565/2

BUSINESS STUDIES

PAPER TWO

SET 10
FORM 4
Kenya Certificate of Secondary Education (K.C.S.E)

MARKING SCHEME

The Examiner 1 SET 10

1. a) Reasons for trade restriction by a country (10mks)
i. In order to protect local infant industries which are not able to compete with cheap
imports.
ii. In order to protect strategic industries such as those that provide food or security.
iii. Creation and protection of employment whereby through protection, new industries
create more employment opportunities while existing industries continue to provide
employment.
iv. To correct a balance of payments that is unfavorable (or a deficit balance of payments),.
v. To prevent dumping of substandard products that are sold cheaply into a country.
vi. To protect the culture and social values of a country.
vii. To expand the market for local products.
viii. To promote self reliance.
(5x2=10mks)

(b)

The Examiner 2 SET 10

 i. Households supply factors of production i.e. land, labour, capital and entrepreneurship to

the firms.

ii. Firms pay for the factors of production i.e rent, salaries, interest and profit, which

becomes income to the households.

iii. Households use the income they have received to pay for goods and services made by the

firms.

iv. Firms sell goods and services to the households.

(10x1=10mks)

2.a) Principles of public expenditure that must be considered before any expenditure can

be incurred.

i. Public expenditure must be sanctioned or approved b the relevant authority such as the

parliament.

ii. It must be incurred in such a way that majority of the people are able to reap maximum

benefit out of it.

iii. It should be flexible enough to meet the prevailing economic situations. E.g. during

drought, it should be incurred to avert hunger disaster while when there is no drought,

development projects can be undertaken.

iv. It must be incurred in the most economical way by avoiding any possible waste.

v. Proper financial management i.e. public funds should be well managed and this should be

facilitated by maintenance of proper records which should be audited.

(5x2=10mks)

The Examiner 3 SET 10

b) i) Kilindini Traders

Trading, profit and loss account for the year ended 31/7/14

Shs. Shs. Shs. Shs

Opening stock 60,000 Sales 700,000
Add purchases 300,000 Less returns inwards 30,000
G.A.F.S 360,000 670,000
Less closing stock 40,000
C.O.G.S 320,000
Gross profit c/d 350,000
670,000 670,000
Expenses Gross profit b/d 350,000
Salaries 140,000
Rent 20,000
Insurance 80,000
Net profit c/d 110,000
350,000 350,000
Net profit b/d 110,000
(10x1/2=5mks)

Margin = x 100

= x 100= 52.24%

Rate of stock turn over

The Examiner 4 SET 10

= 50,000

Return on capital =

ROC= = 7.857%

(10x1/2=5mks)

3.a) Causes of unemployment

i. Rapid population growth that is caused by increase in birth rate.

ii. Inadequate co-operant factor inputs such as land, capital and entrepreneurship.
iii. Use of inappropriate technology such as capital intensive instead of labour intensive
methods of production
iv. Rural to urban migration where people move to urban areas expanding the workforce that
cannot be absorbed by the available jobs.
v. Inappropriate education system that does not equip the youth with knowledge and skills
required by the labour markets.
vi. Seasonality in production where there is unemployment during off-pea season.
vii. Low demand for goods and services.

(5x2=10mks)

b) Circumstance under which a pro-forma invoice may be used.

i. When asking for payment before the goods are delivered.

ii. Used when the seller does not want to give credit.
iii. It is used when the importer wants to get customs clearance before goods are delivered.

The Examiner 5 SET 10

 iv. It is used when the seller wants to use it as a quotation.
v. Used to show what the buyer would have to pay if the order would have to pay if the
order is approved.
vi. Used when it is issued to an agent who sells goods on behalf of the seller.

(5x2=10mks)

4.a) Measures that can be used by an office to safeguard the property of the organization
i. Enhancing security against theft e.g. by employing watchman, installing security lights
and fencing the business premises.
ii. Ensuring physical care by people using the property by assigning the property to
individuals.
iii. Keeping records of movement and usage of each of the property.
iv. Physical stock-taking of each property.
v. Taking insurance cover.
vi. Proper repairs, servicing and maintenance.
(5x2=10mks)
b) Ways in which the government may promote local trade

i. By advising business people on matters such as the type of goods and services to
produce, sources of capital, legal formalities e.t.c.
ii. By training business persons on appropriate ways of carrying out business
iii. Offering business persons financial assistance to enable them start and run their business
inform of low interest loans and subsides.
iv. Organizing shows, trade fairs and exhibitions through which local traders can promote
their goods and services.
v. Providing incentives such as tax exemptions to encourage local businesses.
vi. Creating an enabling environment for businesses to thrive.

(5x2=10mks)

The Examiner 6 SET 10

 5. (a) Ethical issues in product promotion

i. Cheating on the performance of the product where the promoter does not tell the truth
about the performance of the product.
ii. Cheating on ingredients of the product by creating an impression that the product
contains certain ingredients when it actually does not.
iii. Not disclosing side effects or negative effects that a product may have.
iv. False pricing where some producers overprice their products and later reduce the price
slight, making customers believe that prices have been reduced, yet they are still above
the normal.
v. Negative effects on the environment where some promotional activities ma have adverse
effects on the environment.
vi. Social cultural conflicts where some product promotion encourage the use of foreign
products and styles that conflict with the culture of various communities.
(4x2=8mks)
5b. CASH BOOK

Date Particular Discount Cash bank Date Particular Discount Cash Bank
allowed received

Sep Balance b/d 560,000 Sep Balance 175,000

1 1 b/d

16 Mwanaisha 35,000 315,000 8 Benson 14,000 126,000

16 Fatma 10,500 94,500 8 Martha 9800 88,200

24 Josephine 8400 411,600 13 Kimani 7000 63,000

24 Damaris 2520 123,480

The Examiner 7 SET 10

28 James 1680 82320 30 Balance 889,280 492,380
c/d

28 Faith 5040 247960

63140 889,280 944,580 30,800 889,280 944,580

Oct Balance b/d 889,280 492,380

1

(24x1/2=12mks)

6a) Fiscal policy measures that can be used to control inflation

i. Reducing government spending to curtail demand pull inflation.

ii. Increasing tax on incomes so as to reduce consumers’ disposable incomes.
iii. Reducing tax on production i.e. reducing tax on raw materials so as to reduce the cost of
production.
iv. Subsidizing production so as to reduce the cost of production.
v. Producing commodities that are in short supply.

(5x2=10mks)

b) Circumstance under which face to face communication would be preferable to a firm

i. If there is need for immediate feedback.

ii. When there is need to persuade and convince another.
iii. If there is need to communicate a confidential message.
iv. If there is need to communicate directly to the recipient.
v. If there is need to express the message using body language.

(5x2=10mks)

The Examiner 8 SET 10

565/1

BUSINESS STUDIES

PAPER ONE

Kenya Certificate of Secondary Education (K.C.S.E)

MARKING SCHEME

1.
a) Cash receipts journal
b) Sales returns daybook/returns inwards journal.
c) General journal/journal proper/the journal
d) Sales daybook.

(4x1=4mks)

2. Difference between a savings account and a current account

Savings Account Current Account

i. Money in this account earns interest Money does not earn interest.
ii. Holder must maintain a certain minimum No minimum balance is required to be
balance maintained
iii. Cheques are not used to withdraw money A cheque is used to withdraw money from
the account.
iv. Withdrawal can be made once a day or a Withdrawal can be made anytime on
week demand.
v. Overdraft facilities are not allowed Overdraft facilities are allowed.
vi. Withdrawal of large sums may require a No notice required for withdrawing large
notice to the bank. sums of money.
(8x1/2=4mks)]

The Examiner 9 SET 10

3. Duties of customs officials in the bonded warehouses.
i. Checking the origin of goods (for preferential treatment).
ii. Checking the quantity of imports especially where quotas are set.
iii. Checking the quality of imports to prevent dumping.
iv. Collecting customs duty.
v. Recording statistics on imports and exports.
vi. Checking the legality of the goods.
vii. Monitoring the activities of bonded warehouse run by private individuals.

(4x1=4mks)

4.a) Gross profit

Margin =

40%=

G.P= sh. 216,000

b) Cost of goods sold = sales – G.P

= 540,000-216,000

= sh. 324,000

c) Net profit = G.P – expenses

216,000-80,000

=sh. 136,000

d) Average stock

The Examiner 10 SET 10

R.O.S.T =

6 times =

Average stock = sh. 54,000

(4x1=4mks)
5. Factors influencing the location of business near the market.

i. If the finished product is bulky and difficult to transport over long distance i.e reduce
transport costs.
ii. If the finished product is fragile to avoid breakages if it is to be transported.
iii. If the finished product is perishable and need to be consumed immediately it is
produced.
iv. If the business is involved in providing direct service to the customers.

(4x1=4mks)

6. Disadvantages of automatic vending machines

- Not found in many places

- Only limited number of goods are sold.
- Initial and maintenance cost is high.
- Incase of breakdown of the machine the customer will not be served.
- May create unemployment
- A sudden increase in demand may not be taken care of immediately.
- Fake coins can be used.
- One has to carry coins. (4x1=4mks)

7. Factors that may influence a shift in supply curve to the left.

i. Increase in the cost of production

ii. In availability of factors of production
iii. Poor state of technology
The Examiner 11 SET 10
 iv. Unfavourable natural factors e.g drought
v. Future expectation of an increase in price.
vi. Decrease in price of a jointly produced good.
vii. Unfavourable government policy. (4x1=4mks)

8.
a) Increase
b) No effect
c) Increase
d) Decrease (4x1=4mks)

9. Factors to consider when selecting a means of reproducing documents.

i. Number of copies required

ii. Cost of the means
iii. Urgency of the copies
iv. Availability of means
v. Impression required
vi. Type of document
vii. Personnel to operate means.
viii. Quality required. (4x1=4mks)

10. Ways in which the society benefits from indirect production

i. Quality goods and services
ii. Wide variety of goods and services
iii. Increased production
iv. Better utilization of resources
v. Exchange of goods ad services
vi. Employment creation
vii. Specialization which lead to better skills. (4x1=4mks)

11. Ways in which utility of a commodity can be increased.

i. Changing the form of a commodity to suit the needs of the consumer.
ii. Transporting the commodity to where it is needed.
The Examiner 12 SET 10
 iii. Storing the commodity until it is required.
iv. Selling or exchanging the ownership of the commodity from the seller to the buyer.

(4x1=4mks)

12. Roles played by stock exchange market in the economy.

i. Facilitate exchange of shares i.e buying and selling of shares.

ii. Safeguard investors interest by requiring the listed companies to maintain certain
standard of performance
iii. Provide useful information to investors.
iv. Assist companies to raise capital.
v. Creation of employment
vi. Raising revenue to the government
vii. Avail a variety of securities
viii. Fix prices shares
ix. Measure a country’s economic progress.
x. Promotes the culture of salving.

(4x1=4mks)

13. Types of direct tax

- Personal income tax

- Corporation tax
- Stamp duty
- Estate (death) duty
- Wealth duty
- Capital gains tax
- Capital transfer (gift) tax. (4x1=4mks)
14. Benefits of export processing zones

- Encourage exports, hence assist to correct unfavourable balance of payments.

- Encourage foreign investors into the country.
- Create market for locally produced raw materials.

The Examiner 13 SET 10

 - Create job opportunities
- Stimulate industrialization
- Earn the government some revenue after the tax free period. (4x1=4mks)

15.
a) Recurrent
b) Development
c) Recurrent
d) Development (4x1=4mks)

CC= OC + AD +P-D

OC = (CC+D)-(AC+P)

=(240,000 +112,000)- (100,000+ 76,000)

= 325,000 – 176,000

=176,000 (4x1=4mks)

17. Circumstances under which a co-operative society may be dissolved

- If the society is declared bankrupt.

- If the court order for dissolution
- If members withdraw from the society leaving less than ten members.
- When there is an order from the commissioner of co-operatives.
- If members voluntarily decide to dissolve the society. (4x1=4mks)

18. Disadvantages of railway transport.

- Not flexible as trains follow a strict time table.

- Not all areas are served by railway lines.
- Unsuitable for transporting goods over short distances
- Not suitable for transporting urgently required or perishable goods as it is slow.
- It is expensive to buy trains and to construct railway lines. (4x1=4mks)

19. Roles of filling in an office

The Examiner 14 SET 10

 - Documents are protected from loss and landing into authorized hands.
- It aids in office tidiness and efficiency.
- It is an important aid to memory that is, reference can be made in future.
- Documents are kept neat and tidy.
- Documents can be retrieved easily when needed. (4x1=4mks)

20. Advantages of a bill of exchange

- It can be negotiated i.e the holder can pass the rights on the bill to another person.
- Date of payment is determined
- Acceptance by debtor makes it legally binding.
- It can be discounted i.e the payee ay receive money before due dates. (4x1=4mks)

21. Disadvantages of written communication

- It lacks personal appeal

- It takes time to prepare and to reach the recipient.
- Unsuitable to the illiterates
- Immediate feedback may not be possible.
- Does not offer room for persuasion and convincing.

(4x1=4mks)

22. Functions of advertising agencies

- Offer advisory service to their clients on selling techniques

- They advertise on behalf of their clients.
- Help organizations in designing their trade marks, logs and advertising materials.
- Book space and air time for their clients in various media.
- Choose on behalf of their clients, the appropriate media to be used. (4x1=4mks)

23. Challenges of young population

- High dependency ratio
- High rate of unemployment
- Increased social evils or crimes.
- Low labour supply.
The Examiner 15 SET 10
 - Pressure on goods and services required by the youths.
- Reduced savings and investment.
- Diversion of government expenditure from other sectors to cater for the welfare of the
youth. (4x1=4mks)

24. Accounting errors that ay not be disclosed by the trial balance.

- Error of total omission
- Error of original entry.
- Error of commission
-Compensating errors
- Complete reversal of entries
- Error of principle. (4x1=4mks)

25. Causes of demand pull inflation

- Increase in government expenditure
- Effects of credit creation b the commercial banks
- Increase in money incomes
- General shortages of good and services
- Increase in consumers expenditure that may be brought about by future expectation of
shortages or increase in prices.

(4x1=4mks)

The Examiner 16 SET 10