1.
(a) How internal environment may influence a business positively (10mks)
Committed owners. Committed owners make informed decisions and do proper
resource allocation which leads to business success.
Skilled [Link] skilled personnel who are correctly matched with
job activities make a business to do better.
Adequate physical resources. An organization with adequate physical
resources does better. (e.g. enough buildings)
Adequate financial resources. Adequate finances , properly allocated and
managed leads to business success
Inventions and innovations
Good Business structure. E.g. clearly defined duties and responsibilities reduce
conflicts in an organization leading to Business success.
Good Business culture. A good business culture like the one that involves
employees in decision making ,motivates them hence leading to business
success
(b) Types of direct taxes. (10mks)
Personal income tax. Tax imposed on incomes earned by individuals.
E.g P.A.Y.E
Corporation tax. Tax levied on profits of a company.
Stamp duty. Tax paid in areas such as conveyancing of land or securities
from one person to another.
Estate duty (death duty) .tax imposed on property transferred after the
owners death
Wealth tax. Tax imposed on personal wealth that goes beyond a certain
limit.
Capital gains tax. Tax levied on capital gains. (They are realized when a
fixed asset is sold at a higher price than the book value.
Capital transfer (gift) tax. Tax imposed on the value of property
transferred from one person to another as a gift.
2 (a) Ways in which entrepreneurs can maintain a healthy Business environment. (10mks)
By ensuring there is no pollution (air, light, sound, water and solid waste
pollution.)
By maintaining a healthy competition through competing fairy e.g not
destroying the competitor’s promotional materials.
By avoiding environmental degradation.
By taking care of employee’s welfare. E.g paying them timely
By maintaining security in the organization e.g. buildings and machines should
be maintained properly to avoid accidents.
By ensuring there is adequate resources.
By maintaining good interpersonal relationship with the public / corporate
social responsibility.
By providing quality goods and services to their customers.
By complying with the government policies
(b) Three-column cash book
(10mks)
Kipchoge Entreprises
Three- column cash book
Dr Cr
Date Details [Link] Cash Bank Date Details D. Cash Bank
Rvd
2019 2019
June 1 Balb/f 87,000 250,000 June 3 Salaries 101,500
2 Sales 50,000 10 Machine 85,000
6 Jelimo 3,200 76,800 14 Kiplagat 1200 38,800
18 Sales 150,000 21 Wages 25,000
23 Bank(c1) 35,000 23 Cash (c1) 35,000
28 Julius 900 17,100 25 Drawings 5,000
30 Cash 139,100 30 Bank 139,100
30 Bal. c/f 25,000 350,600
189,100 615,900 189,100 615,900
July 1 Balb/f 25,000 350,600
N/B- Learner should be consistent when writing b/d, b/f and c/d,c/f.
3 (a) Explain five negative effects of inflation in an economy
(10mks)
Loss of confidence in the monetary system - People lose confidence in the local
currency both as a medium of exchange and a store of value. This will lead to a
collapse in the county’s monetary system.
Retardation of economic growth -Hinders implementation of development plans
since the cost of projects increases, business people are also not willing to either
take risks, invest in new ventures, expand production or hire more workers .This
leads to retardation in economic growth.
Reduction in profit -Rise in prices of commodities may lead to reduced sales
volume for firms. This in turn may reduce the firm’s profits.
Wastage of time -During inflation individuals and firms waste a lot of time
hopping around for reasonable prices. The time wasted can be an extra cost to the
firm or individual.
Increase in wages and salaries - During inflation firms are always forced by
trade unions to raise employees‟ salaries to cope with inflation. This normally
leads to conflict between the parties concerned.
Decline in standards of living- During inflation consumers’ purchasing power
decreases especially for people who earns fixed income such as pensioners. The
reduction in purchasing power brings about a decrease in standards of living.
Loss to creditors- Creditors loss money when they lend out when the value is
high but got paid when the value is less due to inflation.
Discourages savings and investments- Discourages savings/investments since
people fear their money will lose value/as they have less disposable incomes.
Adverse effects on the balance of payments. Leads to balance of payment
deficits as imports are highly demanded than exports because the exports are very
expensive leading to fall in demand.
(b) A team of sales persons have just arrived at Milele Secondary School to promote the text
books of a given publisher. Explain five steps that they will follow when conducting
product promotion
(10mks)
I. Establishing the customers contact, as well as choosing an appropriate time to
meet the customer to be. That is the time when the customer may be receptive
II. Arousing the consumers interest in the product by attracting his/her attention
through approach and languages, as well as making the prospective customer
develop interest in the product
III. Dealing with the objections on the product which may have been brought
about by the customer to be
IV. Closing the sale by inquiring whether the prospective customer will be
interested in the product or not. This should be done in a polite manner
V. Offering after sale service to the customer on the product that has been sold
4 (a) Explain five challenges that Kenya as an economy may be experiencing during the
implementation of her development plans (10mks)
Over reliance on donor funding, which if they don’t receive, the plan may not be
implemented
Lack of adequate domestic resources such as skilled personnel, finance and
capital may make the implementation a problem
Failure to involve the local people in planning. This will make them not to be
willing to implement it, for they will not be understanding it or rebelling for the
fact that they were not included
Natural calamities such as diseases, floods, drought, etc may make the funds that
had been set aside for implementation be diverted to curb them
Over-ambitious plans which are a times just made to impress the donors to release
their funds but may not be easy to implement
Lack of co-operation among the executing parties which may make the work not
to kick off. For example a conflict between the ministry of finance and that of
planning of the amount to be released
Inflation which may make the estimated value of implementation not to be
adequate, bringing a problem of finances. Prices escalate making the amount
allocated for the project not to be enough.
Lack of political will and commitment in implementing the plan. This may
frustrate the implementation.
(b) Differentiate between oligopoly market structure and monopoly. (10 marks)
Oligopoly market structure Monopoly market structure
(a) Few large films that produce similar/close One single producer of a product with
substitutes that are highly differentiated. no close substitutes.
(b) Firms engage in none price competition The firm is the same as industry and
doesn’t engage in any competition.
(c) Firms are engaged in collusions/ form The firm is the price setter since its
cartels to fix the price of their product. only one in the market.
(d) Firms usually engage in price wars in order The firm usually engages in huge
to remain in the market. promotional activities in order to
continue dominating the market and
keep away potential competitors.
(e) There may be price leadership where the The firm is the price setter as there is
dorminant firm dictates the market no other firms in the industry.
price/rules in the market.
5 (a) Explain five money transfer services that are offered by commercial banks in the
Kenyan economy. (10 marks)
Standing orders
Credit transfers
Telegraphic transfer
Electronic fund transfer
Cheques
Credit cards
Bank drafts or bankers cheques
(b) Explain five new trends and emerging issues in the insurance sector in Kenya today.
(10 marks)
There is cover on terrorist attacks.
Crops and Livestock insurance has been introduced.
There is automation of insurance activities in the economy today.
There is introduction of pet insurance in Kenya today.
There is increased awareness on key policies in Kenya i.e. education and
medical care cover.
There is rigorous advertising/promotion of insurance products.
There is establishment of insurance agencies and brokers, providing
insurance services services.
Clients are getting education on their rights through insurance regulatory
authority.
Accountability of insurance companies to I.R.A.
6 (a) Explain five disadvantages of protectionism to a country. (10
marks)
A country experiences limited variety of goods and services.
May lead to reduced employment.
Other, former trading partners may retaliate causing a reduction in exports.
Trade restrictions may lead to poor international relations.
May lead to production of substandard goods due to reduced competition.
The country is exposed to limited market for its foods and services.
BOPS deficit may result due to reduced volume of exports.
There is little investment in the country because of limited trading
opportunities.
The country experiences reduced foreign exchange earnings as a result of
low export volumes.
Rafiki traders,
Trading profit and loss account,
For the year ended 31st Dec, 2019
Shs. shs. Shs.
Opening stock 50,000 Sales 400,000
Add purchases 255,000 Less return inwards 4,000
Add carriage inwards 28,000
Net sales 396,000
Less returns outwards 7,000 276,000
Cost of goods available for sale 326,000
Less closing stock 58,000
Cost of goods sold 268,000
Gross profit c/d 128,000
396,000
396,000
Expenses Gross profit b/d 128,000
Incomes
Discount allowed 12,000
Discount received 5,000
Commission allowed 3,000 Rent income 18,000
Carriage outwards 8,000
Insurance paid 25,000
Net profit 103,000
151,000
151,000
Mark up = gross profit X 100%
Cost of goods sold
128,000 x 100 = 47.76%
268,000
Rate of stock turn over = Cost of goods sold
Average stock
268,000 =5 times
54,000
