KCSE Business Studies Topical Questions and Answers

Explain five disadvantages that a country may face if she restricted trade with other countries. (10 marks)

5/12/2020

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Reduced competition — Leading to low quality goods/ services
Reduced/ low consumer goods — trade restriction reduces the availability of goods/ services available to consumer leading to low state of living.
Retaliation/ trading partners are likely to retaliate — leading to loss of business (between two involved/ reduced export/ imports)
Reduced/ low investment — due to limited trading opportunities
Reduced limited market — hence under exploitation of available resources/reduced production capacity.
Inappropriate allocation of resources — it may force the use her resources in areas where she has no comparative interest/ not best suited in.
Cost to the government — (This may happen) f measures are used (to enhance restriction / by encouraging import substitution) meet part of the costs.
Reduced/ loss of government revenue earned from import/ export services not exported.
Leads to increased unemployment due to reduced trading activities.
Poor international relations which may lead to conflicts/ friction, among countries/ may not get assistance in times of calamities.
Curtailed transfer of technology/ factors of production that may lead to poor quality goods low quantity of products.
Reduced/ limited supply of goods/ services which may adversely affect consumers (access /examples of adverse effect as explanation)
Encourages smuggling/ black marketing leading to loss of revenue/ entry of counterfeit goods/ services.

Explain five disadvantages that a country may face if she restricted trade with other countries

World Trade Center Shining brightly through the misty fog over lower Manhattan. [Courtesy of Michael Elliott]

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Explain five guidelines that may be used by the government of a country to promote efficient use of her resources. (10 marks)

5/12/2020

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Guidelines that may be used by the government of a country to promote efficient use of her resources

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 fain y.
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 balances were extracted from the books of Rehema Traders on 1st January 2015.

5/12/2020

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The following balances were extracted from the books of Rehema Traders on 1st January 2015.
Ksh
Capital 600,000
Creditors 180,000
Motor van 200,000
Furniture 200,000
Stock 60,000
Debtors 80,000
Cash 240,000

The following transactions took place during the year ended 31st December 2015:

(i) Sold furniture worth Ksh 60,000 for which Ksh 40,000 cash was received and the balance was due at the end of the year.
(ii) Purchased goods worth Ksh 100,000 for which cash of Ksh 70,000 was paid and the balance was still outstanding at the end of the year.
(iii) Cash Ksh 10,000 was taken from the business by the proprietor to settle the spouse’s hospital bill.

Required: Outline the effect of each transaction on the items of the balance sheet.(8 marks)

On 1st January 2015, Ndovu Traders had Ksh 30,000 in cash and Ksh 75,000 at the bank.

5/12/2020

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On 1st January 2015, Ndovu Traders had Ksh 30,000 in cash and Ksh 75,000 at the bank.
During the month, the following transactions took place:

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

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

Expected Response

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Explain five benefits that may be realised by a country as a result of government policy to relocate Industries to rural areas ( 10 marks)

5/12/2020

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Benefits that may be realised by a country as a result of government policy to relocate Industries to rural areas

Increased availability of variety of goods and services as a result of new businesses in the area,
Availability of auxiliary services - citizens would enjoy more and better auxiliary services like transport,
Increased job opportunities - there will be more jobs available that would reduce unemployment,
Increased utilization of locally available resources - locally available factors of production will be used and the citizens would earn rewards associated with them,
Improved standard of living as development of the rural areas increases the quality and variety of goods and services,
Reduced congestion in towns - this would benefit the few citizens remaining in the city,
Balanced economic development as economic activities are spread throughout the country.’
Transfer of technology to rural areas which leads to production of better quality goods/services,
Creation of market for goods/services produced in rural areas.

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Explain five methods of determining the price of a product other than price control (10 marks)

5/12/2020

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Methods of determining the price of a product other than price control

Bargaining / Haggling — terms of exchange is negotiated / argued / debated between buyers and sellers.
Demand and supply / price mechanism interactions between forces of demand and supply.
Auction — prices determined by the highest bidder.
Tendering — Prices determined by the (lowest) bidder who meets the required specifications.
Retail price maintenance / recommended retail price / products price fixing / price fixing where producers / manufacturers agree on the price of commodities.
(Price) collusion — where different market players such as buyers / sellers conspire to fix the price.
Taxation / subsidy — which will influence the selling / buying price.
Private treaty — a sale of property at a price agreed on by the seller and buyer without an intervening agency.

Price [Image credited to Credit Score Blog: https://creditscoregeek.com/]

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Traders are required to observe ethical practices when carrying out product promotion. Explain five reasons for observing such ethical practices.(10 marks)

5/12/2020

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Traders are required to observe ethical practices when carrying out product promotion. Explain five reasons for observing such ethical practices

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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On 1st September 2015, Gondi had Ksh 55,000 in hand and Ksh 250,000 at bank. During the month, the following transactions took place:

5/12/2020

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On 1st September 2015, Gondi had Ksh 55,000 in hand and Ksh 250,000 at bank. During the month, the following transactions took place:

September 2 Cash sales banked Ksh 35,260
3 Bought ribbons in cash Ksh 4,500
8 Paid Wangila, a creditor Ksh 94,000 by cheque in full settlement
of his account after deducting 6% cash discount
12 Received a cheque for Ksh 58,800 from Wetu after allowing her a
cash discount of Ksh 1,200
15 Paid salaries Ksh 34,000 in cash
25 Withdrew Ksh 50,000 from bankfor office use
28 Anyango, a debtor paid her account of Ksh 75,000 by cheque less
10%- cash discount
30 Deposited all the cash into bank except Ksh 13,700

Required: Prepare a three column cash book and balance it off. (10 marks)

Expected Response

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Outline five reasons that may influence the government to start a parastatal. (10 marks)

5/12/2020

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Reasons that may influence the government to start a parastatal

To provide strategic goods and services.
To increase revenue collection.
To encourage import substitution industries/to discourage importation.
To encourage foreign investment.
To reduce foreign influence.
To address special social needs.
To take care of sensitive ventures.
To take care of business that requires a large initial capital.
To create employment.
To provide goods & services all over the country.
To stimulate economic development.
To provide essential goods and services at low cost.
To promote competition with private sector in security.
To provide goods and services with low returns (low profits).
To regulate business activities.

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Explain five advantages of government involvement in business. (10 marks)

4/12/2020

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Advantages of government involvement in business

Provision of essential services / goods for fair / reasonable prices /affordable.
Provision of large capital investment/ undertake ventures that require large sums — which private sectors may not be able to raise / without which development would be minimal.
Protection of citizens / to protect citizens from exploitation / malpractices by business.
Stimulation of economic development by developing social amenities / infrastructure / roads / injecting funds into the economy / through development projects.
Creation of employment / to create jobs (for its citizens) to earn a living / improve standards of lung.
Income generation / to generate government revenue through taxation / activities.
Stabilization of the economy — through regulation / market intervention.
Promote equity / fairness in distribution of resources
Control use of resources — through conservation / legislative measures / ensure their sustainability.
Maintenance of law / order — which allows for smooth operations (of country’s affairs).
Promotion of best practices through encouraging adoption of ICT/ good governance / social programmes / exclusivity.
Promoting a country’s identity / image - through cultural programmes / branding initiatives / participation in international competition / fairs.
Reduce foreign dominance / promote a country’s sovereignty by regulating foreign participation / encouraging local participation in the economy.
Promotion of entrepreneurship cultures by encouraging business ownership / training / funding businesses.
Promotes investment in the country by creating enabling environment.

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Explain five circumstances under which a partnership may be dissolved. (10 marks)

4/12/2020

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Circumstances under which a partnership may be dissolved

Temporary partnership/(expiry of time / accomplishment of purpose / where the partnership was formed for a definite time /for a particular purpose) hence the expiry of time / accomplishment of purpose terminates the partnership
Mutual / voluntary agreement among partners / where the partners agree among themselves (to terminate the partnership), when they may have no alternative for whatever reason.
Bankruptcy! insanity of a partner where (a court declares) the value of one of the partner’s property insufficient to settle his or her debt. /due to loss of contractual capacity.
Change in law / government policy that makes the operation of the partnership illegal.
Permanent inability of a partner to perform / fulfill part of the partnership agreement either as a result of diseases / ill health / incapacitation.
Internal dissension /disagreement among partners / disagree irreconcilably then the partnership may be terminated.
Persistent losses in operation / where the business has continued to operate at a loss then it is terminated hence making it difficult to meet its financial obligations.
Court orders (where the partnership was formed under) due to fraud /mistake /misrepresentation /breach of law /partnership agreement court of law may order it dissolution.
Request by one /some partners to dissolve the partnership hence having to abide by their wish /granting their wish.
Withdrawal /admission of a partner which changes the status of the partnership.
Death of a partner which alters the composition of a partnership / which may necessitate a new agreement /arrangement.

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Explain five factors that may promote entrepreneurship in Kenya. (10 marks)

4/12/2020

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Factors that may promote entrepreneurship in Kenya

Government support! favourable government policies / funding regulation (of business activities) may en courage the emergence expansion of business venture.
Training / in education entrepreneurship! trainees are equipped with skills/ knowledge to undertake entrepreneurial activities to start businesses.
Entrepreneurial culture/ cultural practices that encourage entrepreneurship through early exposure to business activities opportunities/ positive attitude towards business.
Presence of role model interaction with successful business people who may inspire/ create interest in entrepreneurship! business ownership.
Availability of capital/ loans/ credit facilities for start expanding a business (may facilitate entrepreneurship).
Political stability non political interference that creates a confused environment for starting/running expanding business.
Availability of market/ market information.
Availability of security- that ensure safety of businesses/ Property/ Business owners.
Healthy/ fair competition that business owners can withstand/ Be safe with.
Good government that ensures accountability in conducting business activities.
Availability of technology that can lead to the production of desired quality/ quantity of goods/services.
Employment creation for self/ others.
Independence/ needs to earn an income/ livelihood.

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Outline four characteristics of services. (4 marks)

4/12/2020

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Characteristics of services

Difficult standardize/ heterogeneous give to varying quality/ quality cannot be uniform (from time to time) may be offered by sufficient people.
Service cannot be stored for future! service is only consumed at the time it is being offered/service capacity cannot be stored.
Service cannot be touched! it is intangible! invisible can only be felt/ experienced
Services cannot be separated from service properties the provider must directly offer the service to the user
Service is perishable service can only be enjoyed at the time the provider is available! it expires after it is provided.
Services cannot be owned by the buyer! ownership cannot be transferred as the buyer only pays for the experience
Services! have utility to satisfy wants.
Services are mobile since they can be received! provided at different places/ locations

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Outline four goals of development to a country. (4 marks)

4/12/2020

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Goals of development to a country

Alleviation of poverty
Attainment of high and sustainable economic growth
Provision of adequate social amenities e.g. health
Diversification of the economy to reduce over-reliance on a few products
Alleviation of unemployment
Attainment of more equitable distribution of incomes
Enhancement / upholding of human freedom, rights and self esteem /democracy
Provision of security
Maintenance of political sustainability / good governance.
Attainment of food security for population
Alleviation of illiteracy
Elimination of harmful cultural practices
Improvement of infrastructure e.g. transport, communication, water

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Outline four factors that may make a producer to by-pass the wholesaler when distributing goods. (4 marks)

3/12/2020

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Factors that may make a producer to by-pass the wholesaler when distributing goods

Having own retail outlet.
Dealing in perishable goods like bread which require shorter channels.
Dealing in technical goods which require elaborate after sales services.
Consumers and retailers buying in large quantities.
Need to keep price of goods low.
Limited geographical spread of the market.
Government policy.
When the production is in small quantity.
Where the producer has enough storage facilities.
When goods are produced on order

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State two situations in which each of the following types of inflation may occur.

3/12/2020

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State two situations in which each of the following types of inflation may occur.

creeping inflation ….... (2 marks)
Hyperinflation ......... (2 marks)

Creeping inflation (2 marks)
When the general price levels rise gradually/ single digit over a period of time usually at single digit. Where the value of money tends to be stable over time the effects on the economy is n o t severe.
Hyperinflation 2 marks)
Where the general price rise at high rate/ usually more than two digits. Where there is drastic loss in the value of money effect on the economy is very severe

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List four sources of public finance. (4 marks)

3/12/2020

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Sources of public finance

Taxes
Licenses
Court fines
Donor aid
Fees
Treasury bonds and bills

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State four reasons for the increased use of cell phones in banking. (4 marks)

3/12/2020

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Reasons for the increased use of cell phones in banking

Easy to transact / easy ownership
It saves on time since there is no traveling and queuing for the services.
The speed of transaction is fast / quick feed back.
It reduces paper- work by eliminating the need for physical files and other documentations.
The use of PIN enhances security
Increased ownership of mobile phones
Transactions can be conducted any time
Reduce transaction costs (travel and bank charges)
Easy access to transaction records
It is a requirement by service providers (utility bills)
Easy to obtain cred it facilities e.g. M-Shwari loan

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State four reasons for privatising public corporations. (4 marks)

3/12/2020

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Reasons for privatising public corporations

To improve efficiency in their operations.
To generate revenue to the government through sale of shares and taxes.
To enhance competition.
To increase public participation in economic activities of the country.
To reduce government expenditure.
To comply with conditions set by development partners and international donor agencies.
To enable the government to concentrate on other state responsibilities.
To minimize political interference.

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The following diagram represents the circular flow of income in a two sector closed economy.

3/12/2020

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The following diagram represents the circular flow of income in a two sector closed economy.

Identify two factors represented by each of the arrows labelled a and b. (4 marks)

(a)
- (i) Payment for goods and services.
- (ii) Factor services / inputs / factors of production.
b)
- (i) Payment for factor inputs,
- (ii) Goods and services.

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Identify the ledgers in which the following accounts are kept. (4 marks)

3/12/2020

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Identify the ledgers in which the following accounts are kept. (4 marks)

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Outline four circumstances in which the government may be involved in business. (4 marks)

2/12/2020

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Circumstances in which the government may be involved in business

When a business venture requires investment of large sums of money which individual entrepreneurs may not provide.
When the goods or services to be provided are essential to the welfare of the citizens.
When there is need to protect citizens from exploitation by private entrepreneurs.
When the government desires to create employment for the citizens.
When the government needs to generate income through revenue collection.
When there is need to safeguard national security.
When the venture is strategic but provides low profits hence unattractive to private investors.
Where there are monopolies in the economy, the government gets involved in business to increase competition.
Where there is need to balance regional development.
To reduce foreign dominance in the economy.
Where there is need to attract foreign investment.

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The following balances were extracted from the books of Highlife General Stores on 31st December 2015.

2/12/2020

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The following balances were extracted from the books of Highlife General Stores on 31st December 2015

Required: Prepare the balance sheet of Highlife General Stores as at 31st December 2015. (4 marks)

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Outline four ways of reducing the level of unemployment in Kenya. (4 marks)

2/12/2020

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Ways of reducing the level of unemployment in Kenya

Diversification of the economy by encouraging the establishing of different industries /sectors to create employments opportunities
Transforming agricultural sector to curb rural urban migration to create more jobs and reduce unemployment)
Transforming education sector making graduates acquire relevant skills.
Establishing an employment policy by government to make it easy for people to get jobs/Accept e.gs of policy as mention
Lending /setting of a fund to assist unemployed to stat income generating activities/accept e.gs of funds as a mention
Exporting Labour by assisting unemployed people to acquire jobs abroad /countries with labour deficiency.
Encouraging the informal Jua Kali sector to promote self employment
Delocalization/ decentralization policy for balanced regional development! reduced rural urban irrigation
Population policy to control growth/have a labour force that the economy can absorb
To improve infrastructure in order to have suitable economic activities /accepting of infrastructure as a rating.
Increase government expenditure to expand the size of the economy/ To finance development projects.
Effective use of natural resources to increase production activities
Income /wage policy to harmonize differences between regions/sectors
Attract (Local /foreign) investments through vision incentives/to grow the economy
Reviving collapsed industries/projects by injector, funds/selling them /increased production activities