KCSE REVEALED

BUSINESS PAPER 2
MARKING SCHEME
1. (a) Ways a sender of a message can ensure it is received effectively.(10 mks)
 The sender and receiver understand the language.
 Receiver listens keenly.
 Sender and receiver have a positive attitude towards each other.
 Timing of the message is correct.
 The medium used is the right one.
 No prejudgement of the message.
 No emotions involved in delivering/ receiving the message.
 No disruption/distraction e.g. noise.
 Non – verbal signals/ gestures used are familiar to the receiver.

(b) Reasons why a bank may dishonour a cheque: (10 mks)

 Insufficient funds in the account of the drawer.
 Drawer’s signature differs from the specimen in the bank.
 The cheque is post-dated.
 The cheque is stale i.e. presented six months after date of issue.
 Cheque is defaced/ mutilated.
 The drawer has closed the account.
 The bank learns about the death, insecurity or bankruptcy of the drawer.
 Drawer instructs the bank not to honour the cheque.
 Amount in figures differs with amount in words.
 Cheque has been altered and drawer has not signed against the alteration.

2. (a) Reasons for the popularity of hawking as a form of business activity in

Kenya: (10 mks)
 Require little capital.
 Does not require formal education.
 Risk involved is small.
 Easy to start and manage.
 Few legal formalities when starting.
 Business is very flexible.
(b) Factors a trader would consider before giving credit to a customer: (10 mks)
Reliability/honesty of the customer.
 Customer’s ability to pay.
 Availability of the goods required.
 Whether the customer has assets that can cover the debt.
 Size of the business.
 How well the trader knows the customer.
 How well a customer has been paying in the past.
3. (a) Reasons for the importance of commercial banks in an economy:
(10 mks)
 They offer safe custody for money not needed immediately.
 Provide safer means of payment through cheques, standing orders, EFT, e.tc.
 They guarantee payment to overseas suppliers/importers.
 They lend money to business people in form of loans, overdraft e.tc.
 They can act as guarantors and referees to business people.
 They provide traders with foreign exchange to participate in international trade.
 They discount bills of exchange and promissory notes.
 They give advice on financial information on various investments.
 They provide a link between savers and borrowers.
 They can provide trusteeship on behalf of their clients.

(b) Ways a company may acquire monopoly status:

(10 mks)
 Where the company controls on important input or raw material.
 When the company is the owner of production rights/patent rights.
 There are no close substitutes to the company’s product.
 Where a company is able to restrict other companies from production.
 Where initial capital is very high that it is difficult for new firms to enter the
market.
 A company is able to reduce its cost of production and hence lower the prices.
 Where the market can be able to support only one firm.
 Where other firms have to incur extra cost e.g. transport, to compete with the
company.
 Where similar firms combine/amalgamate to become one.
 A government may give exclusive rights to a company, making it a monopoly.

4. (a) Documents used in home trade and their users.

(10 mks)
 Letter of inquiry  Consignment note
 Catalogue  Invoice
 Quotation  Goods received note
 Price list  Proforma invoice
 Order  Goods returned note
 Acknowledgement note  Credit note
 Packing note  Debit note
 Advice note  Statement of account
 Delivery note  Receipt
(b) Factors that may cause a demand curve to shift to the right: (10 mks)
 A rise in the income of consumers.
 A rise in price of a substitute.
 Fall in price of a complementary good.
 Positive change in tastes and preference.
 Increase in population.
 Government policy encouraging consumption of the commodity e.g. subsidies.
 Future expectations of rise in prices.
 Future expectations of fall in production.
5. (a) Characteristics of land as a factor of production: (10 mks)
 It is a basic factor of production and production cannot take place without it.
 Its supply is fixed.
 It lacks geographical mobility.
 Quality is not homogeneous in different geographical locations.
 Productivity can be increased by increase of capital and other inputs.
 It is a natural resource.
 It is subject to law of diminishing returns.
(b) Rules and regulations that may be highlighted in Articles of Association
(10 mks)
 Rights of each type of shareholder e.g. voting rights.
 Methods of calling meetings.
 Rules governing election of officials.
 Rules on preparation and auditing of accounts.
 Power, duties and rights of directors.
 List of directors, their addresses, occupation etc.
 Declaration that all requirements have been met.
 Statement by directors agreeing to serve as directors.

6. (a) Identify Five Problems a country with a big percentage of a young

population may face. (10 mks)
 There is high dependency ratio.
 High rate of unemployment.
 There is increase in social evils and crimes.
 There might be low labour supply.
 There is pressure on goods and services since most of them will not be involved
in production.
 There will be reduced savings and investments.
 Government expenditure will be diverted to non-infrastructure building.

FUATANA TRADERS
TRADING, PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST JULY 2016

Opening stock 3,500 Sales 120,000

Purchases 82,000
Carriage in 3, 000
Goods for sale 88,500
Less closing stock 2,400
Cost of goods sold 86,100
Gross profit 33,900
120,000 120,000
Expenses
Carriage out 2,500 GP b/d 33,900
General Expenses 26,000
Lighting and heating 1,200
Wages 24,000
Net Loss (19,800) _
33,900 33,900
(12 x ½ = 6 marks)
(1). If net loss is on the left hand side, the figure (19,800) should be in brackets
and totals as shown.

(2). If net loss is on the right hand side, the figure 19,800 will not be in brackets
and totals for both sides should be 53,700
FUATANA TRADERS
BALANCE SHEET AS AT 31ST AUGUST 2016

ASSETS CAPITAL AND LIABILITIES

Equipment 45,600 Capital
106,000
Stock 2,400 Less: Net loss 19,800
Debtors 55,700 Net capital
86,200
Cash at Bank 30,000 Creditors
60,000
Cash in hand 12,500
146,200 146,200(8 x ½ = 4 marks)