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Business Studies Paper 1

  • Acquire business skills of buying and selling goods.
  • Acquire self reliance skills.
  • Creates career foundation to the learning students.
  • Acquires basic recording skills.
  • Acquire critical thinking and making rational judgment.

4 marks

  • It is a tool for raising capital.
  • It is a road map to the management of business.
  • It creates an inbuilt control system to reduce inefficiency and wastages.
  • It ensure opportunity are identities and well exploited.
  • It helps in focusing efforts towards achieving objectives.
  • It helps in focusing efforts towards achieving objectives.
  • It helps in countering competitors.
  • It ensures utilization and allocation of the available resources.

4 marks

  • Where the output is small
  • Where the market is small and close to the factory
  • Where customers order goods directly through the firm
  • Where intermediaries are efficient to their operations
  • Incase the storage risks of the product are very high.

4 marks


4 marks


(a)Outline two types of economic resources.

  • Natural resources.
  • Human resources.
  • Man – made resources

(b)Name two examples of economic resource in Kenya.

  • Wildlife
  • Minerals
  • Soils
  • Forests

4 marks


Debtors sh.12, 000

Creditor sh.30,000

Stock of goods sh.25,000

Bank overdraft sh.15,000

Premises sh.260,000

Cash in hand sh.18,000

Motor van sh.140,000

Calculate her capital and prepare her balance sheet as at 30th September 2012 (4mks)

Capital = (12,000+25000+260000+18000+140000)-(30,000+15,000) =410,000

4 marks

  • Easy access to market
  • Reduced cost of transport
  • Create time utility / saves time
  • Open up productive regions hence exploitation of the idle resources
  • Reduces the coat of operations
  • Provide variety of goods in many regions

4 marks


-High dependency ratio.

-High rate of unemployment

-Low supply of labour (majority pop are below working age.

-Pressure to the available resources

-Reduce savings and investment

-Diversion of government expenditure to social needs

4 marks


-Restricting imports

-Promoting exports

-Devaluing home currency

-Encouraging foreign investing in the country

-Promoting local production

-Protecting infant industries

4 marks


-Errors of omission: result from total omission of transaction from ledger accounts thus there is no records of the transactions.

-Errors of commission: this is committed in the ledger when one or both entries are posted to the correct class of account but wrong personal account

-Errors of principle: Result from double entry of transaction made in the wrong class of account.

-Errors of original entry: Made from misreading of figure at the source document.

-Compensation errors: it arises from two errors of the same magnitude on either side of the ledger cancelling each other.

- Errors of complete reverse of entries: this arises from complete reverse of double entry of transaction in the ledger.

4 marks


-Reliance on poor technology

-Inadequate natural resources

-Inadequate human resources

-Unfavorable domestic environment

4 marks


State four consequences of selling the cabbages at price p2

  • There will be pressure on the price to go down.
  • Consumers may go for substitute which are cheaper
  • Demand for cabbages decreases
  • Likely to have surplus cabbages/ less will be bought.

4 marks


-Taking legal action/ report to the relevant authorities

-Organise demonstrations

-Complaining through mass media

-Advising members not to buy from exploitative business people.

4 marks


i. Got a profit 120,000

ii. Brought into the business equipment valued at 50,000

iii. Withdrew 80,000 from the business bank account to pay for his son’s university fees.

Final capital 740,000√ 1 x 5 = (5 marks)

5 marks


-When senior employees are providing training to the junior employees.

-When senior employees are evaluating performance of junior employees.

-When senior employees are assigning duties and tasks to the junior employees.

-When management is trying to solve problem affecting workers

-When management waits to inspire or motivate junior employees.

3 marks


i. Purchase day book

ii. Purchase return day book (4mks)

4 marks


-Have limited liabilities.

-Initial capital is ready available. From the government revenue.

-Able to provide goods & services at low prices.

-Able to produce goods and services in large quantities(enjoy economies of scale)

-Some parastatals are monopolies

-Can be bailed out by the govt when in financial problems.

4 marks


-Increase in government expenditure

-Credit creation by commercial banks

-Increase in money incomes

-General shortages of goods and services.

4 marks


a) One cannot insure the neighbor’s house insurance interest.

b) Compensation is paid out by an insurance company only if the loss is a direct result of happening of the event insured against Doctrine of proximate cause

c) After loosing been compensated the insured is not allowed to take the scrap Subrogation

d) The aim of insurance company is to put back the insured to his original material position and not to profit him. Indemnity

4 marks


Feb 3: Received sh 38,000 from Karandi after allowing 5% cash discount

Feb 4: Deposited sh 20,000 in the bank from cash till.

Feb 6-Paid Kihenju sh 16,000 by cheque in full settlement of his accounts of sh.16, 900

Record the above information in a three column cash book and balance it off. (5mks)

5 marks


-They are prone to vandalism.

-Expensive to put it and maintain

- Exposed to elements of weather damaging them

- Can distract motorists and cause accidents

- Usually interfere with the environment making it dirty.

-Not useful to the blind -Since they are silent they are easily ignored

-Do not target a particular group hence not effective-Sometimes they are too many at one point hence becoming less effective.

5 marks


4 marks


Secure means of payment

Fast means of payment

Can pay large amount of money.

Accessible to many parts of the country.

Reduces transport cost when looking for money transfer services.

3 marks


a) A situation where the government has borrowed internally at high interest rate leaving little for local to borrow from crowding out effect

b) Debts incurred by the government to finance activities that do not generate revenue at all at any time Dead weight debt.

c) Government expenditure which is incurred all the time on a regular basis Recurrent expenditure

d) Types of text paid by companies based on profit corporate tax

4 marks


4 marks

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