoid negative influence on the consumers’ values and lifestyles that may lead to immorality and ill health like glorifying the image of alcohol and cigarettes.
To avoid portraying rival businesses negatively in an attempt to capture the market or gain undue advantage.
To create a positive image reputation of business hence maintaining customer loyalty.
To abide by the laws of the country to avoid law suits/conflicts/frictions with law enforcement agencies s/government.

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On first January 2012, Ndovu Traders had shs 30,000 in cash and shs 75000 at the bank. During the month, the following transactions took place:

17/12/2020

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a) On first January 2012, Ndovu Traders had shs 30,000 in cash and shs 75000 at the bank. During the month, the following transactions took place:

January 2nd:
Bought goods in cash worth shs 15,500
5th:
Received cash from Chui shs 23,750 after allowing 5% cash discount.
8th:
Withdrew shs 8,900 from the bank for personal use.
11th:
Maro, a debtor settled her account of shs 16,800 by a cheque of shs 16,000.
15th:
Sales amounted to shs 24,250 in cash.
17th:
Paid Furaha traders shs 29,100 in cash in full settlement of their account less 3% cash discount.
20th:
Withdrew shs 15,000 from the bank for business use.
22nd:
Koko a debtor, settled her account of shs 40,000 by cheque less 2.5% cash discount.
25th:
Paid wages shs 21 ,000 in cash.

Required:
Prepare a duly balanced three column cash book. (12 marks)

Expected Response

On first January 2012, Ndovu Traders had shs 30,000 in cash and shs 75000 at the bank. During the month, the following transactions took place:

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Explain five demerits that a country may stiffer when the government becomes a major investor in business. (10 marks)

16/12/2020

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Demerits that a country may stiffer when the government becomes a major investor in business

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

Discourage private investment. The move may discourage private investment due to unfair competition and acquisition of monopoly powers/unfavorable laws.
Poor quality goods and services. The quality of goods and services may be compromised due to lack of competition. Government employees also lack enthusiasm since there is no profit motive.
Limited choices for consumers. Where the government is the only provider of good/service, consumers may be denied a variety to choose from.
Inefficiency. Leading to low/poor productivity/continuous loss, Burden to tax payers. The investments may drain public resources by increasing government expenditure in situations where the enterprise is not able to sustain itself (burdening tax payers).
Lack of accountability/transparency/corruption. Managers of government-run businesses tend to misappropriate and embezzle public funds/ misuse public funds.
Unstable management. Government-run businesses are prone to frequent changes in their management occasioned by changing political leadership.
Political interference/patronage. Appointment of cronies/nepotism and unethical practices may lead to social discontent.
Bureaucracy/red tape. Leading to rigidity/slow response to market changes.

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Explain five benefits that a firm may enjoy by preparing a business plan. (10 marks)

16/12/2020

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Benefits that a firm may enjoy by preparing a business plan

Benefits that a firm may enjoy by preparing a business plan include:

Sourcing for finance/capital/loans. It can be used to convince financial institutions and investors to fund the firm’s operations.
A tool for evaluation. It can be used to determine whether the firm is achieving its goals and objectives/ help to make necessary adjustment/changes/ for supervision purposes
A tool for management. It can be used for- structuring the implementation of the functions /tool for planning. organizing, directing, staffing, coordinating budgeting/communicating
Gives the firm a competitive edge. It enables the firm to get a better understanding of the market and competitors.
Enhances efficiency in the use of the resources of the firm. It ensures that the resources available are allocated and used in the best way possible without wastage
Motivational tool. It inspires the management /employees /creates team work in accomplishing the objectives of the firm.
Framework /blue print/guide for- implementing a new business, thus assisting management in decision/actions on the (possible) strengths, weaknesses, opportunities and threats on a day to day basis

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benefits that a firm may enjoy by preparing a business plan

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PQ Ltd had the following balances as at 31st December 2012.

15/12/2020

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PQ Ltd had the following balances as at 31st December 2012.

Prepare PQ’s Trading Account for the year ended 31st December, 2012. (5 marks)

Expected Response

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Outline four positive implications of a youthful population to an economy. (4 marks)

15/12/2020

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Positive implications of a youthful population to an economy

Positive implications of a youthful population to an economy include:

Less expenditure on social security and pension.
Wider market for goods meant for the youth like clothing.
Guaranteed continuous supply of labour.
Flexibility and adaptability to technological changes which improve production.
Faster growth of some sectors like the music, fashion and fast food industries.
Increased innovation due to their adventurous nature.

Outline four positive implications of a youthful population to an economy

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The following information relates to Kiboko Traders as at 31st December 2010.

15/12/2020

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The following information relates to Kiboko Traders as at 31st December 2010.

Calculate Kiboko’s initial capital. (3 marks)

Expected Response

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State four merits of promoting products through personal selling. (4 marks)

15/12/2020

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Merits of promoting products through personal selling

Merits of promoting products through personal selling include:

Enhances personal appeal between the buyer and the seller.
Can effectively counteract customers negative attitudes towards the product.
Questions and complaints from customers are channeled directly to employees of the company and not middlemen.
Demonstration on the use of the goods can easily be done.
Flexibility in presentation to suit customer needs.
Provide immediate feedback from and to the clients.
Effective in conducting market research.

State four merits of promoting products through personal selling

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Highlight four reasons for which businesses should observe ethical practices. (4 marks)

15/12/2020

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Reasons for which businesses should observe ethical practices

Reasons for which businesses should observe ethical practices include:

To ensure fair competition.
To protect consumers/customers.
To protect the environment.
To protect the rights of employees.
To promote social responsibility.
To maintain a positive image.
To abide by the country’s laws.
To maintain suppliers.
To promote positive cultural practices.

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Madam Emoro operates a matatu business. State four factors in the internal environment that may influence the business. (4 marks)

15/12/2020

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Factors in the internal environment that may influence the business

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

The management/structure.
Employees.
Capital / finances.
The owner.
Marketing strategy / handling of customers.
Research and development.
Condition of the vehicle.
Business culture.

factors in the internal environment that may influence the business

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Many countries in Africa, Latin America and Asia are considered to be under-developed. Outline four characteristics they have in common. (4 marks)

15/12/2020

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Characteristics of Under-Developed Countries/Nations

Characteristics of underdevelopment that are common among countries in Africa, Latin America and Asia include:

Low per-capita income.
High population growth rate.
Poor standards of living.
Low literacy levels.
High levels of unemployment.
Poor health care.
Low life expectancy.
Over reliance on primary level of production/high levels of subsistence production.
High dependency ratio.
Poor infrastructure.
Low technological levels.
Large income disparities.
Low levels of labour productivity.

Characteristics of Under-Developed Countries/Nations

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List four levels of inflation. (4 marks)

15/12/2020

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Levels of inflation are:

Hyper inflation/runaway.
Galloping inflation/rapid.
Stagflation.
Creeping inflation/mild/moderate.

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The following transactions relate to Jelimo Stores:

15/12/2020

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The following transactions relate to Jelimo Stores:

(a) 10th October 2010, sold unused stationery for Sb 3.000 on credit to K. Likia.
(b) 23 October 2010, bought a motor vehicle on credit from Onjwaria Motors for Sh 700,000.

Required: Record the above transactions in the general Journal given below: (4 marks)

The following transactions relate to Jelimo Stores:

Expected Response

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State four disadvantages of barter trade. (4 marks)

15/12/2020

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Disadvantages of barter trade

Disadvantages of barter trade include:

Lack of double coincidence of wants.
Indivisibility of some goods.
Perishability of some goods.
Difficult to measure value.
Problems of portability of some goods.
Lack of a standard for making deferred payments.
Lack of unit of accounts.

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Outline four functions of the International Bank for Reconstruction and Development. (4 marks)

14/12/2020

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Functions of the International Bank for Reconstruction and Development

Functions of the International Bank of Reconstruction and Development include:

Provision of finance to member countries to foster economic development.
Issuance of loans to developing countries at concessionary rates for project development.
Provision of personnel/manpower to facilitate project appraisal.
Provision of experts to implement and manage identified projects.
Training of local personnel in project appraisal and implementation.
Supervise member countries’ management of public finance.
Approving development plans from member countries for funding.
Advising and recommending economic policies to be adopted by member countries.
Promotes long term growth in international trade.