565/2 MS BUSINESS STUDIES

Paper 2

Nov. 2017 MARKING SCHEME

THE KENYA NATIONAL EXAMINATIONS COUNCIL

KENYA CERTIFICATE OF SECONDARY EDUCATION

BUSINESS STUDIES

Paper 2

MARKING SCHEME

(CONFIDENTIAL)

THIS MARKING SCHEME IS THE PROPERTY OF THE KENYA NATIONAL EXAMINATIONS COUNCIL AND IT MUST BE RETURNED TO THE KENYA NATIONAL EXAMINATIONS COUNCIL AT THE END OF MARKING.

This Marking Scheme Consists Of 9 Printed Pages

1. a). Ways in which the internal environment may contribute to the success of a business enterprise include: (Any 5 × 2 = 10 Marks)

i. A functional / proper / good business structure: Formal arrangement of functions / the relationship of people that is directed towards achievement of organizational goals

ii. Employment of qualified / skilled / experienced / adequate personnel / when correct labour force is acquired / correctly matched to their jobs, then performance is enhanced / through proper staffing. (NB Accept examples of enhanced performance such as efficiency/ high quality / quantity / low costs)

iii. Proper / proportionate allocation / availability of financial resources / capital; the business finances are allocated to activities based on percentage contribution to the organization / growth / improvement / success / Adequate capital finances will enable a business to carry out its operations smoothly / expand

iv. Availability / access to relevant physical resources like buildings / machinery / furniture / other equipment to compliment human effort. (NB. Accept examples of a physical resource as a qualification)

v. Innovativeness / inventions / creativity / research and development through continuous improvement on methods of production which boosts the quantity and quality of production

vi. Positive business culture; productivity is enhanced when culture matches the expectations / beliefs / values of the staff

vii. Good objective / setting good objectives that are simple / measurable / achievable / specific

viii. Good / proper management style through planning /directing /organizing / coordinating / controlling activities of the organization

ix. Motivated / supportive owners arising from fair returns on capital invested. (NB. Accept correct consequences of motivated owner as expansion / accept examples of nature of support such as good decisions / capital as expansion).

b). Channels of distribution that a Kenyan manufacturer would use to ensure their goods reach in another country include: (Any 5 × 2 = 10 Marks)

Local/Kenyan manufacturer/producer Foreign wholesaler foreign retailer foreign consumer

ii.

Local/Kenyan manufacturer/producer Foreign import agent foreign retailer foreign consumer

iii.

Local/Kenyan manufacturer/producer Manufacturer’s agent in foreign country foreign consumer

iv.

Local/Kenyan manufacturer/producer Manufacturer’s representative abroad foreign retailer foreign consumer

Local/Kenyan manufacturer/producer foreign consumer

vi.

Local/Kenyan manufacturer/producer Manufacturer’s representative abroad foreign wholesaler foreign retailer foreign consumer

vii.

Local/Kenyan manufacturer/producer foreign retailer foreign consumer

viii.

Local/Kenyan manufacturer/producer foreign Agent foreign consumer

ix.

Local/Kenyan manufacturer/producer Foreign Agent foreign wholesaler foreign retailer foreign consumer

Local/Kenyan manufacturer/producer foreign wholesaler foreign consumer

xi.

Local/Kenyan manufacturer/producer Manufacturer’s own retail outlet abroad foreign consumer

xii.

Local/Kenyan manufacturer/producer local export agent foreign wholesaler foreign retailer foreign consumer

xiii.

Local/Kenyan manufacturer/producer local export agent foreign wholesaler foreign consumer

xiv.

Local/Kenyan manufacturer/producer local export agent foreign retailer foreign consumer

xv.

Local/Kenyan manufacturer/producer local export agent foreign consumer

xvi.

Local/Kenyan manufacturer/producer local export agent foreign import agent foreign wholesaler foreign retailer foreign consumer

xvii.

Local/Kenyan manufacturer/producer local export agent foreign import agent foreign wholesaler foreign consumer

xviii.

Local/Kenyan manufacturer/producer local export agent foreign import agent foreign retailer foreign consumer

xix.

Local/Kenyan manufacturer/producer local export agent foreign import agent foreign consumer

xx.

Local/Kenyan manufacturer/producer local retailer foreign consumer NB. Use of dash / comma instead of an arrow, Award one mark for the channel

2. a). Differences between chain stores and Departmental stores include: (Any 5 × 2 = 10 Marks)

Chain Stores	Departmental Stores
i. Have many branches / shops / stores in different towns / parts of the country	i. Have different departments / shops / stores within the same building / under one roof
ii. Purchases are centralized	ii. Purchases are made per department / decentralized
iii. Have standard prices in all branches / shops / stores	iii. In each department prices vary according to goods and services
iv. Has uniform outward appearance / interior layout in all branches / shops	iv. Each department is different from the other in terms of outward appearance / interior layout
v. Management of the stores is centralized	v. Each department has its own manager
vi. Slow moving goods in one branch can be moved to another where demand for them is higher	vi. Slow moving goods in one department cannot be moved to another department
vii. A customer can pay for goods in one branch and collect them from another branch	vii. Goods paid for in a department can only be collected from that department
iii. Sell similar goods / services in all branches / shops	iii. Sell different goods / services in different shops
ix. Sales are Decentralizes	ix. Sales are Centralized
x. Usually located in town centres	x. Usually located in outskirts / sub-urban /peri-urban areas

b).

OJWANG LIMITED

TRADING, PROFIT AND LOSS ACCOUNT FOR PERIOD ENDED 31^ST DEC 2013

Opening stock		200,000	Sales	1,200,000
Add: Purchases	680,000		Less: Returns in	50,000	1,150,000
Add: Carriage in	42,000
	722,000
Less: Returns Out	80,000	642,000
Goods Available		842,000
Less: Closing stock		80,000
Cost of sales		762,000
Gross Profit c/d		388,000
		1,150,000			1,150,000

Carriage out		30,000	Gross profit b/d		388,000
Rent		50,000	Discount Received		45,000
Discount Allowed		80,000	Rent Income		60,000
Net profit c/d		333,000
		493,000			493,000

20 × ⅟2 = 10 marks

NB. - Any foreign item attracts ⅟2 mark penalty

- Wrong gross profit b/d so long as there is no foreign item or omission award a mark

3. a). Benefits that a private limited company would get by converting to a public limited company include:

(Any 5 × 2 = 10 Marks)

i. Ability to raise larger amounts of capital / converting to a public limited company it will enable the firm to access more funds by selling shares to members of the public through stock exchange

ii. Easy transferability of shares / shareholders can freely transfer the shares bought in public limited companies when need arises / without consultations / restrictions.

iii. Increased transparency / accountability. The shareholders must scrutinize / approve the company’s Annual audited Accounts / which must also be published

iv. Increased public confidence / goodwill / positive image in the company. This is due to increased exposure to the public / control by the stock exchange

v. Freedom from interference from owners since owners have no direct managerial control

vi. Increased professionalism / specialization in management. Since they can afford to attract / pay professional managers / staff to run the company on behalf of the shareholders.

vii. Higher chances of continuity / survival / the firm is assured of continuity since shares can be freely transferred / membership can be changed without affecting the business

viii. Can enjoy more /larger economies of scale due to increased scale of production; (Accept examples of economies of scale as an explanation)

ix. Can be quoted / listed at the stock exchange / bourse. Leading to sound management / close supervision (NB. Accept benefits of being quoted as expansion

x. Can advertise sale of shares in newspapers / mass media which can attract new / more investors / give it more exposure

xi. Enhanced ability to borrow funds by sale of debentures / from the public / due to larger asset base / collateral ability

xii. Better management / policy direction since it is run by a more competent Board of Directors /professionals

b).Disadvantages of using direct taxes to raise revenue include: (Any 5 × 2 = 10 Marks)

i. Direct taxes are very unpopular with the citizenry. The burden of paying this tax is borne directly with the individual tax payer. Thus no room to shift / share / transfer the burden.

ii. Gives the taxpayer motivation to evade tax payment / may easily be evaded. The taxpayer may come up with ways of concealing / falsifying their income in order to evade paying the tax / reduce the amount to be paid. (Accept any way of evading tax as an explanation)

iii. Non-consultation of taxpayers in the determination of the tax rate / the determination of the rate / amount of tax to be paid is at the discretion of tax authorities which may overburden the taxpayer / discourage payment / encourage evasion

iv. Not an adequate source of government revenue as most people in developing countries are low income earners. Limited amount of tax revenue from this source due to limited tax base / limited diversity

v. Reduced ability to save as it reduces disposable income of the citizens

vi. Taxpayers are not involved in the expenditure of the tax revenue / there is low civic involvement and call for government accountability / taxpayers do not make decisions on government expenditure hence leading to lack of accountability / poor governance / corruption in the use of funds

vii. High taxes may encourage capital freight / foreign investors may transfer capital to other countries due to decline in profit margin / high costs of doing business

viii. It is paid in lump sum / at once / advance leading to taxpayers feeling the pinch

ix. Reduced ability to invest due to reduced profits. (NB. Accept consequences of reduced investments as an explanation)

x. Reduced purchasing power? Afford less goods / services / disposable income hence leading to low standards of living / poor lifestyle.

xi. It is complex / complicated due to many / numerous accounting / formalities to be followed (Accept examples of formalities as expansion)

xii. It is compulsory to those whose income it is imposed / within the tax bracket leaving them with no choice

xiii. Discourages hard work as it directly affects the taxpayers income / reduces disposable income

xiv. It may cause labour unrest / strife as workers demand higher pay to absorb the higher tax (accept examples of labour unrest as a mention)

4. a).

DAGORETTI ENTERPRISES CASH BOOK

FOR THE MONTH OF MARCH 2016

DR CR

Date	Details	F	Cash	Bank	Date	Details	F	Cash	Bank
2016					2016
Mar 1	Capital		15,300		Mar 1	Bal b/d/ Capital			8,200
Mar 4	Harrison		4,600	13,400	Mar 3	Purchases		10,200
Mar 6	Chebet			9,310	Mar 5	Wages			5,000
Mar 7	Otieno		7,720		Mar 8	Hassan		5,450
Mar 9	Cash			6,000	Mar 9	Bank		6,000
Mar 12	Mwende		8,570		Mar 10	Insurance			3,700
Mar 13	Makokha			11,200	Mar 11	Repairs		3,900
Mar 29	Cash			10,640	Mar 14	Water bill			2,590
					Mar 15	Rent			6,500
					Mar 29	Bank		10,640
					Mar 31	Bal c/d		-	24,560
			36,190	50,550				36,190	50,550

20 × ⅟2 = 10 marks

N.B. A candidate without dates / with a different year indicated, deduct 1 mark from either side (Dr or Cr) whichever is missing.

-Where the columns have not been labelled such as cash/bank, don’t mark entries in those columns

b). Factors that one may consider when selecting a means of communication include:

(Any 5 × 2 = 10 Marks)

i. Confidentiality / secrecy of the message. The means should safeguard the content of the message from being accessed by unauthorized people

ii. Accuracy / precision / preciseness of the means. should be able to deliver the message in its original form / without distortions

iii. Urgency of the message / speed of the means. The means should be fast enough to ensure timely delivery of the message

iv. Need for feedback.

v. Affordability / cost of the message. The sender must be able to meet the cost of the means chosen to ensure the sender can meet the cost.

vi. Nature of the message. An appropriate means should be chosen if the message is very complex / detailed / technical

vii. Need for future reference / record. The means must be able to provide evidence if future reference will be required

viii. Capacity of the means. Should allow the required volume of information to be passed / at an agreed speed

ix. Reliability / certainty of the means. Should be able to deliver the information to the receiver as intended

x. Availability of the means. Should be readily available

xi. Intended / desired impression. The means should be able to create the desired effect / impact / image

xii. Government’s policy. If the government requires that communication be done in a certain way he/she has no option.

xiii. Business / organization policy. If the business has prescribed ways of communicating, then the policy has to be followed.

xiv. Type / nature of audience / recipients. The means chosen should be suitable / appropriate for the needs of the audience / recipients

xv. Size of the audience / number of recipients. The means chosen should be capable of reaching all the audience / recipients

xvi. Distance / distribution of the audience / recipients means chosen should be capable of reaching / covering the audience / recipients wherever they are.

xvii. Security of the message. Means chosen should be capable of reaching / covering the audience / recipients wherever they are.

xviii. Security of the message. The means should guard against loss / theft of information

xix. Safety of the message. The means should guard against damage of information.

(NB. A factor explained using a correct situation / example award 2 marks)

5. a). Demerits of the output approach in measuring National Income include: (Any 5 × 2 = 10 Marks)

i. Problem of valuing government output / services since they may not be paid for / not sold at market price / are subsidized

ii. Problem of subsistence output /sector since goods / services are not offered for sale / marketed / difficult to value

iii. Difficult of deciding what goods/services to include / exclusion of illegal goods / services / unpaid for household chores / do it yourself activities and yet they are produced using resources thereby leading to understating the national output / income

iv. Difficult in valuing stock at the end of the accounting year / in store / unsold stock as it differs with their value at the production time / at the current moment / cost

v. Fluctuation in prices which may cause output to appreciate / depreciate in value

vi. Problem of double counting / may be difficult to distinguish between intermediate/ finished final goods (inputs) ( N.B. alternate naming and expansion)

vii. It is difficult to determine / estimate the value /rate of depreciation hence failure to record accurately the value of capital goods / fixed assets.

viii. Inaccurate / incomplete data. Leading to wrong valuation / overstatement / understatement of national output / due to poor record keeping

ix. Inadequate finance / capital / equipment / technology that limits computation of data

x. Inadequate / unqualified personnel / unskilled personnel leading to inefficiency in collection / valuation / computation of output data

b). Circumstances under which a country may realize surplus in its balance of payment include:

(Any 5 × 2 = 10 Marks)

i. When a country exports highly valued finished goods / manufactured products since they fetch higher prices in the international market

ii. Reduced volume of imports which lowers expenditure of imported goods / services

iii. When the country aggressively promotes its exports. This will create more market for exporting goods thus increasing the country’s earnings

iv. When the country devalues its currency. This makes imports more expensive forcing consumers to buy locally produced goods / exports becomes more cheaper and are sold in large volumes

v. When the country enjoys favourable economic order / bargaining power. The country may be able to influence the world market prices to favour its exports

vi. When the country diversifies its exports / the country increases the range of its exports. This makes the country to increase the volume / quality of exports / establish import substitution industries thus lowering imports

vii. Increased volume / demand of exports thus higher export earnings

viii. Improved terms of trade hence high export earnings compared to import expenditure

ix. Revaluation h of foreign currency making exports cheaper / imports expensive

x. Increased investments in the country which increases production for export

xi. Political stability which creates a conducive environment to produce for exports

xii. Increased capital inflow as compared to capital outflow (NB. Accept examples of capital inflows as a mention e.g. grants / donations /gifts)

6. a). Methods that the government may use to increase the supply of goods in the market include:

(Any 5 × 2 = 10 Marks)

i. Reduce the taxes / levies on producers / production / tax holidays. This causes a reduction in the cost of production hence motivating producers to increase production

ii. Increase subsidies in production. The government meets part of production cost making production more affordable. (NB. Accept examples of subsidies as a mention)

iii. Eliminating quotas in production. By not limiting the quantity of goods to be produced / the producers are free to supply as much as they can to the market

iv. Setting favourable producer prices / the government fixes the prices of produce at a high level which encourages emergency of new producers / expansion of new businesses to supply more to the market

v. Improving access to credit / the government extends loans to producers through bodies like KIE / IDB / ICDC / to boost investment in production / credit at low interest rates

vi. Facilitating marketing / government may form agencies that may produce to cushion producers / stabilize selling prices e.g. through NCPB

vii. Availing new research findings / technology to producers / new methods of production from government research bodies like KARI / KIRDI / KEFRI / will help boost production

viii. Improve on infrastructure to facilitate production / movement of goods / services

ix. Ensure political stability which encourages production / boost investor confidence

x. Increased government expenditure on establishment of new / expansion of existing production activities / accept examples of government production activities as expansion like irrigation projects / dams / Nyayo tea Zones etc.

xi. Simplifying / ease the procedure of starting / engaging in business / production /reduced bureaucracy / red tape to boost investments. (NB. Accept examples of simplification as a mention / accept increase in supply as a result of production / importation on condition that the method is correct e.g. reduction in import duty / encouraging people to import more)

b). Factors that may promote the growth of entrepreneurship in Kenya include: (Any 5 × 2 = 10 Marks)

i. Development of a positive entrepreneurial culture that values individuals who are successful entrepreneurs / recognizes / holds them highly / through early exposure to business activities

ii. Relevant education / curriculum / training in business is made part of the curriculum hence preparing the youth at an early age to become entrepreneurs / they promote starting / running of business through seminars / courses / workshops

iii. Presence of role models / successful businessmen are an encouragement / motivation / inspiration to the youth

/ would be entrepreneurs to also go into business.

iv. Government support / favourable policies passed by the government that put in place institutions that support entrepreneurship like Youth Fund / may encourage starting / emergence /expansion of business ventures. (NB. Accept examples of government policies as a mention)

v. Diminishing jobs in the formal sector / since formal employment is becoming difficult to secure entrepreneurship becomes the only viable alternative / way of livelihood

vi. Availability of finances / financial institutions support businesses / providing loans to entrepreneurs hence supporting the growth / expansion / operation of business

vii. Positive peer influence / when people see their peers succeeding in business they get motivated /also try their hands at it

viii. Availability of security that ensures safety of business property / owners

ix. Availability of market / market information / demand where people can sell goods / services to satisfy their needs

x. Good infrastructure this facilitates access to markets / inputs (accept examples of infrastructure as a mention)

xi. Political stability / non-political interference that creates a conducive environment for starting / running / expanding a business

xii. Good governance that ensures transparency / accountability in conduct of business activities

xiii. Healthy / fair completion that business owners can withstand / cope with’

xiv. Availability of technology that can lead to production of the desired quality / quantity of goods / services

xv. Need for independence / self-reliance through earning an income / livelihood

xvi. Need to exercise power by having people working for him/her / exercise authority over employees xvii.Need for recognition by society / peers / to be appreciated

xviii. Need for individual security against hardship / old age / sickness

xix. Need for self-actualization / fulfilment by giving back to society / by helping / assisting others

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