FORM 4 BUSINESS STUDIES

565/1 PAPER 1 MARKING SCHEME

TIME: 2 HOURS
1. Highlight four benefits of learning business studies. (4 marks)
 Acquire business skills of buying and selling goods
 create career foundation to the learning students
 Acquire self-reliance skills
 Acquire critical thinking and making rational judgment
 Acquire basic recording skills/accounting
 Acquire negotiations skills/ bargaining skills
 Acquire management skills
 Acquire entrepreneurial skills
2. State four demographic factors that affect the operation of the business. (4 marks)
 Size of population
 Geographical distribution
 Age
 Birth rate/death rate
3. In the table below, indicate the level of production associated with the following occupations

Occupation Level of production

a) Retailer Tertiary

b) fishing Primary

c) Plumbering Secondary

d) Store keeping Tertiary

4. Highlight four reasons why choice is important in the satisfaction of human wants (4 Marks)
 Since human wants are limitless it helps us to choose the best.
 In order to avoid wastage of resources.
 In order to pick the best from competitive products.
 In order to choose the most urgent need.
5. Outline 4 emerging trends in office practice (4 Marks)
 Location - Organizations tend to move away from congested town centres to pen-urban
areas/outskirts.
 Use of modern equipment/computer/automation - organizations have adopted modern
equipment / computers for efficiency to make work easier.
 Open office layout /landscaped - adopted to facilitate supervision and economize on floor
space/improve ambiance/comfort in the office.

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  Engagement of multi skilled staff able to carry out different tasks/ to save on labour costs! wage
bill.
 Innovative ways of motivating staff e.g.. tours, meals at work
 Capacity building to develop staff skills.
 Time management - use of biometric clocking system to control staff movement.
 Customer care services/desk - to enhance customer satisfaction.
 HIV/AIDs awareness/policy to sensitize employees/ avoid discrimination.
 Stress management - to promote good health/coping of the work place.
 Corporate social responsibility - to give back to the community.
 Use of name tags/badges for identification of employees.
6. Reasons why an insured may not receive compensation
 If the insurance company is bankrupt
 If the cause of the loss is not the risk that was insured
 If the insured never paid the required premium
 If the insurer learns that the insured caused the loss/damage deliberately
 If the insured had not provided certain material facts about the matter both at taking the
policy on when making the claim
 If the claim was made unreasonably long time after the occurrence of the risk
 If the insured has no insurable interest for instance he/she already disposed the property in
question

7. Highlight four circumstances under which a partnership can be dissolved. (4marks)

 if the partners mutually agree to dissolve
 in case of completion of the intended purpose
 when a partner requests for dissolution in writing
 in case of continued disagreements among the partners
 in case of retirement or admission of new partner
 if the partnership engages in unlawful practices
 in case of death, insanity or bankruptcy of a partner
8. Highlight four measures that a government may take to reduce the mortality rate in a country (4
Marks)
 Availing better health care
 Food security
 Improving environmental sanitation
 Disaster preparedness
 Reduce road accident

9. State four reasons why it is suitable to locate a bonded warehouse at the point of entry of a country
(4 Marks)
 For easy re-exporting.
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  For easy inspection of imports.
 To prevent the entry of harmful goods /dangerous goods.
 To prevent exit without legal authority.
 For easy collection of custom duties.

10. State four circumstances under which it may be appropriate to use personal selling as a form of
product promotion. (4mks)

 When a new product is being launched in the market.

 Where the firm is financially able to finance sales persons.

 When the product is tailored to meet customer’s specifications.

 Where the product is of high value.

 Where it is necessary to demonstrate the use of the product.

 Where the market is limited to a small area.

11. State four factors that may lead to an increase in market supply of a product (4 Marks)
 Entry of new firms
 Reduced cost of production
 Improved technology
 Increase in the price of a commodity
 Increase in the price of a complementary product
 Decrease in prices of substitute products
12. The information relates to Solia traders for the month of June 2021.
Sh.
Opening stock 75,000
Purchases 395,000
General expenses 60,000
Closing stock 170,000
Sales 500,000
Capital 1,000,000
Determine;

(i) Cost of sales (1 mark)

COGS = Opening stock + (purchases + carriage inwards-return outwards) – Closing stock

= 75,000+395,000 – 170,000
= 300,000

(ii) Gross profit (1 mark)

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 GP = SALES – COGS

= 500,000 – 300,000

= 200,000

(iii) Rate of return on capital. (2 marks)

= Net profit/capitalx100

Net profit = GP-EXPENSES

= 200,000-60,000 = 140,000

= 140,000/1000,000 x 100 = 14%

13. In each of the following cases, state the type of inflation described. (4marks)

a) The unrest in Ukraine has resulted to an increase in the price of fertilizers Imported inflation

b) The price of bread has gone up to sh.60 due increase in the price of fertilizers cost - push

c) A lot of money in circulation has led to the general increase of price demand pull

d) Arise in price due to uneven growth in some sectors of the economy structural
14. Highlight four circumstances under which down ward communication can be used in an organization
(4marks)
 When senior employee are providing training to the junior employees
 When senior employees are evaluating performance of junior employees
 When senior employees are assigning duties and task to the junior workers
 When management is trying to solve problem affecting workers
 When management want to inspire or motivate junior employees
15. Name the document described in each of the following statements (4 Marks)
a) Sent by the seller to inform the buyer that the goods have been dispatched

Advice note

b) Issued when empty containers initially billed in the invoice are returned

Credit note

c) Issued to accompany goods when using a hired means of transport

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 Consignment note

d) Issued by a buyer to a seller to acknowledge a debt

I Owe You (IOU)

16. Highlight four features of oligopoly market. (4 marks)

 Few firms in the market
 There is interdependence among firms
 Firms engage in non-price competition
 Firms face a kinked demand curve
 Firms produce good which are close/substitute/differentiated
 Have price rigidity/uncertainty
17. The following transactions were extracted from the books of Impact traders for the month of
November 2018.

November 15: Sold goods worth Ksh.150,000 paying by cheque.

November 18: Paid salaries Ksh.20,000 in cash.

Record the above transactions in the relevant ledger accounts and balance them off as at 18
November, 2018. (4 marks)

6. Ledgers
Dr Sales a/c Cr

Date Detail Foli Amoun Date Detail Foli Amount

s o t s o
1pb8/11/1 Bal 150,00 15/11/1 Bank 150,000
8 c/d 0 8
150,00 150,000
0
18/11/1 Bal 150,000
8 c/d

Dr Bank a/c Cr

Date Detail Foli Amoun Date Detail Foli Amount

s o t s o
15/11/1 Sales 150,00 18/11/1 Bal 150,000
8 0 8 c/d
150,00 150,000
0
18/11/1 Bal 150,00

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8 b/d 0

Dr Salaries a/c Cr

Date Detail Foli Amoun Date Detail Foli Amount

s o t s o
18/11/1 Cash 20,000 18/11/201 Bal 20,000
8 8 c/d
20,000 20,000
18/11/1 Bal 20,000
8 b/d

Dr Cash a/c Cr

Date Detail Foli Amoun Date Details Foli Amount

s o t o
18/11/1 Bal 20,000 18/11/201 salarie 20,000
8 c/d 8 s
20,000 20,000
18/11/201 Bal c/d 20,000
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18. For each of the following daybooks, State the relevant source document
 Invoice sent/issued/outgoing invoice
 Cash Receipt issued /cheque received, cash slip issued
 Credit note received/incoming
 Credit note issued/outgoing

19. State four functions of commercial attaches. (4 Marks)

 Educating and advising exporters on trade regulations/practices in other countries.
 Expansion and diversification of exports.
 Organizing for trade fairs and exhibitions of local goods in foreign markets.
 Expansion and diversification of foreign markets.
 Providing information about available selling opportunities in foreign countries to local
producers.
 Developments of bilateral and multilateral trade agreements. Select buyers/agents and
distributors for the country’s export.
 Publish and advertise their country’s exports in business journals and magazines.

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20. Highlight four advantages of paying for transactions using a cheque. (4 Marks)
 Cheque are secure
 Convenient to carry in case of large amount
 Payment can be made without physical movement
 Cheque serve as source document/proof of payment
 Cheque can be discounted before maturity
 Cheque can be assigned

21. State four goals of development in a country. (4mks)

 Provision of adequate health facilities.

 Attainment of high and suitable economic growth.
 Alleviation of poverty.
 Attainment of food security.
 Maintenance of political stability.
 Provision of security.

22. For the year ended 31st December 2004 (4mks)

Total assets Shs. 427500, Total liabilities Shs. 4800
i) Additional capital introduced was Shs. 24000
ii) Drawings made during the year was Shs. 2000
iii) Net profit was Shs. 34500
Required to: Determine the capital as at 31st December 2004

Opening capital = T.A. – T.L.

427500 – 48000 = 379500 = 379500
C.C. = O.C. + P – D + AL
= 379500 + 34500 – 2000 + 24000 = 436000

23. Identify various types of direct taxes described in the table below. (4 Marks)

Description Type of tax

Tax levied on personal income Personal income tax

Tax levied on profits of a company Corporation tax

Tax levied on inherited property Estate (death) duty

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 Tax levied on profit made from sale of assets Capital gains tax

24. State four ways in which the nature of goods would influence the choice of transport
(4mks)

 If goods are perishable a fast and appropriate means is required

 If goods are fragile, a smooth means of transport is required
 If goods are highly valued, a safe and secure means is required
 If goods are urgently required, a faster means is used
 If goods are bulky an appropriate means will be used

25. The following information relates to average price of exports and imports in 2021 and 2022 of
country

12000
Export price = ×100 %=120 %
100 , 000
650 , 000
importpriceindex= ×100 %=162 .5 %
400 , 000
export price 120
termsoftrade= indpx×100 %= ×100 %
import price index 162 . 5
=73 . 8 %
Export price index =

b) Comment on the term of trade calculated above -unfavorable terms of trade