KCSE 2024 Business Studies Paper 2

1 (a) Guru, an entrepreneur wants his new products to reach the consumers. Explain five factors he would consider in choosing a distribution channel to use. (10 marks)

i. The type/nature of the product/the characteristic of the product (will determine the channel e.g (fragility/perishability) a(highly) perishable/fragile may require short/direct channel

ii. Nature/spread /extend of the market if customers are widely spread along channel may be used /may require use of intermediaries

iii. Size / resources of his business/firm (the size of the firm determine the size of it's market hence channel to be used) if the producer does not have the required (distribution) resources/is small in size then along channel is used/accept examples of distribution resources as a mention

iv. Competition a firm will select a channel that will complete favorably with the competitors/if competition is stiff the producer needs to be close to consumers/use a short/direct channel

v. Government policy/legal constraints (various regulations may influence selection of the channel to use in distributing a product) government may demand sale of goods directly to consumers/where the law requires a given channel to be used the producer has to comply

vi. Role of intermediaries if the middle man is to perform certain roles/branding/grading/packaging/e.t.c a long channel may be used

vii. Marketing risks when producers want to avoid/spread risks involved in distribution, they may use middlemen/long channel

viii. Cost of the channel (to use) use a channel that is affordable/cheap/cost effective

ix. Advancement in technology/development in IT /use of internet can enable producers to reach consumers directly/use a short channel

x. Distance to the market if consumers are far the producer will need to use long channel/intermediaries (to reach them)

xi. Tastes/preferences of consumers /customers may require personal attention by the producer/use of a short channel

xii. Quantity/volume of outputs/scale of production If many products are produced middle men will be required/long channel will be used

(b) Discuss five demerits of free trade to a country. (10 marks)

i. Unfair competition/ it may stiffen international competition (for domestic economies) Leading to collapse of local/infant firms

ii. May cause unemployment/it can lead to job losses in certain sectors/skills (particularly in industries) that are not competitive in the global market/due to collapse of firms /adoption of appropriate technology

iii. Reduced government sovereignty free trade can limit a governments ability to regulate trade (in the interest of the public health, the environment in order to fit in the bloc) /free trade may endanger economic /political independence of developing countries/may lead to political blackmail/vulnerability/ due to over reliance on import /other countries/the economic dependence

iv. May worsen balance of payments due to reduced/low value of export/expensive/high value of import /over importation/ unfavourable terms of trade

v. Dumping goods are sold at very cheap rates/prices/below their cost of production (in order to capture foreign markets)/ this may kill infant industries/ cause (huge) loses for the already existing local markets/firms/accept adverse effects of dumping as explanation

vii. Slow economic growth (with free trade a country has no control over) imported products may flood the local market/limit expansion of the economy/local firms/may lead to reduced damaged for local products

viii. Loss of government revenue that it would have collected in form of custom duty/from imported goods

ix. Erosion of cultural values/beliefs / moral due to copying/aping negative foreign habits/accept examples of bad morals as explanation

x. Brain drain/loss of skilled personal to other countries who provide better terms/conditions of working/leading to shortage of experts (in the country)

xi. Entry of contraband/illegal products that may negatively affect economy/security/stability/health of the country

xii. May lead to imported inflation due to importation of overpriced products/accept negative effects of imported inflation as explanation

xiii. May open the country to epidemics due to free interaction/movement of people/animals/livestock

xiv. May lead to over exploitation/exhaustion/depletion of natural resources which are non-renewable/due to uncontrolled exploitation/exportation

2 (a) Manji bought a car for business use. Describe five steps he will follow to obtain an insurance policy for the car. (10 marks)

i. Filling a proposal form the form is obtained from the insurance company/by giving in personal details/information about the car to insure and (return the form for consideration) in utmost good faith/honesty

ii. Determination/calculation of the premium (to be paid) based on the information provided/after the insurer has inspected the car to be insured

iii. Payment of the first premium after the application is accepted/the company accepts to cover the risks/in order to activate the policy

iv. Issuing of cover note /binder it is used by the insurer as a temporary document of proof that a contract exists between the insurer and the insured / valid for 30 days

(b) Kimali started transport business with one Matatu. Over the years the number of matatus have increased to 40. Explain five factors that could have made his business to thrive. (10 marks)

i. Proper/ideal location (of the business) convenient for its operations/close/accessible to customers) accept examples of suitable location as expansion

ii. Adequate/enough capital to run/expand the business/finance its operations/due to easy access to credit facilities

iii. Engagement of skilled/experienced labour that are assigned duties that matches job specialization/which results to work being done in a professional/efficient manner

iv. Good public/customer relations/creating/improving good relationship between the business and customers which attracted/retained clients/create customer loyalty

v. Fair/low competition to enable the business access market for its services/which the business can cope with

vi. Availability of good Infrastructure for business to access its market/inputs/wear/tear is minimal/accept examples of good Infrastructure as mention

vii. Favourable/good government policies which encourages growth/investment in that business/making it easy/cheap to do business/accept examples of good government policies as a mention

viii. Political stability/security thus creating certainty/confidence to Kimali's to do business/accept examples of political stability/security as explanation

ix. Fair prices/proper/good pricing which attracted more customers/made the services more affordable/earn enough profit/income that grew the business

x. Adequate/enough labour to operate the business effectively/efficiently/smoothly

xi. Proper/good managerial skills that lead to efficient/good operation/organization/accept aspects of good managerial as mention

xii. Good management of labour/effective leadership that motivates their workers/created team work/focused on business objectives

xiii. Use of modern technology that led to better/quality services/as a result of creativity/innovativeness/accept examples of modern technology as a mention

3(a) Explain five factors in the external environment that may positively influence business operation. (10 marks)

i. Access to modern technology leads to production of more/better quality/reduce cost of production/increase efficiency

ii. Favourable economic factors that leads to more sales/high profit/accept examples of favourable economic factors as a mention

iii. Favourable legislation/legal environment/government policy makes it easy/cheaper/faster to start/run business (examples easy licensing procedure) accept examples of favourable legislation/legal environment/government policies as a mention

iv. Good Infrastructure will facilitate easy/faster/safe/cheaper conduct of business activities/accept examples of good Infrastructure as a mention

v. Favourable/positive cultural practices which promote creation/growth of business (to satisfy people's tastes and desires to produce goods and services

vi. Large population favourable demographics factors that provides market/labour

vii. Fair/low competition leads to positive co-existence of business/promotes growth of complementary services/assure the business market (for it's products)

viii. Large market/many customers where to sale it's products/leading to large sales

ix. Favourable political environment/political stability that ensure security/safety of business/minimizes risks/encourage investment

x. Good/reliable suppliers that ensures regular supply/offer goods/services at fair terms

xi. Favourable natural environment/physical factors which leads to high production of goods/provide resources for production

xii. Security that ensures safety/protection of business (people/property)

xiii. Positive publicity of the firm that improve image/attract/retain customers

3(b). The following transactions relates to Mzabuni Traders for the month of November 2022.

Nov 1: Started a business with Sh. 20,000 in cash and a bank overdraft of Sh. 10,000

2: Purchases of Sh. 15,000 in cash

5: Ngonde adebtor settled his account of sh.15,000 by issuing a cheque of Sh 12,000 and the rest by cash

7: Paid wages by cheque Sh.4,000

8: Received cash from Oloo, a debtor of Sh.3,500

9: Paid Warui, a creditor Sh. 5,000 in cash.

12: Received a cheque of sh.7,250 from Maweu

15: Paid insurance Sh. 2,000 by cheque.

16: Deposited Sh.6,000 from the office till into the bank account

18: Purchased stock worth Sh.9,500 by cheque

20: Received a cheque of Sh. 10,000 from Maweu

21: Paid sh. 3,200 water bill in cash

24: Received Sh. 8,600 from Ngonde in cash

28: Paid rent sh. 5,000 by cheque.

30: Took all the cash and deposited into the bank account.

N/B

i. If one single column cash book is prepared mark the details and no score for figures

ii. If no dates mark details and amount, then penalize one mark from each side

iii. Wrong dates Mark entries and ignore the dates

iv. Figure 5900 will not score if all entries in cash column are not correct

v. If details are not given but dates and figures are given mark the figures

vi. If three column cash book is prepared, award and ignore the discount column

vii. If the cash book is prepared on two pages that is credit side on one page and debit side on another page award

4 (a) Discuss five causes of unemployment in Kenya. (10 marks)

i. Rapid/high population growth whereby there are too many people for the available job opportunities/vacancies/that is faster than economic growth/job creation

ii. Inappropriate education system the education offered in schools fail to impact skills required for existing job opportunities/where there is mismatch between skills acquired and jobs available/education group craving for white collar jobs rather than creating other jobs opportunities (e.g. Jua Kali)

iii. Lack of/difficulty in accessing factors of production/factor inputs for investment/expand /starting business/limiting ability to create jobs

iv. Rural-urban migration/many people move from rural to urban areas where they congest in towns where job opportunities are limited/causing urban unemployment

v. Use of inappropriate technology/capital intensive technology (use of capital intensive methods of production) that minimize /replace use of human labour thus limiting the growth of employment opportunities

vi. Low demand for goods/Services this is brought about by rise in poverty level/low income levels/where people consume less goods/services/less production/(which leads to unemployment)/ leading to structural unemployment

vii. Political instability/insecurity political unrest/ insecurity scare away (potential) investors (who would offer employment opportunities)/disrupt economic activities

viii. Corruption where one cannot find a job without connections/due to nepotism/tribalism

ix. Small industrial sector/ low industrialization in Kenya which is not enough to offer proper /enough employment/in relation to skilled manpower/population

x. Negative attitude towards work some people lack the initiative to do/participate in economic activities/(where they rely on others for their upkeep)/chose not to work

xi. Economic recession when the economy is down, there are job cuts (hence the rise in unemployment)/ cause cyclical unemployment

(b) Explain five reasons why people earning same income may hold different amount of money for transaction motive. (10 marks)

i. Varying spending habits/lifestyle/tastes/preferences if one spends more per day/luxurious/on habitual goods may hold more money

ii. The size of their families / number of dependents the bigger the family /dependents the more money to hold

iii. Availability/access of credit facilities if goods / services are readily accessible on credit an individual may hold less money for transaction motive/people who can easily access (short term) loans holds less money

iv. Duration/interval between income people who earn money daily/frequently holds less money for transaction

v. Financial obligations/ responsibility those with high financial responsibility/ obligations holds more money

vi. Individual attitude/ perception pessimist hold more money/ an optimistic person holds less money

vii. Prices of product where prices are high people holds more money

viii. Stability of prices those faces with unstable/ uncertain prices holds more money

ix. Level of taxation those taxed highly have less disposable income for transaction/holds less money

5 (a) Explain four types of capital. (8 marks)

i. Working capital/circulating capital it is the excess of current assets over current liabilities/capital used to run day to day activities of the business/ used to measure liquidity/ solvency of the business

ii. Borrowed capital/ loan capital/ debt capital acquired by borrowing from financial institutions that is payable (at a later date) / over a long period/ long term liabilities

iii. Capital owned / capital invested/ (owner) equity the amount of money invested in a firm by the owner/ owners claim on asset of the business

iv. Capital employed refers to the monetary/ financial value of the resources in use by a business/ capital owned plus long term liabilities/ borrowed capital/ total asset less current liabilities/ it is represented by the sum of fixed asset plus working capital of the business

v. Fixed capital - capital used to acquire long term asset / fixed asset/ total value of fixed asset

5(b) With the aid of a diagram, describe the effect of a shift in supply curve to the right while the demand curve remains constant. (6 marks)

a) Reduction in price of an input / cost of production leading to increased production/accept of inputs / reduced costs as a mention

b) An improvement in technology (for production of product) leading to high output

c) Natural factors that favour the supply of the product/favourable natural factors leading to more production/accept examples of favourable natural factors as a mention

d) Entry of new producing firms leading to (increase in the supply of product) more production

e) Favourable government policies/ subsidies which increase production (hence increases supply)/ accept examples of favourable government policies as a mention

f) Decrease in price of competing/ substitute goods encourage production of the product (due to better profit)

g) Expectation of future increase in the price of the product will lead to increased production now/ increase in supply in future

h) Expectation of future decrease in the price of the product leading to increased supply/production now (to avoid future losses

i) Increased availability of /access to inputs leading to increased production

j) Improved infrastructure making it easy to bring goods to the market

k) Expectation of future increase in demand for the goods leading to increased production

l) Better skills / training of the producer that increases production

m) Decision of producers to increase production for whatever reason

n) Increased in price of jointly produced goods leading to more production of the goods

o) (Improved) Political stability that encourage production

6 (a) Government of Kenya intends to privatize some public corporations. Discuss five reasons that may have led to this decision. (10 marks)

i. To create more opportunities/ avenues for acquiring new knowledge/techniques in the production of essential commodities/ to produce better/ quality essential commodities

ii. To lessen the fiscal/ financial burden to the government in terms of public expenditure on maintenance/ running of public/ government owned enterprises/ by avoiding losses (of public co operations)

iii. (Privatization is enforced) To enhance efficiency in the use of resources/in the management/by minimizing/ avoiding wastage/loss

iv. To increase government revenue through taxation/ (this helps to create a strong private sector which helps) by widening the tax base through sale of ownership/share/ to finance government expenditures

v. To increase capital flow in the country by attracting foreign investments in the economy

vi. To widen the customers choice as it encourages the production of a variety of consumer commodities/ which leads to improved standards of living/ by eliminating monopoly

vii. To promote industrial development by promoting the establishment of small scale industries (which can later be developed into Large scale industries)/ by encouraging private investment/ ownership

viii. To enhance better services / produce better goods since private companies are profit motivated (their focus remains to provide efficient customer services)/ through exposure to competition

(b) The following balances were extracted from the books of Jabali Enterprises on 1st January 2021

Capital 1,000,000

Motor vehicle 4,000,000

Creditors 360,000

Loan 200,000

Debtors 160,000

Stock 120,000

Cash in hand 200,000

Cash at bank 280,000

Machinery 400,000

The following transactions took place during the year ending 31st December 2021.

i Sold machinery worth Sh. 120,000, received Sh. 80,000 in cash and balance to be settled at a later date.

ii Purchased goods worth Sh. 200,000 and paid sh.140,000 cash, remaining amount remained unpaid.

iii Took Sh.20,000 cash from the business kitty for personal use.

Required:

Prepare Jabali Enterprises balance sheet as at 31" December 2021.(10 marks)

Machinery = 400,000-120,000= 280,000

Cash=200,000+80,000-140,000-20,000=120,000

Debtors=160,000+40,000=200,000

Stock=120,000+200,000=320,000

Creditors=360,000+60,000=420,000

Capital=1,000,000-20,000(drawings)=980,000

N/B

i. Order of entries doesn't matter

ii. For Capital alone is 98,000✓✓

iii. If debtors are split merge them and award that is (debtors 160000 add Machinery 40000)