KCSE Past Papers 2018 Business Studies Paper 2 (565/2)

Questions and Answers

2018 Business Studies paper 1

1. Outline four features of labour as a factor of production. (4 marks)

(a) Labour is perishable/cannot be stored.

(b) It is not separable from the labourer.

(c) The quality of labour is variable.

(d) It is mobile/can move from one place to another.

(e) It earns salary/wages.

(f) It is a basic factor of production.

2. Outline four ways in which peace within a country may encourage entrepreneurial development.(4 marks)

(a) Entrepreneurs are assured of the safety of their investment hence encouraged to invest.

(b) Funds are availed for investment instead of being spent on provision of security.

(c) There is free movement of factors of production which motivates trade.

(d) There is free interaction between people which encourage sharing of business ideas.

(e) Reduced cost of insurance due to lower risks.

(f) Increased markets since even foreigners feel free to trade with the locals.

(g) Stable complementary institutions like banks and warehouses which encourage business.

3. State four duties of the office clerk. (4 marks)

(a) handling mails.

(b) Duplicating and operating various office machines.

(c) Filing and indexing.

(d) Record keeping and simple book keeping.

(e) Helps in store-keeping.

(D) Ordering, receiving, storing and issuing of stationery.

4. The document shown below is used in home trade.

(a) Identify the document(1 marks)

Credit note

(b) Outline three circumstances under which the above document may be used. (3 marks)

(b) Circumstances under which the document is used include:

(i) When correcting arithmetic error resulting into overcharge.

(ii) Where the buyer has been charged higher prices than the recommended price.

(iii) When items included in the invoice were not delivered.

(iv) When a deserved discount is not given.

(v) When the buyer has returned some goods.

(vi) When empty crates /packaging for which a deposit had been paid are returned.

5. State four measures that may be taken by the government to control inflation. (4 marks)

(a) Setting minimum and maximum wage limits to control salaries

(b) Restricting imports.

(c) Controlling of exports.

(d) Restricting terms of hire purchase and credit terms of sale.

(e) Price control.

(f) Offer of subsidies and other incentives to local producers.

(g) Controlling the supply and circulation of money in the economy.

6. Outline four measures that may be taken by the government to curb unemployment. (4 marks)

(a) Diversification of economic activities.

(b) Control of population growth.

(c) Adoption of policies that encourage labour intensive methods of production.

(d) Partner with the private sector to create employment.

(e) Adopting relevant education system.

(f) Encouraging direct foreign investment.

(g) Encouraging efficient exploitation and use of locally available resources.

(h) Availing investment funds through favourable credit like the Youth Fund and Uwezo Fund.

7. Highlight four benefits of national income statistics to the government.(4 marks)

(a) Provides information on the country’s economic performance over a period of time.

(b) Provides information to be used for making economic policies/budgeting/planning.

(c) Provides information on the contribution of each sector of the economy to the national income.

(d) Provides a breakdown on consumer expenditure and government expenditure.

(e) Provides information on the distribution of income.

( Provide information on the types of factor incomes in the economy.

(g) Provide statistics for measuring the economic growth of the country.

(h) Provides information that is used to measure the standard of living in the country.

(i) Provide information used for comparing economic performance of the country across two or more years.

8. Fill in the spaces in the table below: (4 marks)





9. State four categories in which the various types of business partners may be classified.(4 marks)

(a) By capital contribution.

(b) By extent of liability to be borne.

(c) By activity (part played in the day-to-day running of the business).

(d) By age.

10. Highlight four ways in which the government creates an enabling environment for the conduct of business in the country. (4 marks)

(a) Provision of credit facilities at favourable rates.

(b) Ensuring political stability and good will.

(c) Training and educating the population to create a pool of skilled manpower.

(d) Marketing of final products for producers.

(e) Provision of essential social amenities like water and sewerage, health and education.

(f) Favourable policies andeasy procedures like licensing, subsidies and favourable taxation.

(g) Provision of infrastructure.

11. Outline four roles of transport in the facilitation of trade.(4 marks)

(a) Facilitates the movement of factors of production and other inputs like raw materials.

(b) Enables goods to be moved to the market from their point of production.

(c) Adds value to goods and services by moving them to the point of consumption.

(d) Opens up new markets.

(e) Makes it possible for the exploitation of natural resources.

(f) Allows for specialization since it allows people to access goods produced elsewhere.

(g) Promotes mass production since goods can be moved to be stored and sold elsewhere.

12. State three circumstances under which firms would form a cartel.(3 marks)

(a) When there is need to control output by each firm.

(b) When there is need to be in control of market prices.

(c) When there is need to eliminate stiff competition among the firms.

(d) When there is need to restrict entry of new firms into the market.

(e) When there is need to increase the firms’ bargaining power.

() When there is need to guarantee the income and financial strength of the firms.

13. Outline four conditions under which a manufacturer would distribute his products through the wholesaler. (4 marks)

(a) When it is the dictate of government policy.

(b) When the manufacturer needs time to concentrate on production.

(c) When he wants to avoid the high costs of distribution.

(d) Where it is too expensive to distribute using the manufacture’s ohm outlet.

(e) Where wholesalers prefer to market the product under their own brand names.

(f) Where the manufacturer wants to avoid marketing risks like drop in prices.

(g) When the wholesaler provides ready cash while purchasing in bulk.

(h) Where the manufacturer needs to free storage space.

14. State four reasons for maintaining a cash book in a business enterprise. (4 marks)

(a) To reduce the number of entries made into the general ledger.

(b) To easily avail cash balances/show cash balances at a glance.

(c) To enhance specialization in book keeping by allocating different ledgers to different workers.

(d) To easily monitor the cash inflow and outflow.

(e) To show the sources of funds into the business.

(f) To show the expenditure in the business.

15. Apart from the forces of demand and supply, list four other ways in which the price of a product may be set. (4 marks)

(a) Auction

(b) Haggling (Bargaining)

(c) Price legislation/price control

(d) Price discrimination

(e) Tendering

(f) Retain price maintenance

16. Outline four factors that would make two people taking the same type of life assurance policy with the same insurer to pay different amounts of premium. (4 marks)

(a) Differences in their ages.

(b) Difference in their occupations and the risks they are exposed to.

(c) Difference in their sum assured.

(d) Difference in their places of residence.

(e) Difference in their health status.

(f) Deferring maturity period of their policies

17. State the line of communication involved in each of the following: (4 marks)

(a) The Manager of ABC Company Ltd talking to the Manager of XYZ Company Ltd.


  • Horizontal communication(b) A secretary asking for time off from her boss.


  • Upward vertical communication(c) The Production Manager giving instructions to the Secretary of the Sales Manager.


  • Downward diagonal communication(d) The Store Keeper giving explanations to the Chief Accountant.


  • Upward diagonal communication18. List four books of original entry that may be used to record transactions affecting stock.(4 marks)

    (a) Purchases journal.

    (b) Sales journal.

    (c) Sales returns journal/Returns inwards journal.

    (d) Purchases returns/Returns outwards journal.

    19. Highlight four external economies of scale that a firm may get when operating on a large scale.(4 marks)

    (a) Ready market from the surrounding industries.

    (b) Access to skilled labour force.

    (c) Enjoy improved infrastructure.

    (d) Easy disposal of wastes.

    (e) Readily available complementary services like banking, insurance and warehousing.

    (II Improved security.

    (g) Government support/favourable policies.

    20. The following information was extracted from the books of Leila Traders on 31st July 2016:

    Details Sh

    Capital 90,000

    FixedAssets 80,000

    Cash in hand 20,000

    Current liabilities 20,000

    Stock 20,000

    Net profit 15,000

    Drawings 5,000


    (a) Capital owned

    IC + NP — D

    = 90,000 + 15,000 — 5,000

    = 100.000

    (b) Acid test ratio

    CA-Stock /CL

    20, 000/20, 000


    21. Watamu Enterprises had the following assets and liabilities on 1st May 2014:

    Particulars Sh

    Equipment 800,000

    Capital 1,200,000

    Creditors 100,000

    Debtors 200,000

    Stock 250,000

    Cash at bank 50,000

    The following transactions took place on 2nd May 2014:

    (i) Bought goods for re-sale Sh 150,000 on credit

    (ii) A debtor paid Sh 100,000 by cheque

    (iii) Sold the equipment for Sh900,000 cash

    Required: Prepare Watamu Enterprises balance sheet after the above transactions. (5 marks)


  • 22. Outline four merits of indirect taxes.(4 marks)(a) Tax payment is voluntary.

    (b) It’s not easily evaded.

    (c) More revenue can be raised/covers a wide range of items.

    (d) It is convenient/paid in bits.

    (e) It’s easy to collect at the selling point.

    (f) It promotes equality/paid by everyone who purchases the goods.

    (g) It’s flexible.

    (h) Can be used selectively.

    23. Highlight four ways in which the technological environment may improve business performance.(4 marks)

    (a) Increased output/mass production.

    (b) Lower cost per unit of production.

    (c) Minimal incidences of fraud.

    (d) High quality products.

    (e) Improved business image/reputation.

    (I) Increased sales.

    (g) Better communication.

    (h) Wider market/globalization.

    (i) Faster conduct of business transactions.

    24. Identify the types of ledger in which each of the following accounts would be found: (4 marks)

    Account Type of ledger

    a Otieno (buyer)


  • (a) Debtors ledger/sales ledgerb Carriage outwards


  • Nominal ledger/General ledgerc Mueni (supplier)


  • Creditors ledger/Purchases ledgerd Cash at bank


  • Cash book25. Highlight four ways in which the introduction of money helped eliminate problems faced in barter trade. (4 marks)

    (a) Money eliminates the need for double coincidence of wants since it is a medium of exchange.

    (b) Stores the value of perishable goods by selling them and keeping the money for future use.

    (c) Ensures thatcommodities exchanged are of comparable value, by offering a standard measure of value.

    (d) Help in the exchange of indivisible commodities since it can be divided into smaller denominations wlthout losing value.

    (e) Money provides a unit of account by which goods and services are valued unlike in barter trade.

    (f) Money is a standard for deferred payment whereas it was not possible to make payments in the future under the barter system.

    (g) Money enables the exchange of fixed property like land.


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