MARKING SCHEME BUSINESS STUDIES PAPER 565/1

1. Circumstances which would make an office manager to replace an existing machine with a modern one.
i. Obsolence – has outlived its usefulness
ii. Where a faster machine is required
iii. Where maintenance costs are higher than cost of acquiring modern machine.
iv. Where there is need for increased production.
v. Where training skills have changed
vi. Where he wants to save on labour.
vii. If the new one is capable of multiple use.
viii. If the new machine will save on space/storage. 4x1=4 mks
2.
a) Returns inwards /sales return journal
b) Purchases journal
c) Cash payments journal
d) Sales journal 4x1=4 mks
3. Benefits of privatization of public corporation
i. Government obtains revenue through sale of shares
ii. Government can concentrate on other state responsibilities
iii. Offer opportunities for private citizens to participate in business
iv. To enhance efficiency in the management
v. To reduce government expenditure
vi. To attract foreign aid.
vii. To attract foreign investment 4x1=4 mks
4. Benefits that consumers get from warehousing
i) Steady flow/supply of goods
ii) Stability in prices
iii) Get goods in convenient sizes as a result of warehousing breaking bulk.
iv) One can inspect the goods before buying.
v) Quality goods- some goods improve in quality while in the warehouse. 4x1=4 mks

The Examiner 1 SET 4

5. Differences between perfect competition and monopoly markets 4x1=4 mks

Perfect competition Monopoly

a) Many suppliers or seller A single seller or producer in the
market.
b) Price taker-price fixed by forces of Price fixed by the monopoly firm
demand and supply
c) Free entry or exit of firm in the Difficult for other firms to enter the
market market
d) Commodities are similar in all ways Commodities do not have close
e.g. size, brand, quality e.t.c. substitutes
e) A single seller cannot influence the Seller can influence the price
price in the market
f) No price discrimination Price discrimination may be practiced

6. Reasons why companies in Kenya may not prefer enclosed office layout.

i. No close supervision of workers

ii. Costly to construct and maintain
iii. Encourages absenteeism
iv. Encourages laxity
v. Possible misuse of office facilities
vi. A lot of time taken to move from office to office. 4x1=4 mks

7. Functions of money

i. Acts as a medium of exchange

ii. Acts as a measure of value
iii. Acts as a store of value

The Examiner 2 SET 4

 iv. Acts as a unit of account
v. Acts as a standard for deferred payments 4x1=4 mks

8. Factors to be considered when selecting means of reproducing documents

i. Number of copies required

ii. Cost of the means
iii. Quality/durability
iv. Urgency of the copies
v. Availability of the means
vi. Impression expected.
vii. Nature/type of document
viii. Availability of appropriate manpower or sill. 4x1=4 mks

9. Two column cash book

Date Details Cash Bank Date Details Cash Bank

2014 2014
June 6 Balance 60,000 June 6 Balance 15,000
b/d b/d
10 Sales 18,000 12 Bank c 20,000
12 Cash c 20,000 14 Cash 22,500
14 Bank 22,500 14 Balance 62,500 500
c/d

82,500 38,000 82,500 38,000

June 15 Balance 62,500 500
b/d

The Examiner 3 SET 4

 (5 marks)

10. Factors influencing location of business near the market

i. If the finished product is bulky and difficult to transport over long distance i.e to reduce transport costs.
ii. If the fined product is fragile to avoid breakages if it 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 services to its customers.

4x1=4 mks

11. Reasons why the government issues out licences to traders

i. To regulate the number of businesses in any given line of activity to avoid unhealthy competition.
ii. To raise revenue for the government and leaving the country.
iii. To ensure that traders engage only in trade activities that they have licences for.
iv. To ensure that those who engage in professional activities meet the requirements of the profession.
v. To ensure that there are no illegal businesses 4x1=4 mks

12.

a) Open air market traders

b) Itinerant traders
c) Automatic vending machines
d) Tied shops. 4x1=4 mks
13. Differences between public company and public corporation

Public company Public corporation

i. Registered under company’s Act Formed through Act of parliament
ii. Formed by shareholders hence capital Formed by the government, hence,
contributed by shareholders initial capital from the government.
iii. Directors elected by shareholders Directors appointed by the
government.
iv. Profit – dividend to shareholders Profit goes to treasury (government)
v. Profit motivated Not profit motivated but service

The Examiner 4 SET 4

 motivated
vi. No political influence in management Political influence is eminent due to
political appointments
(8x ½ =4mks)

14. ELITE TRADERS

Balance sheet
As at 31st December 2015
Shs. Shs.
Fixed assets 960,000 Capital 700,000
Current assets 390,440 4 year bank loan 460,040
Creditors 190,400
1,350,440 1,350,440

(5 marks)

15. Accounting errors that will not affect the trial balance
i. Error of total omission
ii. Error of commission
iii. Error of original entry
iv. Compensating errors
v. Complete reversal of entries
vi. Error of principle

4x1=4 mks

16.

CC= OC + AC + P –D
D= OC+ P –CC
D= 140,000 + 45,000 – 173,000
D= 12,000 4x1=4 mks
The Examiner 5 SET 4
17. Advantages of posters as an advertising media
i. Can convey message to a large number of audience if placed at strategic place
ii. It is cheap to prepare
iii. It allows the use of different colours/more appealing.
iv. Messages may last for a long time
v. Easy to prepare.

(4mks)

18. Characteristics of small scale retailers

i. Are found in all parts of the country
ii. Usually operated as one-man business
iii. Require only a small capital to start and operate.
iv. Serve the needs of people in the immediate neighborhood.
v. Deals mainly with fast moving goods such as foodstuffs, detergents e.t.c (4x1= 4mks)
19. Ways in which a consumer may be exploited by business
i. Over charging them
ii. False advertisement
iii. Selling poor quality goods and services
iv. Selling wrong quantities
v. Selling harmful commodities
vi. Hoarding
vii. Breach of contract 4x1=4 mks
20. Reasons why one would prefer to hire office machine instead of buying it:-
i. If the cost of the machine is very high.
ii. If the machine is expected to perform a particular task and will not be required thereafter.
iii. If the volume of work to be done by the machine is very low.
iv. If the spare parts of the machine are hard to get.
v. If the maintenance cost is high.
vi. If the machine is likely to become obsolete sooner. 4x1=4 mks
The Examiner 6 SET 4
21. Duties of an office messenger
i. Collecting and distributing mail internally and externally.
ii. Guiding visitors to the relevant offices in the organization.
iii. Preparing and serving tea to office staff and visitors.
iv. General office cleaning.
v. General office errands (4x1=4mks)
22. Reasons why a business plan is important
i. Avoiding mistakes
ii. Identifying strengths and weaknesses
iii. Required by financiers
iv. Determination of the amount of capital requirements
v. Allocation of resources
vi. A motivating factor
vii. A tool for control. (4x1=4mks)
23. Four uses of a general journal
i. To record purchase of a fixed asset on credit.
ii. To record sale of a fixed asset on credit.
iii. Correction of errors (rectification of errors).
iv. To record introduction of capital of withdrawal of capital by the owner in a form other than cash.
v. Opening entries
vi. Closing entries
vii. Writing off bad debts
viii. Issue of shares and debentures of companies. (4x1=4mks)
24. Shako traders
Trading account for the month of March 2013

Shs. Shs.
Opening stock 20,000 Sales 270,000
Add purchases 250,000
270,000
Less closing stock 30,000
The Examiner 7 SET 4
 240,000
Gross profit c/d 30,000
270,000 270,000
Gross profit b/d 30,000
(8x ½ = 4mks)

25. External diseconomies of scale

i. Scramble for raw materials
ii. Non-availability of land for expansion
iii. Scramble for available labour
iv. Competition for available markets
v. Easy target especially in time of war. 4x1=4 mks

The Examiner 8 SET 4