NOVEMBER/DECEMBEREXAM 2020

BUSINESS STUDIES
PAPER 2
MARKING SCHEME 565/2

1. (a) Explain five circumstances under which a manufacturer would sell his goods directly
to a consumer. (10mks)
a) If goods are perishable.
b) In case of sensitive items such as firearms.
c) If the sale is by tender.
d) In case he wants to provide after sale service.
e) If he wants to maximize profit.
 If he is dealing with items of small quantities/ in case he wants to ensure
consumers are not exploited.
(b) Explain five reasons that may make an insurance company refuse to compensate the
insured in the event that a risk occurs. (10mks)
a) If the loss was not as a result of the insured risk/if the there is no close
connection between the loss and risk insured.
b) If the cause of the loss is caused deliberately by the insured.
c) If the cause of the loss is as a result of natural catastrophe.
d) If the principle of utmost good faith was not adhered to.
e) If there is no insurable interest between the insured and the property
insured.
 If the risk violates the laws of the country.
 If the insured had stopped paying the premiums.
2. (a) The following transactions relates to Patu traders in Kakamega in the year 2018.
July 1st : Started a business with kshs. 150,000 in cash.
July 2nd: Opened a bank account and deposited kshs. 30,000.
July 3rd: Bought buildings in cash ksh 60,000.
July 4th : Borrowed a loan in cash kshs. 20,000
July 5th: Bought stationary by cheque worth ksh. 6,000
July 6th: Repaid part of the loan by cheque kshs. 10,000.
Required
(i) Record the above transactions in their various ledgers accounts. (5mks)
(ii) Prepare a trial balance. (5mks)

Dr Capital A/C Cr
Date Details F Amount Date Detail F Amount
s
July 2018 Bal c/d 150,000 2018 July 1 Cash 150,000

Dr Cash A/C Cr
Date Details F Amount Date Details F Amount
2018 Capital 150,000 2018 July Bank 30,000
July 1 Loan 20,000 2 Building 60,000
4 3 Bal c/d 80,000
_______ 6 _______

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 170,000 170,000

Bank A/C
Date Details F Amount Date Details F Amount
2018 Cash 30,000 2018 Stationery 6,000
July 2 July 2 Loan 10,000
6 Bal c/d 14,000
30,000 6 30,000

Loan A/C
Date Details F Amount Date Detail F Amount
s
2018 2018 Cash 20,000
July 6 Bank 10,000 July 5
6 Bal c/d 10,000
20,000 20,000

Stationery A/C
Date Details F Amount Date Details F Amount
2018 Bank 6,000 2018 Bal c/d 6,000
July 5 July
6

Building A/C

Date Details F Amount Date Details F Amount

2018 Bank 60,000 2018 Bal c/d 60,000
July 3 July 6

Patu Traders
Trial Balance
As at 6/07/2018
Dr Cr
Capital 150,000
Cash 80,000
Bank 14,000
Loan 10,000
Stationery 6,000
Building 60,000
160, 000 160, 000

(b) Explain five factors that may contribute to low level of National Income.
a) Political instability – When there is no peace in a country the production of
goods and services is affected.

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 b) Low level of technology/Outdated level of productions.
c) Low labour supply – Labour with less skills.
d) Inadequate capital and use of simple tools in productions.
e) Negative attitude of citizens towards work.
f) Low foreign investment.
g) Inadequate natural resources of production.
3. (a) On 1st March 2020, Yawa had cash in hand shs. 7,800 and a bank overdraft of 23,400.
During the month of the following transaction took place.
March 3: Cash sales sh. 6500 paid directly into the bank.
March 4: Bought goods for sh. 15,000 by cheque.
March 6: cash sales sh. 50,000
March 9: Received a cheque for sh. 18,000 from Amolo in full settlement of his account
of sh. 20,000.
March 13: Paid insurance premiums sh. 16,000 in cash.
March 14: Paid Kimotho by cheque sh. 9,700 in full settlement of his debt of sh. 10,000.
March 17: Cash sales sh. 150,000 paid directly into the bank.
March 21: Withdrew shs. 30,000 from bank for office use.
March 23: Received a cheque of sh. 23,750 from Rotich after having deducted 5% cash
discount.
March 25: Paid wages shs. 20,000 in cash.
March 26: The cheque received by Amolo was dishonoured.
March 30: Banked all cash except sh. 3,000.
Prepare a three column cashbook. (10mks)

Three column cash book

Date Details Discount Cash Bank Date Details Disc Cash Bank
allowed Received
2020 2020
March 1 Bal b/d 7800 March 1 Bal b/d 23400
3 Sales 6500 4 Purchase 15000
6 Sales 50,000 13 Insurance 16000
9 Amolo 2000 18000 14 Kimotho 300 9700
17 Sales 150000 21 Cash 30000
21 Bank 30,000 25 Wages 20000
23 Rotich 1250 23750 26 Amolo 18000
30 Cash 48,800 Bank 48800
Bal c/d 3000 150950
3250 87800 247,050 300 87800 247050

(b) Explain five challenges that may be experienced by a country whose population is
made up of a large proportion of young people. (10mks)
a) High rate of unemployment – demand for jobs increase.
b) Rate of crime/social evils may rise – due to the idleness of youths.
c) Constraints/pressure on resources available
d) Dependency ratio will rise.
e) Reduced investment/savings.
f) Low labour supply.

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 g) Low per capital income.
h) Problem of raising government/finance.
4. (a) Explain five measures that the government may take to improve the volume of
exports. (10mks)
a) Reduction of bureaucracy/simplification of export procedure.
b) Financing those producing for exports by availing credit/loans to exports.
c) Providing information intenatural markets through publications/seminars,
workshops, educational tours.
d) Improving infrastructure to facilitate export trade.
e) Diversification of exports to cater for different markets.
f) Improve/adopt modern technology in order to increase the volume of
goods for exports.
g) Lowering duties on exports.
h) Improving quality to make export more attractive.
(b) Explain five benefits that a savings and credit co-operative society (SACCO) provides
to its members. (10mks)
a) Encourage members to save by making regular contributions.
b) Members are provided with loan facilities.
c) Members receive dividends based in their contributions.
d) Educate members on cooperative activities.
e) Members are charged low interest rates on loans advanced by SACCOs.
f) Insure savings made by members.
g) Beneficiaries are paid double the savings of the contributor in case of
contributor’s death.
5. (a) The following information relates to Baraka traders.

Baraka Traders
Trial Balance
As at 31/12/2018

Details Dr(sh) Cr(sh)

Capital 100,000
Motor Vehicle 100,000
Machinery 16,000
Stock 1/1/2018 12,000
Debtors 33,500
Cash 18,000
Bank 12,800
Creditors 45,000
Sales 200,000
Purchases 120,000
Carriage inwards 2,000
Returns 1200 1000
Carriage outwards 4000
Discounts 3000 5000
Salaries 2000
Rent income 500
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 Insurance 10000
Telephone 9000
Electricity 8,000
351,500 351,500

Additional information

Closing stock was valued at sh.8000

Required

(i) Prepare the trading profit and loss account. (8mks)

(ii) The balance sheet. (4mks)

Baraka Traders
Trading, profit and loss account
For the period ended 31/12/2018
Dr Cr

Opening stock 12,000 Sales 200,000

Add purchases 120,000 Less return inwards 12,000
Add carriage inwards 2,000 Net sales 198,000
122,000
Less returns outwards 1000 121,000
Goods available for sale 133,000
Less closing stock 8,000
Cost of goods sold 125,000
Gross profit c/d 73,800
198,800 198,800
Expenses Gross profit b/d 73,800
Carriage outwards 4,000 Discount received 5,000
Discount allowed 3,000 Rent income 500
Salaries 2,000
Insurance 10,000
Telephone 9,000
Electricity 8,000
Net profit c/d 43,300 79,300
79,300

Baraka Traders
Balance sheet
As at 31st December 2018
Fixed assets Capital 100,000
Moto vehicle 100,000 Add net profit 43,300
Machinery 16,000 116,000 Net capital 143,300 143,300
Current assets
Stock 8000 Current liabilities
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Debtors 33500 Creditors 45,000
Cash 18,000
Bank 12800 72,300
188,300 188,300

(b) Explain Four factors that may influence the choice of distribution for milk. (8mks)
a) Nature of milk – perishable product – shorter /direct channel
b) Cost of distribution – cost effective
c) Level of competition.
d) The quantity of milk being supplied.
e) Need for technical personnel.
f) Availability of middlemen.
g) Extent of the market.
6. (a) Explain five circumstances under which personal selling may be appropriate as a
method of product promotion. (10mks)
a) When launching a new product because it requires a lot of awareness
creation, persuading and convincing.
b) When the products is tailored to meet customers specification because
customers have varying tastes and preferences.
c) When demonstration is required especially for technical products.
d) When the value of the product is high to avoid risks of losing such products.
e) When the organization can afford to finance the sales force.
f) When the market is concentrated in one area.
(b) Explain five factors that may hinder entrepreneurial activities in a country. (10mks)
a) Unfavorable government policies, which discourage establishment of business
e.g high taxation.
b) Poor infrastructure discourages smooth running of the business.
c) Political instability.
d) Stiff competition.
e) Inadequate resources to start and run the business.
f) Unavailability of market.

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