NOVEMBER/DECEMBER EXAM MARKING SCHEME BUSINESS PAPER ONE

1. Mention four reasons why people engage in business.

 To make profit
 As an outlet of new innovation
 To utilize spare time
 To utilize local resources
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2. Highlight four benefits of a bonded warehouse to the government.
 To check quality of goods
 Assist detect illegal goods
 Helps in raising revenue
 Helps in enforcing government policy on imports and exports
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3. The graph given below represents the demand and supply curves of maize.

Price

Quantity

Mention four factors that caused the demand curve to shift to the left. (4mks)
 Incomes of the people reduced
 Population reduced
 Prices of substitutes decreased
 Future expectation of price decrease
 Decrease in price of complementary goods
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4. State four circumstances under which cash may be used as a means of payment. (4mks)
 Where the amount involved is small
 Where the payee does not accept other forms of payment
 Where the payee require cash urgently
 when the credit of the buyer is doubtful
 Where there is need to avoid expenses associated with other means
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5. Identify the type of advertising describe by each of the following. (4mks)

Description Type of advertising

(a) Meant to promote a company’s name or image.  Institutional
(b) Uses a popular personalities to advertise.  Celebrity
(c) Aims at promoting the sales of anew or existing  Product
product.
(d) Aims at giving full information about the product.  Informative

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6. Outline four characteristics of direct production. (4mks)

 Production is usually on small scale

 Production usually for own consumption
 Use simple methods of production
 Low quality produce
 Low volume of goods produced
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7. Highlight four roles of consumer organization in consumer protection. (4mks)

 Collecting complains from consumers

 Seeking legal redress against offenders
 Educating consumers on their rights
 Taking consumers complains to the relevant bodies e.g KEBS.
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8. Outline four consequences of a poor filing system in an organization. (4mks)

 Documents may be accessed by unauthorized person

 Documents may become dirty/damaged
 Untidy office
 Documents can easily get lost
 Wastage of time trying to retrieve the documents.
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9. The table below relates to four different business insert the correct values of A, B, C, and D.(4mks)

Firm Assets Capital Liabilities

1 2,310,642 A1823710 486932
2 B136868 40385 96483
3 941682 31685 C 909997
4 3104611 D 2709263 395348

10. XYZ company ltd enjoys the benefits of monopoly status. Give four problems a consumer of XYZ
company products is likely to encounter. (4mks)

 Poor quality products due to lack of competition

 Limited variety of goods
 Price discrimination
 Poor customer service
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11. State four clauses found in the memorandum of association. (4mks)

 Name clause
 Capital clause
 Liability clause
 Situation clause
 Declaration clause

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12. The following balances were extracted from Mwangaza trader’s books of accounts.
Kshs.
Opening stock 25,000
Closing stock 35,000
Purchases 190,000
Mark up 20%
Calculate
(i) Cost of goods sold (1mk)
Cost of goods sold ¿ opening stock +¿ purchase – closing stock
= 25000 + 190,000 – 35000
= Kshs. 180,000
(ii) Gross profit. (1mk)
Gross profit = cost of goods sold × mark – up
= 180,000 × 0.2
= Kshs. 21, 6000
(iii) Sales (1mk)
Sales = cost of goods sold +¿ gross profit
= 180,000 +¿ 36,000
= Ksh 216,000
(iv) Rate of stock turnover. (2mks)
cost of goods sold
ROST =
average stock
opening stock+ closing stock
=
2
25000+35000
= = 30000
3
180000
ROST =
30000
= 6 times

13. Highlight four measures that the government may take to attract firms to an area. (4mks)

 Development of infrastructure
 Provision of incentives
 Ensure security
 Provide credit facilities to investors
 Provide land at reasonable costs
 Good health care facilities
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14. Outline four benefits of air transport over sea transport. (4mks)

 Air transport is faster than sea transport

 Security of air transport is relatively high
 Air transport is suitable where there is long distance
 Air transport is suitable for perishable goods
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15. Outline four ways of reducing the level of unemployment in Kenya. (4mks)

 Adopting a relevant education system

 Increasing government expenditure

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  Rural development
 Adoption of labour intensive methods of production
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16. List three levels of inflation. (3mks)

 Moderate inflation
 Galloping inflation
 Hyper inflation
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17. Highlight four benefits of a business plan to an entrepreneur. (4mks)

 Helps in allocation of resources

 Helps in identifying strength and weakens of a business
 Helps in getting finance from financial institutions
 Acts as a motivational tool
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18. State four circumstances under which partnership may be dissolved. (4mks)

 If the business is rendered illegal

 When the court orders
 When a partner dies
 If the partnership is temporary
 Incase partners decide to close
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19. State the accounts to be debited or credited in the following transactions. (4mks)

(i) Started business with sh. 50,000 in cash.

(ii) Sold goods worth sh 30,000 receiving a cheque.

(iii) A debtor ben returned goods to the business worth sh 5.000.

(iv) Withdraw sh. 20,000 from bank for business use.

Transaction Debited Credited

I Cash Capital
II Bank Sales
III Sales return Ben (debtor)
IV Cash Bank

20. Highlight four sources of finance to the government. (4mks)

 Fines and penalties

 Income from sale of government property
 Loan recoveries
 Charges from services rendered by government
 Income generated from tourism

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21. In the table below classify the accounts as personal, nominal, real or private. (4mks)

Account Account Type

(a) Machinery Real
(b) Kamau (creditor) Personal
(c) Electricity bell Nominal
(d) Rent income Nominal

22. The following information relates to Patricia traders

Stock (1/1/2018) 30,000

Stock (31/12/2018) 15,000

Purchases 150,000

Mark up 20%

Prepare the trading account for the period ended 31/12/2018. (4mks)

Patricia traders
Trading account
For the period ended 31/12/2018
Opening stock 30,000 Sales 198000
Add purchase 150,000
Goods available for sale 180,000
less closing stock 15,000
cost of sales 165,000
gross profit c/d 33,000
198,000 198000

23. The following balance sheet was incorrectly prepared.

Barakoa traders
Balance sheet
As at 31/12/2018
Dr Cr
Stock 10,000 Premises 50,000
Loan 20,000 Debtor 5,000
Cash 4,000 Creditors 5,000
Furniture 7,000
Capital 51,000

92,000 60,000

Prepare a corrected balanced sheet. (4mks)

Barakoa
Balance sheet
As at 31/12/2018
Fixed assets Capital 51000
Premises 50000 Current liability
Furniture 7000 Loan 20000
57000 Creditors 5000
Current assets
Stock 10000

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Debtors 5000
Cash 400
19000 76000
76000

24. Give four benefits of operating a small scale retail business over a large scale retail business. (4mks)

 Easy to raise capital to start the business

 Quick decision making
 The business is highly flexible
 Few legal formalities required to start the business
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25. Identify four ways of generating a business idea. (4mks)

 Recycling wastes
 Carrying out market research
 Listening to what people say
 Through vocational training and expenses
 Reading newspapers, journals etc
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