Commodity Year 2000 price (sh) Year 2003 price (sh) C.P.I S 1

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1 MUMIAS DISTRICT JOINT EVALUATION TEST BUSINESS STUDIES 565/1 marking scheme JULY/AUGUST The table below shows the prices of different types of goods in the year 2000 and use the figures to calculate the consumer price index (C.P.I) of each commodity. Commodity Year 2000 price (sh) Year 2003 price (sh) C.P.I 1 kg of sugar % 2 kg of maize ⅓ % 1 pair of socks % 1 packet of wheat flour % 2. The diagram below shows a shift in demand for bread. price S 1 S 0 S 1 S 0 Quantity Identify any four factors that may have made the supply curve to shift from SOS SISI i) High cost of factors of product. ii) Reduction in quotas. iii) Exit of forms from the industry. iv) Removal of subsidies. v) Increase in taxes. vi) Increase price of related product. 3. Outline any FOUR roles played by commercial banks in home trade i) Providing safe custody for business money. ii) Lending money/giving loans for trade. iii) Provision of means of settling debts/making payments. iv) Provision of right safe facilities. v) Providing business advice. vi) Purchase/sale of foreign currencies. 4. Highlight any four differences between Home trade and International trade Home trade International trade. i) Trade within the countries boundaries. ii) Use only domestic currency. iii) Controlled by some legal requirements. i) Trade a moungst may countries. ii) Involves use of foreign currency. iii) Controlled by varied legal requirements. 1

2 iv) Use of simple documentation & procedures. iv) Involves complex documentation and procedures. 5. Level of production for each of the following activities Activity Level of production (i) Cooking meals for students Secondary (ii) harvesting cane primary (ii) Moving kerosene from Kisumu to Mumias Tertiary (iv) Boiling milk by electric power Secondary 6. From the information below, prepare a trial balance for Ombetu stores as at (5mks) OMBETU STORES. TRIAL STORES AS AT DR CR C. Received 22,000 Sales 763,500 Loan interest 52,500 Purchases 474,000 General expenses 30,000 Drawings 96,000 Rent 120,000 Salaries owing 72,000 Electricity pre paid. 85, , , The following information relates to KOSA Traders for the year ended Gross profit 110,250 Wages 6,000 Interest loan 18,750 Interest on debentures 7,000 Current assets 66,500 Debentures 31,000 Bank loan 75,000 Fixed assets 250,000 Capital 100,000 Current liabilities 6,000 General expenses 25,000 Prepare his profit and loss account for the year ended Expenses Gross profit 110,250 Wages 6000 G. Expenses 25,500 Interest on loan 18,750 Interest on debentures. 7,000 Net profit 53, , ,250 ( 8x ½ = 4mks) 8. From the transactions below state the accounts to the debited and to the credited Transaction Debit Credit i) Began a business with 10,000 in bank Bank Capital ii) Bought equipment in cash for sh. 5,000 Equipment Cash iii) Transferred sh. 60,000 from bank to cash till Cash Bank iv) Took cash sh. 30,000 to pay school fees for his son. Drawings Cash 2

3 9. Identify the accounts in which the following transaction would be recorded in the ledger. Description Account Goods bought for resale. Goods sold to customer Goods sold to customer and returned to the business Goods bought from suppliers and later returned Purchase accounts. Sales account Sales return Purchases return 10. FOUR reasons why post bank services are not suitable for promotion of small scale business units in Kenya. i) They do not offer current account services. ii) They do not provide overdraft facilities. iii) They do not provide cheque books to facilitate payments. iv) Frequency of withdrawal is limited to once a week. v) Their operations are limited to large cities/urban centers. 11. FOUR reasons why a business person would prefer written communication to verbal communication. i) Can be read over and over again for better understanding. ii) Can be used for reference purposes. iii) Can be reproduced by photocopying (where necessary) iv) Can be used as evidence in law. v) Can be used for confidential matters. vi) Can be used to give detailed information. 12. FOUR measures that the government of Kenya has taken to promote rural industrialization i) Improvement of rural infrastructure. ii) Improvement of rural electrification. iii) Provision of postal services in rural areas. iv) Tax concession of investors. v) Lower licence/fee rate. vi) Creation of special institutions to channel loans to investors i.e KIE, ICDC. vii) Provision of management and technical assistance to rural areas. 13. Name TWO examples of parastatals involved in each of the following activities in Kenya. i) Agricultural finance corporation (AFC) ii) Industrial and Commercial Development Corporation (ICDC) iii) Cooperative bank of Kenya. iv) Kenya commercial bank. v) National bank of Kenya. b) Trading. i) K.N.T.C ii) National Cereals and produce board. iii) E. Africa Industries iv) Sugar Industries. v) National Irrigation Board. 14. The following information was extracted from the books of Kibet Traders; Rate of turnover 3 Opening stock 80,000 3

4 Closing stock 100,000 Mark up 20% Determine the gross profit (5mks) Cogs = X 3 = X 80, , = X 180, = X 90,000 X = 270,000 Gπ = 20% X 270,000 = 54, Indicate in the space below the relevant source document for each of the listed books of original entry. Books of original entry Sources document. i) Purchase returns book. Debit notes ii) Cash book. Receipts for cash paid/received. iii) Sales day book. Sales invoice. iv) Sales returns book. Credit notes. 16. FOUR benefits that an organization would get from replacing typewriters with computers. i) Storage of data on soft copy which saves space. ii) Faster processing of data. iii) Editing of data before printing which minimizes errors. iv) It is possible to include drawings and data formats in computers than with typewriters. v) Convenient one can operate several windows/programmes at the same time work can be saved and continued on later. 17. Mumias Sugar Company is a publicly quoted company. Outline any FOUR benefits the company from being quoted. i) It is able to know the price/value of its shares. ii) It is able to sell more shares. iii) It can raise more capital by floating more shares. iv) Information from the stock exchange can be used to improve its performance. v) It can attract competent personnel into the company. vi) It promotes company image. vii) More investors are attracted to the company. 18. Identify any FOUR uses of insurance funds. i) Payment of claims to insured when they insured risks. ii) Investment into profit earning ventures. iii) Administration of insurance firms. iv) Profits to owners of insurance company. 19. Highlight FOUR ways in which a bill of lading is useful to an importer of goods. i) It is a document of title/proof of ownership. ii) It is used in clearance of goods with the ports authority. iii) It is used in payment of customs duty. iv) It is evidence of contract/agreement of carriage between the shipper and importer. v) It is evidence of receipts of goods by the shipper. 4

5 20. State FOUR advantages of indirect taxes to the government. i) They are less costly to administer. ii) They cover a large/greater part of the population. iii) They can be used to check consumption of harmful goods. iv) They can be used to implement economic policies/protect local industries. v) Result in high income if levied on goods with inelastic demand. 21. Outline FOUR ways of attracting customers to business that a trader may use. i) Use of discounts/reduction in prices of goods. ii) After sales services/providing transport, warranties etc. iii) Giving free samples to customers. iv) Advertisement/crating awareness of the goods available. v) Selling high quality goods. vi) Having clear and hygienic premises. vii) Attractive displays outside shops. viii) Courtesy to customers. ix) Giving credit facilities. x) Organizing trade fairs exhibitions. xi) Starting price winning competitions. 22. Outline FOUR factors that may determine the amount of rent charged for the use of land as a factor of production. i) Duration the land is being rented. ii) The size of land being rented. iii) The location of the land. iv) The use of which the land is being put. v) The demand for such land. 23. The following are some characteristics of some forms of business organizations. In the spaces below, write the form of business organization to which each characteristic relates. Characteristic Form of business organization. a) Members cannot operate competing business. Partnership b) Members can freely transfer shares. Public company c) There is quick decision making Sole proprietorship 24. Outline FOUR reasons why a transporter of goods from Mombasa to Nairobi may prefer rail transport to road transport. i) Rail is less prone to accidents than road. ii) More goods can be transported through rail at once unlike road. iii) Rail transport is cheaper than road transport. iv) Bulky goods can easily be transported through rail than road. 25. The following information relates to KOSA Traders for the month of July, July 1 Balance brought forward: Cash 18,000 Bank overdraft 89,000 July 4 Received a cheque for sh. 120,000 from a debtor. July 9 Paid a creditor for goods worth sh. 56,000 by a cheque of sh. 40,000 and cash for the balance. July 15 Sold goods for sh. 15, 000 in cash. Enter the above transaction in the cash book below and balance it off. Date 001 Particular Cash (sh) Bank (sh) Date Particulars Cash Bank Jul 1 Bal. bf July 1 Bal. bf 89,000 July 4 Debtors 120,000 July 9 Creditors 16,000 40,000 July 15 Sales 15,000 5

6 Bal. c/d 9,000 Bal c/d 17,000 33, ,000 33, , State THREE items that constitute that constitute injections into the circular flow of income (3mks) i) Investments. ii) Exports. iii) Government expenditure. iv) Consumption. 6