Name…………………………………………………Admission Number……………………………
565/2 Candidate’s Signature…………………………
BUSINESS STUDIES Date……………………………………………..
Paper 2
March 2025
1
2 2 Hours.
BUSINESS STUDIES
PAPER 2
𝟏
2 𝟐 HOURS
Instructions to candidates
a) Write your name and index number in the spaces provided above.
b) Sign and write the date of the examination in the spaces provided above.
c) This paper consists of six questions.
d) Answer any five questions.
e) Write your answers in the spaces provided after question six.
f) All questions carry equal marks
g) This paper consists of 3 printed pages.
h) Candidates should check the question paper to ascertain that all pages are printed as indicated
and that no questions are missing.
i) Candidates should answer the questions in English.
For Examiner’s Use only
Question Maximum Candidate’s score
Score
20
20
20
20
20
1. a) Explain five advantages of government involvement in business activities. (10marks)
b) Explain five features of human wants. (10 marks)
2. a) Explain five factors to be considered in the choice of means of transport. (10marks)
b) with the aid of a well labelled diagram, describe the flow of income in a two-sector
economy. (10 marks)
3 a) Explain five circumstances that would influence a producer to sell their products
directly to the consumers. (10 marks)
(b) Explain five internal environment factors that may contribute to the success of a business
enterprise. (10marks)
st
4. a) Simba Traders commenced business on 1 may 2024 with Sh. 50,000 cash. During the
first week of May, the following transactions took place
i. Deposited Sh. 40,000 into a business bank account.
ii. Simba Traders converted a table valued at Sh. 40,000 from private use into business use.
iii. Borrowed Sh.120,000 from XYZ Bank which was deposited into the business bank
account.
iv. Purchased goods worth Sh. 60,000 on credit from Nyati Distributors.
v. Bought equipment Sh.30,000 paid by cheque.
Required: Prepare the balance sheet of the business as at 7th may, 2024 (10 marks)
b) Describe five differences between Commercial Banks and Non-Bank Financial
Institutions. (10 marks)
5. a) There has been an increase in demand for Big Daddy sweets, explain five factors that may
contribute to this trend. (10 marks)
b) Explain five advantages that Kenya enjoys by trading with other countries. (10 marks)
6. a) Explain five principles of public expenditure. (10 marks)
b) The following information relates to Zebra traders for the period ended 31st
December,2021.
Details SHS
Premises 850 000
Debtors 650 000
Creditors 800 000
Motor vehicle 800 000
Equipment 550 500
Gross profit 1 000 000
Commission received 960,200
Furniture 350 000
Stock 75 000
Bank 200 000
Cash in hand 150 000
General expenses 117 800
Discount received 66 100
Insurance 7500
Discount allowed 4600
Commission allowed 12 400
Purchases 78 000
Sales 1 000 000
Bank overdraft 20 000
Required: Prepare Zebra Traders Trial Balance as at 31st December,2021
1. a) Explain five advantages of government involvement in business activities. (10marks)
i Provision of essential goods / services-at fair prices /reasonable prices /affordable prices
ii Provision of large capital investment /undertake ventures –that require large sums which
private sector may not be able to raise/ without which development will be minimal
iii Protection of citizens to protect citizens –from exploitation by businesses/traders/malpractices
by businesses/ accept examples of malpractices as qualification
iv Stimulation of economic development –by developing social amenities/
infrastructure/roads/water/energy/injecting funds into the economy through developments projects
v Creation of employment /to create jobs for the citizens –To earn a living / improve standards
of living.
vi Generation of income /to generate government revenue –through taxation /licensing for
financing government expenditure/ by engaging in commercial activities (accept examples of
government revenue as a mention).
vii Standardization of the economy –through regulation / market intervention
viii Promote equity / fairness- in the distribution /use of resources
ix Controlled use of resources –through conservation /legislative measures/ ensure their
sustainability
x Maintenance of law and order –which allows for smooth operations for country affairs
xi Promotion of best practices – through encouraging adoption of ICT/good governance / social
programmers/inclusivity
xii Promoting a country ‘s identity / image –through cultural programs /branding initiatives /
participation of international competitions
xiii Reduce foreign dominance /promote a country’s sovereignty – by regulating foreign
participation in the economy / accept correct aspects of the regulation as qualification
xiv Promotion of entrepreneurial culture- by encouraging business ownership / training / funding
business.
xv Promotes investment in the country- by creating an enabling environment.
b) Explain five features of human wants. (10 marks)
i They are unlimited/ numerous / endless / very many when one is satisfied, another crops up to take its
place / begins from birth and ends at death.
ii Dynamic / change with time / age / gender what is required when its cold may not be the same as what is
required when it’s hot.
iii They are habit forming. Once an individual develops a taste for a commodity he / she tends to use it over
and over again / become addicted / hooked.
iv Require resources limitations in resources required means only a few human wants are fulfilled / in order
for them to be satisfied.
v They are universal all human beings need goods and services for existence (though in varying quantities) /
they are common to all human beings.
vi They are competitive. Wants compete for attention / resources each yearning to be satisfied.
vii They vary in intensity / urgency some wants are felt more than others / may not be postponed.
viii They are complementary satisfaction of one creates a second derived from the first / for the second to be
satisfied / some wants are satisfied jointly.
ix Insatiable cannot be fully satisfied.
x Recurrent / repetitive once satisfied they are felt again.
2 a) Explain five factors to be considered in the choice of means of transport. 10 marks)
i The nature/type of the commodity to transported: Some goods are such that they can only be
transported using appropriate/suitable means of transport/perishable goods may require fast
means/special facilities (accept completely explained examples)
ii Cost: should be able to meet the cost of means of transport chosen/choose a mean that is
affordable/cost effective.
iii Speed/urgency: required goods /services require fast means/choose a mean that can deliver
goods/services within the requirement time.
iv Reliability: choose a mean that is certainly to deliver without fail depend on to deliver.
v The distance to be covered: some means of transport may take goods to faraway place/some are
not convenient over short distances (accept completely explained example)
vi Security: Choose a mean that is less prone to damage/loss/theft.
vii Flexibility: choose a mean that is possible to offer door to door services.
viii Value of goods/services: if of high value they may require a mean that is more secured
b) With the aid of a well labelled diagram, describe the flow of income in a two-sector
economy. (10 marks)
3 a) Explain five circumstances that would influence a producer to sell their products directly
to the consumers. (10 marks)
i. When the producer has his own outlet hence eliminates middlemen
ii. When goods are produced according to customers specification to meet their needs
iii. When the market is concentrated in one area hence need to reduce distribution cost
iv. When the goods are perishable thereby reaching the consumer while still fresh / before getting
stale / bad
v. When the product is new in the market hence may require producer to be involved in
marketing / advertising
vi. When the product is of high value hence need to ensure safety / security against loss.
vii. When goods are of technical nature that requires demonstration / guide on its use
viii. When the goods are produced in small scale thus reduce cost of distribution and increase
profit
ix. When goods are required urgently to ensure consumers gets the good in the shortest time
possible / within the required time.
x. Proximity to the market hence deliver the goods directly to keep the prices of the goods low
xi. Where the producer requires immediate feedback from the consumres interms of taste/
performance / quality etc
(b) Explain five internal environment factors that may contribute to the success of a business
enterprise. (10marks)
i A functional / good business structure formal arrangement of the functions / relationship of
people that is directed towards achievement of organizational goals.
ii Employment of qualified/ skilled / experienced /adequate personnel when correct labour is
availed and correctly matched to their jobs, then performance is enhanced through staffing.
iii Proper / proportionate allocation / availability of financial resources / capital the business
finances are allocated to activities based on contribution to organisation structure.
iv Adequate finances will enable the business to carry out its operations smoothly / expand.
v Availability /access to relevant physical resources like buildings/ furniture to complement human
effort.
vi Innovativeness / creativity / invention / research and development through improvement of
methods of production which boost quality / quantity of output.
vii Positive business culture since productivity is enhanced when culture matches the expectations /
beliefs / values of staff.
viii Good objectives / setting good objectives that are simple / achievable/ measurable / specific
ix Good / proper management style through coordinating / planning / organizing
x Motivated / supportive owners arising from fair returns from capital invested.
4 (a)
(10 marks)
Workings (NOT NECESSARY)
MAY 1ST (i) (ii) (iii) (iv) (v) Final
ASSETS
Cash 50,000 -40,000 10,000
Bank +40,000 +120,000 -30,000 130,000
Furniture +40,000 40,000
Stock +60,000 60,000
Equipment +30,000 30,000
LIABILITIES
Capital 50,000 +40,000 90,000
Bank loan +120,000 120,000
Nyati +60,000 60,000
Distributors
SIMBA TRADERS
BALANCE SHEET
AS AT 7TH MAY 2024
Furniture 40,000 Capital 90,000
Equipment 30,000 Bank Loan 120,000
Stock 60,000 Creditor (Nyati) 60,000
Bank 130,000
Cash 10,000
270,000 270,000
b) Explain five differences between commercial banks and Non-Bank financial institutions.
Commercial Banks Non-Bank Financial Institutions
(a) Give short term & medium term loans Give medium and long term loans
(b) Provide overdraft facilities Do not provide overdraft facilities
(c) Buys and sells foreign exchange Do not buy /sell foreign exchange
(d) Offers means of payments Do not offer means of payment
(e) Provide letters of credit Do not provide letters of credit
(f) Are regulated by central banks Are not regulated by central bank
() Have current, savings & fixed deposit Have only savings and fixed deposit accounts only
accounts
(h) Give credit to wide sector of the economy Give credit to specific sectors of the economy only
5.(a) There has been an increase in the demand for Big Daddy sweets, explain five factors that
may contribute to this trend. (10 marks)
i Favorable pricing /fall in price –the big daddy are priced at a value that consumers can easily
afford.
ii Increasing consumers’ income- people are able to buy more of the products /have higher
purchasing power due to increased earnings.
iii High price of substitutes/most of the products in the market that can serve as substitutes
are highly priced-hence not preferred by buyers
iv Favourable tastes /preferences / fashions / trends more consumers now like big Daddy as
compared to other sweets
v Favourable government policies/lower taxes / increased subsidy which keep the prices of big
daddy down / stable/ affordable (hence encouraging their consumption)
vi (General) increase in population with more people, more of the products is consumed.
vii Aggressive marketing / sales promotion more consumers are attracted to Big Daddy due to
increased / intense advertising / other promotional strategies.
viii Equitable distribution of income among consumers since many people have access to
earnings, they are able to buy more of the products.
ix High / peak / festive season which makes people to indulge in their consumption
x Expectation of future increase in price hence making people to buy more now.
xi Anticipation of future shortage / fall in supply which makes people to buy more now.
b) Explain advantages Kenya enjoys by trading with other countries. (10 marks)
i. Increase revenue/ generate income/ revenue through importation/exportation of goods
ii. Promote the mobility of factor of production (such as ) labour/capital/entrepreneurship
which/enhance production/ between countries
iii. Disposal of surplus goods / a country may have outlet to dispose off it’s surplus goods that it
is unable to sell in it’s home market/that could otherwise go to waste
iv. There is greater variety of goods (available for consumption)/international trade bring in a
varieties of particular products form different destinations this gives consumers (a wide
array of ) choices /improve standards of living
v. Efficient allocation/better utilization of resources since countries tend to produce goods in
which they have a comparative advantage/due to specialization/thus wasteful duplication of
resources is prevented /due to wider market for goods/services
vi. (More) employment could be generated/created as the market for the country’s goods widen (
through trade ) /due to increase economic activities
vii. It improves the quality of goods /services due to competition ( between the imported and
locally produced good/services
viii. Fosters peace/ good will/ mutual understanding ( among nations) due to interaction
(between people of different countries) /interdependence among countries
ix.
Lower/fair prices due to competition/access to cheaper factors of production
x.Facilitates transfer of technology/skills ( between countries) leading to better/ more / cheaper
production
xi. Generate revenue for the government through taxation (import/export ) /use to provide public
goods
xii. Countries can acquire goods / services they can’t produce from other countries/ to satisfy local
demand
xiii. Acquisition of positive culture habit due to interaction
xiv. Assistance/protection ( from other countries) in times of need/ accept examples of needs as
expansion
xv. Increased production of goods/services due to increase investment/production activities/larger
market
xvi. Encourage specialization where countries concentrates on production of goods/ services they are
best at / production where they produce cheaply
xvii. Improved infrastructure ( between countries) due to increased production
activities/which facilitates
trade/cheaper/faster movement of goods/services / accept examples of infrastructure as a
mention
6. a) Explain five principles of government expenditure. (10 marks)
i Sanction the expenditure must be authorised / approved by parliament / relevant bodies
ii Economy should be incurred in the most affordable way / to avoid any possible wastage /
misuse
iii Accountability / good / proper financial management public funds should be well
managed / proper records maintained(for auditing)
iv Flexibility the expenditure policy should accommodate the changing/ prevailing economic
situations (e.g. floods / drought / pandemics)
v Maximum / optimum social benefit any expenditure must accord maximum benefit to the
majority people.
vi Productivity the expenditure should be incurred in projects that can yield a return on
investment.
vii Equity should be incurred in a way that ensures fair income distribution.
viii Surplus should be spent on emergencies / fill revenue gaps between collection and
projections/ expenditure should be less than revenue collected.
ix Elasticity expenditure should be capable of being expanded / contracted in line with the size
of the economy
b) Zebra Traders
Trial Balance
as at 31st December,2021
Premises 850,000
Debtors 650,500
Creditors 800,000
Bank overdraft 20,000
Motor vehicle 800,000
Equipment 550,500
Gross profit 1,000,000
Commission received 960 200
Furniture 350,000
Stock 75,000
Bank 200,000
Cash in hand 150,000
General expenses 117,800
Discount received 66,100
Commission allowed 12,400
Insurance 7,500
Discount allowed 4,600
Purchases 78,000
Sales 1,000,000
3,846,300 3,846,000
