Name…………………………………………………Admission Number……………………….

565/2 Stream ……………………………………….

BUSINESS STUDIES Date…………………………………………..

Paper 2
March 2025
1
2 Hours.
2

LESSON STUDY BUSINESS STUDIES EXAMINATIONS.

FORM 3-END TERM ONE -2025
BUSINESS STUDIES
PAPER 2
𝟏
2 𝟐 HOURS
Instructions to candidates
a) Write your name and index number in the spaces provided above.
b) Sign and write the date of the examination in the spaces provided above.
c) This paper consists of six questions.
d) Answer any five questions.
e) Write your answers in the spaces provided after question six.
f) All questions carry equal marks
g) This paper consists of 3 printed pages.
h) Candidates should check the question paper to ascertain that all pages are printed as indicated and
that no questions are missing.
i) Candidates should answer the questions in English.
For Examiner’s Use only
Question Maximum Candidate’s score

score

20
20
20
20
20
1.a) Explain five importance of warehousing to a business. (10 marks)
b) Explain five sources of business ideas. (10 marks)

2. a) Explain five roles of stock exchange market. (10marks)

b) Explain five features of economic resources. (10 marks)

3 (a) Explain five principles of insurance. (10 marks)

(b) Explain five reasons why an effective filing system is important in an office. (10 marks)
4. (a) Describe five characteristics of a successful entrepreneur. (10marks)
(b) Describe five differences between sole proprietorship and partnership form of business unit. .
(10marks)
st
5. (a) On 1 January 2021, Twiga started a business with Sh.50,000 cash. During the first week of January,
the following transactions took place:
i. Deposited Sh. 40,000 into a business bank account.
ii. Converted a personal table valued at Sh.40,000 into business use.
iii. Borrowed Sh. 120,000 from Kingdom Bank which was deposited into business bank
account.
iv. Purchased goods worth S.60,000 on credit from Wayne distributors.
v. Bought equipment Sh. 30,000 paid by cheque.

Prepare the balance sheet of the business as at 7th January 2021. (10marks)
(b) Explain the meaning of the following components of Business Studies.
i Accounting.
ii Commerce
iii Economics
iv Office practice
v Entrepreneurship. (10 marks)
6. (a) Explain five circumstances that would influence a producer to sell their products directly
to the consumers. (10 marks)
st
(b) On 1 January 2021,Zebra Traders had shs. 180,000 cash in hand and a bank overdraft of
Shs. 57,500. During the month, the following took place:
3rd Jan: Cash sales shs. 2,800
4th Jan: A debtor settled his account of Shs. 90,000 by cheque.
10th Jan: Paid salaries Shs. 40,000 in cash.
12th Jan: Took cash Shs. 35,000 to settle personal debt.
24th Jan: Deposited Shs. 10,000 in the bank from office cash.
25th Jan: Purchased stock worth Shs. 8950 from Simba Traders on credit.
27th Jan: A cheque received on 4th January was dishonored. The bank charged
Zebra Shs. 2,500.
31st Jan: Banked all cash except Shs.40,000.
MARKING SCHEME
1. a) Explain five importance of a warehouse to a business. (10 marks)
a. Promote mass production / by allowing producer to continue producing goods since there is
space for storage of (finished) goods / raw materials.
b. Stabilize prices by regulating the flow of goods / storing the surplus / realizing goods when
demanded.
c. Ensure continuity of supply / steady supply of goods by storing them /gradually releasing to the
market / when need arises.
d. It facilitates the preparation / processing for sale by branding / sorting / packaging / (accept
relevant method of preparation for sale as expansion)
e. Creates time utility by ensuring that consumers get goods when required
f. Ensure safety of goods from physical damage / the damaging effects of weather/ pests
g. May add value to some goods e.g. wine / some goods can improve in quality / tastes (better)
when they stay for long / fetch better prices / better satisfaction of needs.
h. Enables traders to look for market /sell goods while still in the warehouse.
i. Ensure seasonally demanded goods are stored until required.
j. Bonded warehouses helps to store goods awaiting clearance by custom authority / allow importer
to claim the goods / look for money to pay for custom duty / clearance.
k. Security for goods since they are protected from theft / pilferage
b) Explain five sources of business idea. (10 marks)
i Observation by checking / collecting data on peoples needs / gaps in the market to
start a business to fulfil them.
ii Hobbies by using personal skills / talents acquired natural to offer goods and services
to start a business.
iii Copying by imitating other people’s ideas to start /own a business.
iv Buying a business idea from the original owner to offer the same goods / services
due to gaps / shortages
v Training / education by providing experiences / skills that will assist one start a
business
vi Print / electronic media by offering information on available opportunities to start a
business.
vii Public shows/ trade fairs and exhibitions that offers a forum for one to get a business
information on opportunities available.
viii Surveys / research on needs of people / market gaps existing in the society that
cause shortages that have to be fulfilled.
ix Available natural resources / waste Product in an area can be identified and
exploited to fulfill a shortage.
x Organized events / festivals / festivities that makes people gather in an area and
their wants have to satisfied e.g. sports
xi Natural calamities / epidemics that cause a misfortune that has to be solved by
starting a firm e.g. face mask during COVID-19
2. a) Explain five roles of stock exchange market. (10marks)
i To measure a country’s economic performance from the price of shares.
ii Sets the price of shares / value of securities based on forces of demand and supply
iii Safeguards investors interests through verification of financial health of companies listed /
publishing financial positions of listed companies.
iv Promotes economic growth through reinvestment of shares.
v Provides ready market for selling and buying of shares thus improves liquidity
vi Promotes savings / mobilise savings by channelling surplus funds share investment by buying
shares
vii Raises revenue to the government through selling of shares / securities / taxation to get funds for
its projects.
viii Creation of employment to brokers who earn income to improve their living standards.
ix It facilitates raising of capital by companies who float their shares for sale in the market
x Listing of share prices which enables investors monitor their wealth.
xi Avails a variety of shares which investors can chose from.
xii Provides information on a company’s performance that help investors to make investment
decisions .
b) Explain five features of economic resources. (10 marks)
i They are scarce / limited since they are found in small quantities.
ii They have money value since they have a price attached on them for exchange.
iii They are unevenly distributed since they are found in different regions in different proportions.
iv They have utility since they have ability to satisfy human wants
v They can change ownership / are transferable through trade / gift/ inheritance/ donations
vi Have alternative uses as they can be put into different uses / occupations
vii They are complementary as they can be used together / jointly
viii Some are mobile as they can be moved from one place / region to another

3 a) Explain five principles of insurance. (10 marks )

i Principle of indemnity states that, once loss occurs, the insured is restored to his financial
position before the loss.
ii Principle of Proximate states that there must exist a very close relationship between the losses
suffered and insured risk.
iii Principle of Subrogation states that whatever remains after the insured has been fully
compensated becomes the property of the insurer / The insurer takes ownership of the remains
of the destroyed property after the insured is duly compensated.
iv Principle of insurable interest states that the insured must only insure a property in which he / she
is likely to suffer direct financial loss in case risk insured occurs
v Principal of contribution states that in case one insures a property with more than one insurance
company, in case of loss arising, then the insurer shall compensate in proportionately according to
premium paid.
vi Principle of utmost good faith states that the insured must reveal the material fact about the
property to be insured.

b) Explain five reasons why an effective filing system is important in an office. (10 marks)
i. Tidiness is maintained in the office: as documents are arranged neatly.
ii Quick accesses to information since documents are coded/serialized
iii Safety of information from damage by bad weather, fire etc. is
minimized
iv Saves on storage space since documents are kept in a compact manner.
v Encourages prompt decision making as information is readily available
vi Encourage transparency and accountability since the movement of document can be monitored
vii Security of information/documents against loss from theft and misplacement.
viii Safeguards secret and confidential information as documents are kept away from unauthorized
access.
ix Facilitates storage/safekeeping of information/documents for future reference

4. (a) Describe five characteristics of a successful entrepreneur. (10 marks)

i Desire to achieve by setting standards / target and using effort to achieve them.
ii Future focussed by predicting future business opportunities by observing current trends
iii Ready to take risks by venturing into businesses whose profits are not guaranteed.

iv Creative and innovative by coming up with new ideas / methods of doing things
v Independent by being their own bosses
vi Persuasive-Convincing people to believe in their ideas and buy their products
vii Goal-oriented-as they work towards set goals.
viii Seek information- that is necessary and relevant for the success of the business.
ix Concern for high quality products-An entrepreneur should strive to cope or beat the existing
standards of quality. This will enable him/her succeed in a competitive market.
x Commitment to work-as they places priority on getting tasks accomplished.
xi Concern for customer satisfaction- so that the consumer to continue being/remain loyal to the
business.
xii Desire to feedback-An entrepreneur should be interested in knowing how the business is
performing.
xiii Persistence / patience- should not give up when challenges arise and take action in order to
overcome such challenges so as to reach the target
xiv Ability to solve problems-An entrepreneur is expected to struggle with determination to get
solutions even under difficult situation so that the business can succeed.
xv Time consciousness-An entrepreneur should be able to use time wisely and avoid wasting it.
xvi Self-confidence as they believe in their own abilities
(b) Describe five differences between sole proprietorship and partnership form of business unit.
(10marks)
Sole proprietorship Partnership

i. formed by one person formed by a minimum of 2 persons

ii. Manged by a sole proprietor Managed by partners

iii. Quick/fast decision making Slow decision making process

iv. Capital raised by sole proprietor a lone Capital raised through partners contribution
v. Owned by sole proprietor Owned by partners
vi. Owned by a maximum of one person Owned b a maximum of 20 / 50 partners
vii. Profits/losses are not shared Profits/losses are shared among the partners

5. (a) On 1st January 2021, Twiga started a business with Sh.50,000 cash. During the first week of
January, the following transactions took place:
i. Deposited Sh. 40,000 into a business bank account.
ii. Converted a personal table valued at Sh.40,000 into business use.
iii. Borrowed Sh. 120,000 from Kingdom Bank which was deposited into business bank
account.
iv. Purchased goods worth S.60,000 on credit from Wayne distributors.
v. Bought equipment Sh. 30,000 paid by cheque.

Prepare the balance sheet of the business as at 7th January 2021. (10 marks)
TWIGA TRADERS
BALANCE SHEET
AS AT 1ST JAN. 2021
ASSETS LIABILITIES
FURNITURE 40,000 CAPITAL 90,000
EQUIPMENT 30,000 BANK LOAN 120,000
STOCK 60,000 CREDITORS (WAYNE) 60,000
BANK 130,000
CASH 10,000
270,000 270,000
(b) Explain the following components of business studies. (10 marks)
i Accounting
A systematic way of recording business transactions for decision making
ii Commerce.
This is the study of trade and aids to trade
iii Economics.
This is the study of how human beings strive to satisfy their endless wants using available
scarce resources
iv Office practice.
Refers to the study of all activities that are carried out in an office
v Entrepreneurship.
This is the study of the process of identifying a business opportunity and getting necessary
resources to start and run a business.
6. (a) Explain five circumstances that would influence a producer to sell their products directly
to the consumers. ( 10 marks)
i. When the producer has his own outlet hence eliminates middlemen
ii. When goods are produced according to customers specification to meet their needs
iii. When the market is concentrated in one area hence need to reduce distribution cost
iv. When the goods are perishable thereby reaching the consumer while still fresh / before getting
stale / bad
v. When the product is new in the market hence may require producer to be involved in marketing /
advertising
vi. When the product is of high value hence need to ensure safety / security against loss.
vii. When goods are of technical nature that requires demonstration / guide on its use
viii. When the goods are produced in small scale thus reduce cost of distribution and increase profit
ix. When goods are required urgently to ensure consumers gets the good in the shortest time
possible / within the required time.
x. Proximity to the market hence deliver the goods directly to keep the prices of the goods low
xi. Where the producer requires immediate feedback from the consumres interms of taste/
performance / quality etc

(b) On 1st January 2021,Zebra Traders had shs. 180,000 cash in hand and a bank overdraft of Shs.
57,500. During the month, the following took place:
3rd Jan: Cash sales shs. 2,800
4th Jan: A debtor settled his account of Shs. 90,000 by cheque.
10th Jan: Paid salaries Shs. 40,000 in cash.
12th Jan: Took cash Shs. 35,000 to settle personal debt.
24th Jan: Deposited Shs. 10,000 in the bank from office cash.
25th Jan: Purchased stock worth Shs. 8950 from Simba Traders on credit.
27th Jan: A cheque received on 4th January was dishonored. The bank charged
Zebra Shs. 2,500.
31st Jan: Banked all cash except Shs.40,000.

ZEBRA TRADERS
TWO-COLUMN CASH BOOK
DR CR
DETAILS F CASH BANK DATE DETAILS F CASH BANK
Jan Jan
2021 2021
Jan 1 Bal b/f 180,000 Jan 1 Bal b/f 57,500
Jan 3 Sales 2,800 Jan 10 Salaries 40,000
Jan 4 Debtor 90,000 Jan 12 Drawings 35,000
Jan 24 Cash 10,000 Jan 24 Bank C 10,000
Debtor /
Jan 27 Dis.cheque 90,000
Bank
Jan 31 Cash 57,800 Jan 27 charges 2,500
Jan 31 Bank c 57,800
Jan 31 Bal b/d 40,000 7,800
182,800 157,800 182,800 157,800
(10 marks )