Business Studies Paper 2 KCSE 2020/2021




Kenya Certificate Of Secondary Education

  1. a) Labour is an important factor of production. Explain five barriers that may hinder its

mobility as a factor of production.                                                                                 (10 marks)

  1. b) Recently there has been a general rise in the price of consumer goods and services in Kenya. Explain five negative effects of this trend. (10 marks)



  1. a) Insurance is based on several principles. Explain five principles of insurance.             (10 marks)



  1. b) The table below shows the terms of trade for country A from year 2006 to 2009.


Year Terms of trade (%)









Explain five factors that may have accounted for the trend in term of trade of country A

above.                                                                                                                            (10 marks)



  1. a) Explain five circumstances under which a high population growth may be desirable to a

country.                                                                                                                          (10 marks)

  1. b) Explain five factors that influence the amount of money held by an individual for

transactionary motive.                                                                                                     (10 marks)



  1. a) Highlight five ways through which a government can provide an enabling environment for the

success of business activities in a country.                                                                       (10 marks)



  1. b) On 1st June 2008 Happy Traders had cash in hand shs.5000 and cash at Bank shs7500. The

following transactions took place during the month.

June 2:      Bought goods in cash sh750

June 4:      Paid salaries by cash shs. 3750

June 5       Received cheques from the following debtors after allowing 2% discount in

each case, Kamau sh. 490, Jane sh. 980.

June 8:      Paid the following accounts by cheque in each case deducting a 5% discount

Otieno sh.1,500, Wanjiku sh.600.

June 12:    Bought office machinery by cheque shs.2,500

June 20:    Withdrew cash sh.500 for private use.

June 25:    Cash sales sh.1000

June 26:    Banked cash amounting to sh.500

June 29:    Received shs.1,500 cash from Wanjohi  a debtor.

Required: Prepare a three column cash book duly balanced.                                           (10 marks)


  1. a) A potential manufacturing firm of domestic products would like to introduce new products in the market. Explain five factors that would influence their decision on what goods to produce.

(10 marks)



  1. b) Explain five considerations to be made by a government when deciding on a good tax

system.                                                                                                                              (10 marks)



  1. a) Manufacturers distribute their products to the final consumers through various channels.

Explain five factors considered when choosing a particular channel of distribution.

(10 marks)

  1. b) The following information was extracted from Simba traders on 31st 2008

Stock (1-1-08) Shs.25,000
General expenses 19,000
Commission income 21,250
Discounts allowed 2,750
Salaries 20,000
Carriage outwards 2,500
Purchases 350,000
Return outwards 2,000
Sales 500,000
Return inwards 15,000
Carriage inwards 5,000
Stock (31-12-08) 3,000



Required: Prepare Simba Traders trading profit and loss account for the period ended

31st Dec. 2008.                                                                                                           (10 marks)





                                 Kenya Certificate Of Secondary Education.


  1. a) Discuss five tools used by the Central bank to control the monetary policy in a country.                                                                                                                                                             (10mks)
  2. b) The world has been experiencing global economic recessions. Explain five effects of this economic recession in Kenya.                                            (10mks)
  3. a) The following trial balance relate to Gatundia Traders as at 31st Dec 2009.


                              Gatundia Traders

                                 Trial balance

                              As at 31st Dec 2009.

Dr.                                     Cr.


Fixed assets

Stock 1/1/2009

Purchases & sales

Bad debts

Debtors & Creditors




Return in & outwards

General expenses






























Additional information

  1. Closing stock valued at shs. 6,500.
  2. Salary outstanding 2,800.


  1. Profit and loss account as at 31st Dec 2009.
  2. Balance sheet as at that date.                                                      (10mks)


  1. b) Explain five benefits that will accrue to a trader who sell goods on cash basis only (10mks)


  1. a) Explain five reasons why the Government imposes tax on its Citizens. (10mks)


  1. b) The following information was obtained from Kathure’s Business for the year ended 30th June 2009.


Creditors opening balance            shs. 165,000

Debtors opening balance              shs. 263,000

Payment to creditors’                    shs. 296,000

Receipts from debtors’                 shs. 309,000

Discount allowed                           shs. 34,000

Discount received                         shs. 29,500

Purchases return                            shs. 44,600

Sales return                                   shs.36, 400

Debtors closing balance                shs. 189,500

Creditors closing balance             shs. 143,400


  1. determine credit sales
  2. Determine credit purchases                               (10mks).


  1. a) Explain five benefits that will accrue to Kenya from joining the East African Community.                                                                               (10mks).
  2. b) Discuss five negative effects of inflation in the Kenyan economy. (10mks).


  1. a) Discuss five reasons for disequilibrium in Balance of payment in Developing countries.                                                                  (10mks).
  2. b) Explain five factors that limit the size of the firm. (10mks).


  1. a) Hussein Traders had the following balances as at June 1st 2009.

Cash shs 10,000

Bank shs  4300.

During the month of June, the following transactions took place.

June 3.  Fatuma a debtor settled her account of shs 8.000 by cheque of shs 7,500

  1. Paid rent in cash shs 4,000.
  2. Deposited shs3000 into the business Bank account from the cash box.
  3. Settled Obama’s account of shs 10,000and allowed him a discount of 1% .
  4. Deposited shs 14,000 in the Business Bank account from private sources.
  5. Cash sales shs 6,000.
  6. Wanjiku a debtor settled her account of shs 4,000 having been allowed a discount of 20%.
  7. Purchased furniture shs 2,600 by cheque.
  8. Received shs 1,800 cash from Mohammed.
  9. Bank all the cash in the cash box except shs 800.



  1. i) Prepare a three column cash book and balance it off. (10mks).


  1. b) Explain three reasons why its better for Kenya to borrow internally rather than from external sources.                                                       (6mks).
  2. c) Use a diagram to explain the incidence of tax under perfectly inelastic demand. (4mks).






                                 Kenya Certificate Of Secondary Education


Answer any five questions



  1. (a) The Kenya government is in the process of establishing a new rail service in the country.

Explain five reasons why the government is involved in business activities in the

country.                                                                                                                       (10mks)

(b) Most of African’s top professionals do not work in the continent but work in the “Diaspora”.

Explain five measures that individual countries may use to prevent “brain drain.”  (10mks)

  1. (a) From the recent economic survey, the gap between the rich and the poor is so wide in Kenya.

Explain any five factors that must have contributed to this display in income distribution

(b) The following balances were extracted from the books of Melito Holdings on

31, December 2009.


Gross profit                                                     200,000

Capital                                                             500,000

Cash at bank                                                     50,000

Cash in hand                                                     25,000

Equipment                                                       450,000

Provision for depreciation on equipment          85, 000

Furniture                                                         250,000

Provision for depreciation on furniture             32,500

Electricity                                                           12,000

Stock(31.12.09)                                                 17,500

General expenses                                            120,000

Debtors                                                           175,000

Creditors                                                         275,000

Discount allowed                                              13,000

Discount received                                              20,000


Additional information:

  • Electricity paid in advance was sh. 2,000
  • Depreciation is to be provided as follows:

Equipment 20% on cost

Furniture 10% on book value

  • General expenses due amounted to sh.6,000



(i) Profit and loss account for the year ended 31 December, 2009

(ii) Balance sheet as at 31 December, 2009                                                               (10mks)

  1. (a) Outline five differences between a parastatal and a co-operative society (10mks)

(b) Explain five reasons why mobile banking services are becoming increasingly popular in

Kenya                                                                                                                          (10mks)


  1. (a) Discuss five principles that should be considered when designing a good tax system (10mks)

(b) The table below shows the age distribution of a country.


Age (year) %
0-15 45
16-55 31
56 and above 24



Explain five negative economic implications of this age distribution to a country   (10mks)


  1. (a) Describe the procedure that should be followed when taking an insurance policy (10mks)

(b) Injera investment operates a wholesale business and the following information relates to

a various transactions during the month of May, 2010.

May     3 sold goods on credit to Anyimba sh 60,000

8 purchased goods on credit from Mjuaji stores sh 120,000

12 returned goods bought on credit from Mjuaji stores sh 6,000

16 purchased goods on credit from Mjuaji stores sh 160, 000

22 sold goods on credit to Mafala retailers sh 150,000

23 bought a new motor vehicle from Mashariki motors worth sh 3,200,000

on credit

24 Anyimba returned goods worth sh 10,000 to the business

29 sold equipment worth sh 840,000 on credit to chap chap limited.

Record these transactions into Injera investment books of original entry.                (10mks)

  1. (a) Explain five merits of globalization to the Kenyan economy (10mks)

(b) Naftali started business on 1st July 2008 with a capital of sh 54,000 in the bank. The business

Bank account summary for the year ended 30th June 2009 is given below.



Takings banked          296,000

Commission                    4,800

Bank loan                      40,000



Purchases                    280,000

Furniture                       16,000

Insurance                         7,000

Telephone                        5,800

Rent                              14,400

Loan repayment            41,000

Drawings                         4,400

All the takings were banked except sh 26,000 which was utilized for:

Paying rent                              sh 1,600

Buying goods for resale          sh 16,000

Personal needs                        sh 8,400


Additional information:

(i) all the purchases were made on cash basis.

(ii)Goods were sold at a mark up of 25%

(iii) As at 30th June 2009, stock was valued at sh 24,000 while insurance prepaid amounted

to sh 1,000.

Prepare the trading, profit and loss account for the year ended 30th June 2009.        (10mks)





                                 Kenya Certificate Of Secondary Education

  1. Explain five causes of  balance of payment deficit in developing countries                         10 Marks
  2. Outline five differences between public limited company and a public corporation             10 Marks


  1. Explain four negative implications of an ageing population to a country                              8 Marks
  2. The following trial balance relates to Machakos Traders for the year ended 30.12.2009


Dr                                Cr

Premises                                                          250 000

Motor vehicle                                                  500 000

Provision for depreciation

On motor vehicle                                                                                55 000

Machinery                                                       800 000

Provision for depreciation

On machinery                                                                                     98 000

Gross Profit                                                                                       636 500

Stock 31.12.2009                                              72 000

Heating and lighting                                         48 500

Insurance                                                           24 000

Salaries                                                           140 000

Debtors                                                           220 000

Creditors                                                                                             350 000

Furniture                                                         600 000

Cash in hand                                                     85 000

Cash at bank                                                   420 000

Commission                                                                                           20 500

Capital                                                                                               2 000 000



3 160 000                    3 160 000



Additional information;

  1. Insurance due and unpaid amount to Ksh. 3 000
  2. Salaries paid in advance were Ksh. 2 200
  3. Depreciation is to be provided as follows
    1. Motor vehicle 25% on reducing balance
    2. Machinery 12% on cost
  • Furniture to be reduced by Ksh. 42 000


      Required prepare;

  1. Profit and loss account for the year ended 31.12.2009                                     6 Marks
  2. Balance sheet as at 31.12.2009                                     6 Marks







                                 Kenya Certificate Of Secondary Education



  • Answer any Five questions in the separate answer booklet provided.





This paper consists of  4 printed pages.

Candidates should check the question paper to ensure that all pages are printed as indicated

and no questions are missing

  1. a) Explain Five negative effects of inflation to a country                                                    (10mks)
  2. b) The information below relates to Kekalet retailers for the month on August 2009.  Prepare a petty cash book for the month of August with the following analysis columns.                 (10mks)







Given that the business operates on a monthly float of 25,000/=

Balance as at 31st July 8,550/=

August 2nd: Re-imbursement

August 3rd: Soda for workers’ meeting 1,580/=

August 5th: Envelopes 380/=

August 6th: Fare to wholesale and back 2,100/=

August 10th: Milk and tea leaves 800/=

August 11th: Repair of bicycle 180/=

August 12th: Sundry expenses 2,900/=

August 14th: Taxi 600/=

August 18th: Stamps and courier services 1,120/=

August 20th: Paid Karani a creditor 4,000/=

August 22nd: Bought stationery 2,400/=

August 24th: Airtime for calling 1,600/=


  1. a) Explain five differences between a public corporation and a private limited company                                                                                                                                                  (10mks)
  2. b) Highlight five circumstances under which an insurance contract may be terminated


  1. a) Discuss five factors that will influence the choice of office layout to be adopted by a firm


  1. b) Explain five advantages of a country belonging to a trading bloc                                   (10mks)





  1. a) Explain five contributions of an efficient transport to the economic development of a country


  1. b) With an aid of a diagram, explain how a firm in perfect competition attains its equilibrium output and price in the short run                                                                                      (10mks)


  1. a) Explain five benefits of retailers to wholesalers                                                               (10mks)
  2. b) The trial balance below was extracted from Onyapidi traders on 31st December 2009,

Dr                                  Cr

Gross profit                                                                       42,500

Debtors                                         48,440

Motor vehicle                                162,750

Furniture                                       20,000

Stock                                             22,000

Bank                                              27,500

Salaries                                          27,000

Sundry                                          22,600

Creditors                                                                           37,500

Rent income                                                                      21,400

Equipment                                     27,600

Rates                                             7,710

Capital                                                                               264,200

365,600                       365,600

Additional information

  1. Rate of gross profit to sales is 20%
  2. Opening stock was 24,000
  • Depreciation vehicle 25%

Furniture 7%



Prepare a trading profit and loss account for the year ended 31st December 2009    (10mks)

  1. a) Explain five characteristics of an effective communication system                          (10mks)


  1. b) Explain five ways through which commercial banks advance funds to traders         (10mks)




Paper 2


                                 Kenya Certificate Of Secondary Education



  1. (a) Explain five circumstance under which a partnership may be dissolved.      (10 marks)

(b)       Explain five policies found under general accident ,Insurance                      (10 marks

  1. (a) Draw a labeled diagram to illustrate the determination of price and output under

Monopoly.                                                                                                      (10 marks)

(b)       Highlight five purposes of taxation.                                                               (10 marks)

  1. (a) Highlight five differences between Commercial banks and non-bank financial

Institutions.                                                                                                     (10 marks)

(b)       A business enterprise had the following transactions in September 2008.

September 1: Bought goods at Shs. 10,000 from Baraza.

September 3: Sold goods at Shs. 3,000 on credit to Kosgey.

September 8: Returned goods worth Shs. 2,000 to Owino

September 12: Bought goods worth Shs. 5,000 on credit from Patel


(i)       Record the above transactions in the required journals.                                 (7 marks)

(ii)       Shows the posting from journals to ledger accounts                                      (3 marks)

  1. (a) Explain five uses of National Income statistics                                              (10 marks)

(b)        Describe five factors that determine price elasticity of demand.                               (10mks)

  1. (a) Most firms have introduced customer care services as part of their promotion

techniques. Highlight five benefits of this method to a firm. (10 marks)

(b)       The table below shows the total cost of a certain produce of the given out-put levels

Out – put level Total cost
0 300
10 380
20 470
30 550
40 620
50 680
60 730
70 770
80 860
90 1080


Add columns to show the following at each level of out – put.                                  (10mks)

  1. Fixed cost.
  2. Variable cost.

iii.        Average variable cost.

  1. Marginal cost.



  1. (a) Explain the roles played by Kenya Ports Authority in ensuring that sea transport.   (10mks)

operate efficiently.

(b)       Below is a Trial balance belonging to Mumias Traders.

Mumias Traders

Trial Balance

as at 31/12/2004

  Dr Cr
Capital   125,000
Purchases 45,000


Carriage outwards 2,000


Stock 25,000


Sales   120,000


Carriage inwards 1,200


Insurance 5,900


Salaries 12,450


Discount allowed 3,400


Debtor 25,000


Creditors   15,500
Discount received   1,950
Bank 14,500  
Machinery 128,000  




Additional information.

  1. Closing stock Kshs. 25,000
  2. Outstanding salaries Kshs. 450

vii.       Insurance Kshs. 900 has been paid in advance

viii.      Depreciate machinery by 10% on cost –


Required: –

  1. c) Prepare Trading Profit and loss account for the period ended 31/12/2004.
  2. d) Balance sheet as at 31/12/2004.                                                         (10 marks)





              Kenya Certificate Of Secondary Education



  1. Answer any FIVE questions
  2. All questions carry equal marks



  1. a) Explain five factors that may influence the firm’s decision on what products to produce


  1. b) Explain five challenges that may be experienced by a new entrepreneur who has just establish a business in Kenya                                                                                                    (10mks)
  2. a) Advertising in the newspaper is one way of promoting sales of goods. Highlight limitations of

advertising goods in newspapers                                                                                (10mks)

  1. b) Discuss five advantages of pipeline as a mode of transporting oil products in Kenya (10mks)
  2. a) Explain five services offered by commercial banks to business people                     (10mks)
  3. The petty cashier operates on an imprest of sh. 15,000 per month on 1st Jan 2010, he had a

balance of sh 1,000 and received reimbursement to restore the imprest. The following

payments were made during the month:

Jan 2: Travelling sh 200 and postage sh 400

Jan 5: Tea leaves for staff tea sh 500

Jan 10: Stationary expenses sh 1,000

Jan 15: Sundry expenses sh 1,000

Jan18: Stamps shs 500

Jan 24: Tea leaves sh 600 and bus fare sh 350

Jan 29: Travelling sh 600, stationery sh 1,500

Jan 30: Postage sh 300, Electricity sh 3,000


Prepare a petty cashbook using analysis columns for traveling, postage, staff tea, stationery,

sundry expenses and electricity.                                                                                 (10mks)

  1. a) Study the diagram given below showing equilibrium of a firm and answer the questions that


  1. i) State the market structure represented by the diagram (1mk)
  2. ii) Give the name of the shaded area labeled (a) (1mk)

iii) Outline four features of the above market structure                                             (8mks)

  1. The following information was extracted from the books of Litien wholesalers for the trading

period ended June 2009.


Stock on 30.06.2008                                                               40,000

Purchases                                                                                35,000

Sales                                                                                        70,000

Return inwards                                                                         1,500

Return outwards                                                                       2,000

Discount allowed                                                                      2,100

Insurance                                                                                   2,000

Transport                                                                                   1,400

Discount received                                                                     8,000

Electricity                                                                                  2,400

Rent received                                                                            3,000

Wages and salaries                                                                    5,000

Advertising                                                                               2,000

Stock 30. 06.2009                                                                   15,000

Prepare a trading profit and loss account for the year ended 30th June 2009                  (10mks)

  1. a) The table below shows the frends in inflation rates in a country
Year Inflation rates










Explain five causes that would have triggered the increasing inflation trends in the country


  1. b) Explain five reasons why the government of Kenya is encouraging the location of industries

in all parts of the country                                                                                            (10mks)

  1. a) Explain four factors to be considered when making a development plan in a less developed

Country                                                                                                                       (8mks)

  1. The following cash book summary relates to Wakulima traders.

Cash book summary


Bal b/d                                         350,000

Cash                                             220,000

Debtors                                     1,080,000

Capital (W Traders)                    100,000

Commission                                  20,000

10% bank loan                            120,000





Bal b/d                                        779,000


Payment to creditors                      800,000

Light & heat                                       8,000

Cash purchases                               180,000

General expenses                              47,500

Interest on loans                                  8,000

Insurance                                            22,500

Bank charges                                        2,500

Advertising                                        50,000

Bal c/d                                              779,000



Assets and liabilities were as follows

01/01/2003                  31/12/2003

Creditors                                                         80,000                         95,000

Stock                                                               35,200                         46,400

Debtors                                                           75,000                         86,000

Insurance paid in advance                              8,500                          1,200

Commission  receivable                                  6,300                          7,500

Accrued general expenses                               24,000                         35,000

Delivery van                                                   180,000                       –––––

Additional information;

  1. Bank loan was acquired on January 2003
  2. Discount received and allowed was sh 6,200 and sh 7,100 respectively.
  • Delivery van are depreciated at 20% p.a.

Required: Trading, profit and loss account for the year ended 331.12.03                 (12mks)




                                 Kenya Certificate Of Secondary Education


  1. (a) Explain five problems facing small scale businesses in Kenya          (10 mks)

(b) Explain five factors that insurance companies consider in determining the amount of premium to charge in a life assurance policy.               (10 mks)


  1. (a) Explain five reasons for the increasing popularity of producer co-operatives in Kenya (10 mks)

(b) The following information was extracted from the books BBC enterprises for the year ended 31st Dec 2007.

Stock on 1.1.2007                                        sh.34,430

Net purchases during the year               sh.212,290

Expenses for the year                                sh.45.880

Stock on 31.12.2007                                   sh.26,720

Gross profit mark up                                      50%

You are required to calculate the following: –                                            (12 mks)

  • Average stock
  • Rate of stock turn over
  • Gross profit
  • Net profit for the year


  1. (a) Outline five differences between private and bonded warehouses.   (10 mks)

(b) The government of Kenya is in the process of selling Telkom Kenya to private investors. Explain five reasons to justify such a step                           (10 mks)


  1. (a) Highlight five circumstances under which a newly established firm may find it necessary to locate itself near where well established firms are located.                                                                                                                   (10 mks)

(b) Explain five services offered by the central bank to the government.                                                                                                                                              (10 mks)

  1. (a) Explain five reasons that make it necessary for pharmaceutical companies to increasingly use salesmanship (10 mks)

(b) Explain five reasons that may lead to a decline in supply of maize in Bomet district                                                                                                               (10 mks)

  1. (a) Explain four factors that have led to increased use of container services                                                                                                                                             (8 mks)

(b) The following information was extracted from the books; Highway Traders who do not keep a complete set of accounting records on 31st Dec 2005.

1/1/2008                     31/12/2008

shs                                          shs

Motor vehicle                                   560,000                                  420,000

Furniture                                          218,000                                  196,000

Debtors                                              75,000                                    95,000

Creditors                                           66,000                                    72,000

Stock                                                  60,000                                    85,000

Rent owing                                       3,000                                      4,200

Prepaid insurance                          2,400                                      3,600

Cash summary

for the year 31st Dec, 2008

Balance bld                    15,000

Receipts from debtors    260,000

Cash sales                       50,000

Bal c/d                             800

Rent and rates                     40,000

Payment to creditors          160,000

General expenses                22,000

Electricity                            3,500

Carriage outwards                4,000

Insurance                             28,000

Salaries                                64,000

Carriage inwards                  4.300

325,800 325,800

The following additional information was available for the year ended 31st Dec2008

  • Returns inwards amounted to sh.9,600
  • Bad debts amounted to sh.8,200
  • Discount allowed and discount received were sh.12,000 and sh.24,000 respectively required.
  • Highway Traders statement of affairs as at 1st January 2008
  • Highway Traders trading profit and loss account for the year ended 31st Dec 2008                                                                                          (9 mks)


Paper 2


                                 Kenya Certificate Of Secondary Education








  • Answer any FIVE Questions.
  • Write your answers in the answer booklet provided
  • All questions carry equal marks



  1. a) Explain five features that differentiate a private limited company from a public             corporation form of Business                                                                               (10 marks)
  2. b) Explain five functions of management in a Business Organization (10 marks)
  3. a) Discuss five factors which may influence price elasticity of supply for a product

(10 marks)

  1. b) A manufacturing company operates on imprest of Kshs 20,000. On 1/04/2010 the petty                                     cashier had a balance of Kshs 5,000. He/she received a reimbursement to restore it on                             2/04/2010. The following transactions took place during the month of April

5: Paid bus fare sh 200 PCV no.010

7: Paid Osano a creditor sh 800.His ledger folio was 027

10: Bought stationery sh 1,000 and postage stamps sh 500 PCV no.011

and 012 respectively

15: Bought tea leaves sh 250 with PCV no.013

20: Paid cleaning expenses sh 700 with PCV no.014

22: Paid traveling expense sh 600 PCV no. 015

24: Motor vehicle repairs sh 3,000 PCV no. 016

28: Paid cleaning sh 700 PCV no 018

Required: Prepare a petty cash book using the following analysis columns: Traveling, stationery postage, cleaning, miscellaneous and ledger account

(10 marks)

  1. a) Using a suitable diagram explain the habits of sellers in an Oligopoly market

(10 marks)

  1. b) Describe five principles of Insurance                                                                   (10 marks)

  1. a) Explain five benefits of taxation to the Kenyan economy                                   (10 marks)
  2. b) Explain five circumstances under which a country may belong to a common market                                                                                                                                                         (10 marks)
  3. a) The following balances were obtained from the books of Wema traders on 31st

                                   December 2009


Purchases                                            320,000

Sales                                                    460,350

Carriage on purchases                             6,250

Carriage on sales                                   15,000

Return inwards                                       8,150

Stock on (1/01/2009)                              4,450

Furniture                                             200,000

Drawings                                               18,200

5 year loan                                            30,000

Equipment                                           150,000

Discount received                                   7,800

Salaries                                                    5,000

Discount allowed                                    5,300

Insurance                                                 8,200

Capital                                                 850,000

General expenses                                    6,000

Repairs on furniture                              10,000

Bad debts                                                2,000

Additional information:

  1. i) Stock on 31/12/2009 was valued at sh. 14,800
  2. ii) Insurance owing was sh. 1,500 and salaries paid in advance amounted to sh.4,100
  • Depreciation on equipment is 10% per annum on cost
  1. The loan was borrowed on 1.7.2009 and interest on loan to be provided at 5% per annum.

Required: Prepare Trading, profit and loss account of Wema traders for the year ending 31st December 2009                                                                                              (12 marks)


  1. b) Banking has played a major role in Kenyan’s economic development, explain four current trends in the banking sector (8 marks)
  2. a) Explain five limitations of advertising goods in newspapers                               (10 marks)


  1. b) Keroka traders does not maintain proper accounting records. The following information was extracted from their books.

1/01/2009                                31/12/2009

Stock                                          66,000                                       60,000

Debtors                                      58,000                                      82,000

Creditors                                    70,000                                       92,000

Motor van                               520,000                                              –

Cash                                           66,800                                     150,200

Accrued salaries                                  –                                        46,000

Furniture                                             –                                      130,000

Additional information:

  1. i) Additional investment by the owner sh.98,000
  2. ii) The owner took sh.60,000 from the business for personal use.

iii)        Motor van to be depreciated at 10% per annum.


  1. i) Prepare statements of affairs as at 1/01/2009 and 31/12/1009 (7 marks)
  2. ii) Determine profit or loss for the year 2009.      (3 marks)






               Kenya Certificate Of Secondary Education




  • This paper consists of six questions
  • Answer any 5 questions
  • Write your answers in the answer sheet provided
  • All questions carry equal marks
  • Candidates should check the question paper to ascertain that all pages are printed as indicated and that no questions are missing




  1. (a) Explain FIVE problems associated with operations of public corporations in Kenya                                                                                                                              (10 mks)

(b) Motorcycles have become a common feature in transport in Kenya. Outline five reasons that explain the rapid growth of motorcycle transport in Kenya                                                                                                                        (10 mks)

  1. (a) Explain FIVE benefits that would accrue to a country that encourages entrepreneurship                                                                                                   (10 mks)

(b) Mauzo poa enterprises operates a petty cash book on the imprest system with analysis columns for wages, stationery and ledger and a cash float of Sh.6000. On 1st October, 2009, the petty cashier had a cash balance at hand of Sh.528.

The following transactions took place during the first week of October 2009

Oct 1: The main cashier reimbursed the cashier the amount to replenish the

cash float.

Oct 2: Paid wages of sh.720 and bought envelopes for sh.410

Oct 3: Bought office pins for sh.200 and paid wages to casual workers, sh.890

Oct 4: Paid wages sh.700. Paid a credit supplier sh.500

Oct 5: Bought photocopying paper for sh.600 and printer ink for sh.450

Oct 6: Paid wages sh.650


Prepare a petty cash book for Mauzo Poa enterprises, balance it off and show replenishment of cash float on 8th October, 2009.                                 (10 mks)

  1.  (a) A country’s exchange rate has been deteriorating over the last one year. Identify FIVE reasons that could have caused the deterioration in the exchange rate                                                                                                                                 (10 mks)

(b) Explain FIVE factors that contribute to effective communication in an organization                                                                                                             (10 mks)

  1. (a) Credit cards are increasingly being used in transactions in Kenya. Highlight SIX disadvantages of using credit cards                                                       (12 mks)

(b) The following diagram shows the cost and revenue curves of a firm at equilibrium in the long run



  • Identify the market structure under which the firm operates (2 mks)
  • Name the curves labelled w, x, y and z (2 mks)
  • Identify four characteristics of the market structure in (i) above(4 mks)
  1. (a) Explain FIVE advantages of imposing indirect taxes in a country     (10 mks)

(b) Prize-winning competitions have become common in product promotion. Explain FIVE benefits that a firm will get by using this method to promote its products                                                                                                               (10 mks)

  1. (a) Explain FIVE advantages of an open office layout for a business       (8 mks)

(b) The following is a trial balance status to Kamusinga wholesalers as at 31st December, 2009

Kamusinga Wholesalers

Trial Balance as at 31st December, 2009.

Dr                   Cr

shs                  shs

Fixed assets                                      292,600

Current assets                                             78,000

Rent income                                                             23,000

Discounts                                          3,000              2,000

General expenses                            89,000

Carriage inwards                            28,000

Purchase/sales                                             280,000          474,000

Returns Outwards/inwards                      4,600              7,000

Stock (1/1/2009)                               46,000

Drawings                                          33,000

Current liabilities                                                   53,000

Capital                                                                                  300,000

854,200          854,200

Stock on 31st December, 2009 was sh.54, 000.


  1. Prepare the trading, profit and loss account for the year ending 31st November, 2009 (8 mks)
  2. Calculate:-
  • Rate of return capital employed (2 mks)
  • Rate of stock turn over (1 mk)
  • Gross profit margin (1 mk)






                                 Kenya Certificate Of Secondary Education


  1. a. Explain five ways in which business entrepreneurship helps in economic     development of a country.                                                                          (10mks)
  1. Discuss five ways in which privatization would be beneficial to an economy.                                                                                                                         (10mks)


  1. a. Describe five features of departmental stores.                                        (10mks)
  1. Discuss five methods that the central bank of Kenya may employ to bring down     the rate of inflation in a country.                 (10mks)


  1. a. Unemployment is one of the most serious economic problems facing our country      today. Explain five measures that can be taken by government of Kenya to      solve unemployment problems.                                                                            (10mks)
  1. Discuss five circumstances under which high population growth rate may be     desirable.       (10mks)


  1. a. Explain the role of warehousing in indirect production.                         (8mks)
  1. Outline six benefits that Kenya may enjoy by being a member of East Africa     Economic Community. (12mks)


  1. a. Highlight five changes that have occurred in the Banking industry in recent     years occasioned by competition and rapid development in technology.(10mks)
  1. Describe five negative effects of inflation.  (10mks)


  1. a. With the aid of a diagram, explain the effect of new firms entering a perfectly      competitive market.                                                                                    (10mks)
  1. The following information was extracted from the books of Korir Traders as at     31st December     2008.


Bank loan                        80,000

Trade supplier                         29,000

Debtor                                        32,160

Stock                              29800

Accrued expenses           3,000

Capital                          200,000

Furniture                      58,900

Motor vehicle                          155,100

Cash                               5,400

Net profit                     30,000

Bank                             17,500

Drawings                     43,140

  1. prepare a balance sheet, in a format that shows

–working capital

–loan capital

–owner’s equity

–capital employed.

  1. Calculate the following ratios.

–current ratio

–return on capital employed.






                                 Kenya Certificate Of Secondary Education


  1. a) Explain FIVE factors that may be considered in determining the appropriate channel for

distributing goods                                                                                                       (10mks)

  1. b) Explain FIVE reasons why a new business may fail                                                  (10mks)
  2. a) Discuss FIVE methods which the central bank of Kenya may use to control the

Supply of money in the country                                                                                 (10mks)

  1. b) Describe FIVE services offered by a wholesaler to a retailer                                                (10mks)
  2. a) Discuss FIVE factors influencing price elasticity of demand for a commodity        (10mks)
  3. b) On 1st March 2006 Mokaya traders had cash in hand Ksh.10,000 and cash at bank

ksh.15,000. The following transactions took place during the month.

March 2:          Bought goods in cash sh.1,500

March 4:          Paid salaries by cash 7,500

March 5:          Received cheques from the following debtors after allowing 2% discount in

each case Salga Sh.980, Gumbo Shs.1,960

March 8:          Paid the following accounts by cheques in each case deducting 5% discount

Kiimo Ksh.3,000, Karani Ksh.1,200

March 12:        Bought machinery by cheque Shs.5,000

March 20:        Withdrew Sh.1000 for personal use

March 25:        Cash sales Shs.2000

March 26:        Banked cash amounting to Ksh.1000

March 29:        Received Shs.3000 from Alex a debtor.


Prepare a three column cash book duly balanced                                                       (10mks)

  1. a) Explain FIVE benefits Kenya can enjoy from her participation in COMESA as a

Trading bloc                                                                                                                (10mks)

  1. b) Explain FIVE ways in which the insurance industry promotes the growth of business

in Kenya                                                                                                                      (10mks)

  1. a) Explain FIVE reasons for the existence of small firms despite competition from

large scale firms                                                                                                          (10mks)

  1. b) Explain FIVE factors that have led to the privatization of public corporations by the

government of Kenya                                                                                                 (10mks)

  1. a) Explain FIVE obstacles to economic development in developing countries             (10mks)
  2. b) The following trial balance was extracted from Ekerenyo traders as at 30th June 2009




AS AT 30TH JUNE 2009

Details Dr. Shs Cr. Shs.

Debtors and creditors

Cash at Bank

Cash in hand

Purchases and sales

Stock on 1st July 2008


Salaries and wages

Power and lighting


Carriage inwards

Carriage outwards

































Additional Information;

  1. i) Stock on 30th June 2009 was Shs.22000
  2. ii) Prepaid salaries and wages were Shs.4000 and accrued power and lighting were shs.5000.

iii)        Provide depreciation on furniture at 10% per annum on cost



Prepare a trading, profit and loss account for the year ending 30th June 2009                       (10mks)






                                 Kenya Certificate Of Secondary Education

  1. (a) Explain  five current trends in forms of business units                        (10mks)

(b) Explain five causes of disequilibrium in the balance of payment                   (10mks)

  1. (a) Highlight five factors that have contributed to declining population growth Rate in developing countries like Kenya                                                                     (10mks)

(b) Highlight  five circumstances under which a seller may require a buyer to pay cash with order (c. w. o)                                                                                                (10mks)

  1. (a) Explain five benefits of a bonded warehouse to the government         (10mks)

(b) Explain five policies which the Kenyan government may use to control the level of inflation in the country                                                                                           (10mks)

  1. (a) Highlight five roles played by intermediaries in the distribution chain (10mks)

(b) Broad ways holding company deals in sale of carpets and curtains. The following transactions took place during the month of May 2008

May 4: Purchased a delivery van for sh.250, 000 from Cleanways motors, making a down payment of sh.150, 000 by cheques. The balance to be paid in installments

May 9: Carpets which had been purchased on credit for sh.49, 500 for use in the office were returned to the suppliers, unique office suppliers limited, who issued a credit note for the same.

May 15: The proprietor took two carpets which had been purchased at sh.56, 000 each for use in his house.

May 20: Paid sh.5, 800 by cheque to settle the business electricity bill.

May 25: Bought an office machine on credit for sh.48, 000 from modern technology   company

Prepare the general journal entries to record the above transactions. Brief narration           required                                                                                                                       (10mks)

  1. (a) Explain five roles played by the management in the success of a business                                                                                                                                              (10mks)

(b) Explain five principles of insurance and their significance to the insured                                                                                                                                                           (10mks)

  1. (a) Taxation based on the income of individuals or profits of limited companies has several limitations. Highlight five of such limitations                                               (10mks)

(b) The following trial balance was extracted from the books of Kiatu Kubwa traders on 31st Dec, 2005.

Kiatu Kubwa Traders

Trial Balance

As at 31/12/2005

Dr (sh)                         Cr (sh)

Capital                                                                                                 150, 000

Purchases                                                        200, 000

Wages                                                             12, 000

Sales                                                                                                    300, 000

Insurance                                                         7, 000

Salary                                                              9, 000

Commission                                                    3, 000

Cash                                                                89, 000

Repairs                                                            6, 000

Motor vehicles                                                168, 000

Returns                                                                                                2, 000

Creditors                                                                                             42, 000

            494, 000                      494, 000


Additional information

  • Depreciation motor vehicle by 12%
  • Closing stock was valued at sh.65, 000
  • 600 was prepaid for commission
  • Repairs upstanding amounted to sh.400


(a) Prepare a trading, profit and loss account for the year ended 31st December, 2005                                                                                                                                 (10mks)







                                 Kenya Certificate Of Secondary Education

  1. (a) Explain five problems that are likely to be experienced if intermediaries are eliminated from the chain of distribution.                                      [10 marks]

(b) Explain five roles of a commercial attachee in promoting international           trade.                     [10 marks]


  1. (a) Explain five reasons as to why oligopoly markets arise. [10 marks]

(b) The following balances were extracted from the books of Juja Traders                on 31st December 2009.


Opening stock                               30,000

Equipment at cost                         63,000

Purchases                                      85,500

Sales                                            104,000

Discount received                            3,750

Returns outwards                          12,500

Returns inwards                            13,500

Salaries                                         11,000

Telephone charges                           2,500

Water bills                                       1,050

Creditors                                         7,550

Debtors                                          10,500

Electricity expenses                         1,000

Drawings                                         9,750

Insurance paid                                   500


     Additional information:

  1. Closing stock was valued at sh. 15,000.
  2. Telephone charges prepaid sh. 550
  • Outstanding water bills sh. 650
  1. Depreciation on equipment 10% p.a. on cost.
  2. Carriage inwards and carriage outwards sh. 5,500 and 5,000 respectively.



Juja Traders profit and loss account for the year ended 31st December 2009.                                       [10 marks]

  1. (a) Explain five problems associated with the output approach in the      computation of national income of a country.                      [10 marks]

(b) The following are transactions that took place during the month of           June 2009 for Mr. Ali.


June 1    Balance of cash at bank was sh. 25,000 and cash in hand                            was sh. 10,000.

June 2    Bought goods in cash sh. 1000

June 3    Paid rent by cash shs. 6000

June 4    Received cheques from the following debtors after allowing a                         2% discount in each case Jane sh. 980, Willison sh. 1960.

June 8    Paid the following accounts by cheque in each case deducting                       a 5% discount.  Wangari sh. 3,000 Mati shs. 1,200.

June 13  Bought a computer by cheque sh. 10,000.

June 20  Withdrew cash sh.1,000 for private use.

June 25  Cash saves sh. 2,000.

June 26  Banked cash amounting to sh. 1,000.

June 29  Received sh. 3,000 cash from Wanyonyi who is a credit                                 customer.


Prepare:  A three column cashbook duly balanced.                   [10 marks]


  1. (a) Explain any FOUR factors that may be used in determining the size of a firm.                                                                [8 marks]

(b) The following information relates to Kagendo Trader as per the dates             shown.

1/1/2006           31/12/2006

Motor vehicles                           80,000                   145,000

Debtors                                     25,000                     28,000

Creditors                                   18,000                     20,000

Outstanding standing                 6,000                       8,000

Rent received in advance           10,000                      4,000

Office machine & equipments   35,000                     31,000

Stock                                           6,000                       8,000

Premises                                 150,000                   150,000


Kagendo had prepared a summary of cash transaction for the year 2006 as shown below.


Cash book summary


Cash in hand b/d   5,000            Salaries                   101,000

Cash at bank b/d 46,000            Drawings                   12,000

Debtors                 90,000            Creditors                   50,000

Cash sales          102,000            Cash purchases         70,000

Rent                   116,000             Motor vehicle             85,000

Insurance & rates      15,000

Cash in hand c/d        8,000

359,000              Cash at bank b/d      18,000



Required: Prepare Kagendo’s trading profit and loss a/c for the year ended 31st Dec. 2006 and a balance sheet as at 31st Dec. 2006.                                [12 marks]


  1. (a) Outline five changes that may take place when a country is      experiencing economic development.                                   [10 marks]

(b) Explain five factors that may lead to a deficit in balance of payment in a      country.                                       [10 marks]

  1. (a) It has been the will of the government of Kenya to create 500,000 jobs per year.  Explain five reasons which have hindered the achievement of                   this goal.                    [10 marks]

(b) Explain five importance of filing documents in an organization.

[10 marks]







                                 Kenya Certificate Of Secondary Education

 (a) Highlight five essentials of effective communication. (10 mks)


(b) Explain five non-monetary incentives that an organization can used to motivate its employees.  (10 mks)


  1. (a) Explain five advantages of a bonded warehouse to the importer. (10 mks)

(b) Highlight five differences between a cooperative society and a public limited company. (10 mks).  (10 mks)


  1. (a) The terms of trade for a country can be favourable or unfavourable. Explain five factors that can lead to deterioration terms of trade. (10 mks)


(b) Silvian Enterprises intends to commit some of its funds to conduct market research. Outline five benefits that it’s likely to get from this venture. (10 mks)


  1. (a) Explain five challenges that traders can encounter under barter system of exchange. (10 mks)


(b) Kimathi Traders had the following balances on 1st August 2005.

Bank               35,000

Debtors          28,000

Creditors        66,600


Later in the month, the following transaction took place:-

August 5:                   Bought goods worth 9,500 and paid by cheque.

August 6:                   Paid creditors 10,600 by cheque

August 22:                 Received a cheque of 22,000 for goods sold.

August 28:                 received shs 14,000 cash from a debtor which he banked the same day.

August 29:                 Withdrew 5,000 from the bank to pay wages.


Open the relevant ledger accounts and extract a trial balance after the last transaction.  (10 mks)


  1. (a) Highlight the risks covered under the following insurance policies.
  2. Consequential loss. (2 mks)
  3. Workmen’s compensation. (2 mks)
  • Fidelity guarantee. (2 mks)
  1. Public liability. (2 mks)


(b) Explain six characteristics of under developed countries.  (12 mks)



  1. (a) Highlight four difficulties encountered in satisfaction of human wants. (8 marks)


(b) The following balances were extracted from the books of Mfalme Traders for the year ended 31 December 2008.


Rent                                                                   48,000

Water                                                                  9,220

Stock                                                                 25,250

Salaries                                                             72,500

Motor vehicles                                           2,300,000

Gross profit                                                    320,000

General expenses                                            98,000

Furniture                                                        650,000

Electricity                                                            7200

Discount received                                              8,500

Discount allowed                                               4,600

Debtors                                                           270,000

Creditors                                                         396,400

Commission received                                         9870

Cash                                                                  50,000

Capital                                                         3,000,000

Bank                                                               200,000



  1. Profit and loss account for the year ended 31st December, 2008. (6 marks)


  1. Balance sheets as at 31st December 2008. (6 marks)





                                 Kenya Certificate Of Secondary Education


  1. a) Explain five factors which limit effectiveness of consumer organization in protecting

consumers in Kenya                                                                                       (10mks)

  1. b) Explain five assumptions of oligopoly                                                           (10mks)
  2. a) Explain five circumstances under which a manufacturer would find it advisable

to distribute his/her goods through wholesalers                                             (10mks)

  1. b) Explain five demerits of the flexible exchange rate system                           (10mks)
  2. a) Describe five channel of distribution for imported manufactured goods      (10mks)
  3. b) The following transactions took place in the month of March 2006 in the business of

Lelmokwo traders. 2006.

March 2:          Barngetunty traders returned goods worth shs.2,800

(Credit Note No.1080)

10:       Soma traders returned goods worth Shs.1200 (Credit Note No.1081)

15:       Goods worth Shs.800 were returned to Safina traders. (Credit Note


20:       Returned goods worth Shs.600 to Ukwala traders (credit note No. 1038)

22:       Goods worth Shs.10,000 were returned by Ukweli Ltd. (Credit Note


25:       Kokwon traders returned damaged goods worth Shs.5000 (Credit Note


30:       Samburu traders returned goods worth. Shs.4,000 (Credit Note No. 1024)

Required: Prepare the returns inwards journal of Lelmokwo traders as at 30th March 2006.

  1. a) Explain five disadvantages of progressive taxes                                            (10mks)
  2. b) The information below was extracted from the bookshop of Lemlem which maintains

incomplete records for the year ended 31st December 2008.

Estimated values of assets and liabilities were;

1/1/2008                      13/12/2008

                                                                        Shs.                             Shs.

Furniture                                   92,000                         92,000

Debtors                                     96,000                       103,000

Creditors                                 132,600                       108,000

Rent prepaid                              68,800                         53,600

Telephone due                          50,800                         39,200

Stock                                         73,800                         59,800

Bank balance                           412,000                       290,000

  1. i) Prepare statement of affairs to determine the initial and final capital for the trading

period                                                                                                  (8mks)

  1. ii) Determine net profit or loss for the year ended 31st December 2008 (2mks)
  2. a) Explain four roles played by commercial banks in the development of Kenyan

Economy                                                                                                         (8mks)

  1. b) The following balances were extracted from the books of Sunset Traders for the year

ended 31st Dec. 2009.


Carriage inwards                                   29,000

Purchases                                            480,000

Purchases Returns                                 80,000

Sales                                                    710,000

Stock (1/1/2009)                                   90,000

Sales Returns                                        90,000

Salaries                                                  13,000

Electricity                                              11,800

Telephone                                              16,800

Rent                                                      17,000

General expenses                                  28,800

Stock (31/12/2009)                               12,600

Discounts received                                16,800

Carriage outwards                                20,400

Discount allowed                                  24,800

Insurance                                               30,800


Prepare the business Trading, Profit and Loss Account for the year ended 31st December

2009                                                                                                                (12mks)

  1. a) Highlight five circumstances under which the nature of the message may influence the

Choice of a medium of communication                                                          (10mks)

  1. b) Discuss five goals of development planning                                                  (10mks)




Paper 2


                      Kenya Certificate Of Secondary Education INSTRUCTIONS TO CANDIDATES


  1. a) Differentiate between a co-operative society and a public limited company             (10mks)
  2. b) Explain five importance of entrepreneurship in Kenya. (10mks)
  3. a) Explain five challenges faced by manufacturer who sells his/her products directly to the

consumer.                                                                                                                    (10mks)

  1. b) Discuss five factors to be considered when choosing a means of reproducing documents in an

office.                                                                                                                          (10mks)


  1. a) Discuss five ways of improving the efficiency of a warehouse.                                (10mks)
  2. b) With the aid of a diagram explain how price and output are determined by a firm in a

perfectly competitive market.                                                                                     (10mks)

  1. a) Discuss five ways the Kenyan economy benefits from indirect production.             (8mks)
  2. b) The following trial balance was extracted from the books of Nyahururu Enterprises for the

year ended 2009.

Nyahururu Enterprises

Trial Balance as at 31st Dec 2009.

  Dr (Shs.) Cr (Shs.)



Opening stock



Return inward

Return outward

Carriage inward

Carriage outward

Discount allowed


Motor vehicle


Divided income




































  728,150 728,150

Additional information:

Closing stock was valued at Shs.55,300

Depression is to be written off on fixed assets as follows;

15% on motor vehicle and 10% on furniture, both to be calculated on cost


  1. i) Trading profit and loss account for the year ended 31st Dec 2009. (7mks)
  2. ii) Balance sheet as at 31st Dec 2009. (5mks)
  3. a) Give five reasons that would account for phenomenal success of mobile phone money transfer

in Kenya.                                                                                                                    (10mks)

  1. b) On March, 1st, 2009, Doris had cash in hand Shs. 87,000 and cash at bank Shs. 250,000.

During the month, the following transactions took place .


March 2.         Cash sales Shs.60,000

3          Paid salaries Shs.101,500 by cheque.

7          Received a cheque of Shs.76,000 from Henry after allowing him a cash discount of 5%.

13        Bought office furniture by cheque Shs.86,000.

17        Settled Marita’s account for Shs.34,200 in cash, having deducted Shs.800 cash discount.

20        Received a cheque for Shs.165,000 in respect of cash sales.

22        Paid wages Shs.25,000 in cash.

24        Withdrew Shs.32,000 from the bank for office use.

25        Withdrew Shs.4,000 cash for personal use.

29        Received Shs.17,000 cash from Alvin in settlement of his account less Shs.1,000 cash discount.

31        Deposited all the money into the bank except Shs.24,000.

Required: Prepare a three column cash book duly balanced.                                     (10mks)

  1. a) Explain five ways in which an efficient road transport system may promote trade within a

country.                                                                                                                       (10mks)

  1. b) The following information was provided by Chelagat who operates a hardware shop at

Nakuru and does not keep complete records.

1/1/2008                      31/12/2008

Creditors                                                         220,000                       185,000

Debtors                                                           500,000                       460,000

Wages prepaid                                                ______                          40,000

Bank                                                                390,000                       800,000

Cash                                                                600,000                       180,000

Stock                                                               150,000                       100,000


Additional information:

  1. i) Sales are made on credit only.
  2. ii) 850,000 was received from debtors.

iii)       Shs.285,000 were paid to creditors.

  1. iv) The following expenses were paid during the year:

Wages Shs.120,000

Rent       Shs.60,000

  1. v) Cash purchases was worth Shs.146,000 during the year.



Prepare trading, Profit and Loss Account.                                                                             (10mks)






                                 Kenya Certificate Of Secondary Education

  1. a) Explain Five limitations of using per capital income to compare the living standards

of people in different countries.                                                                                 (10mks)

  1. b) Describe Five qualities that a manager should have so as to promote team – work among his staff. (10mks)
  2. a) Highlight Five factors a prospective investor should consider in deciding on what goods

or services to produce / offer for the market.                                                             (10mks)

  1. b) Explain Five differences between a partnership and a co- operative society.            (10mks)
  2. a) The following trial balance was extracted from the books of Jomoko Traders as at 31st `                            December, 2009.

Jomoko Traders, Trial Balance,

As at 31st Dec, 2009


  Debit Shs. Credit Shs.
Sales   1,200,000
Purchases 500,000  
Carriages inwards 30,000  
Carriage outwards 15,000  
Returns 40,000 50,000
Discounts 35,000 20,000
Commission 10,000 17,000
Rent Expense 100,000  
Salaries 450,000  
Capital   1,363,000
Land and Buildings 2,600,000  
Furniture and fittings 100,000  
Stock ( 1st Jan 2009) 600,000                .
  2,665,000 2,665,000


  1. Depreciation is to be charged at 5 % p.a on furniture and Fittings .
  2. b) Rent prepaid Kshs 10,000
  3. c) Salaries accrued Kshs. 15,000
  4. d) Closing stock Kshs. 200,000


Required :

Prepare a trading and profit and loss account for the year ended 31st December 2009.



  1. b) Explain Four importance of entrepreneurship to the economy.                                 (8mks)


  1. a) Explain Five ways in which the functions of commercial banks differ from those of the                             non – banking institutions.                                                                                         (10mks)
  2. b) Highlight some of the Five factors to consider when evaluation a business opportunity.


  1. a) Explain Four measures the Kenyan Government can undertake to create an enabling                                 environment for business activities.                                                                           (8mks)


  1. b) The following information were extracted from the books of Rita, a sole trader on 30th June, 2008.

Cash book summary

Shs Shs   Shs
Balance b/d 32,800 Creditors 125,000
Debtors 192,000 Wages 36,000
               . Balance  c/d 63,800
  224,800   224,800
Balance b/d 63,800    


Note: All the cash received was banked except Kshs 10,000 which was used to pay rent.

The account balances were as follows:


  1/7/2007 30/06/2008  
  Shs Shs  
Stock 10,000 18,000  
Acrrued wages 3,000 5,000  
Fixtures and fittings 80,000 72,000  
Creditors 22,000 24,000  
Debtors 68,400 75,400  


All purchases and sales were on credit


  1. a) Highlight what has led to privatization  of public corporations by the government of                                  Kenya.                                                                                                                         (10mks)
  2. b) Personal selling is an important tool of product promotion. Explain five circumstances when personal selling would be effective. (10mks)




Paper 2


                                 Kenya Certificate Of Secondary Education INSTRUCTIONS TO CANDIDATES



  • (a) Highlight FIVE hindrances to the attainment of an East African co-operation (10mks)

(b) Explain FIVE factors that have resulted in the shortage of maize supply in Kenya (10 mks)



  • (a) Discuss FIVE ways through which the insurance industry has contributed to the economic

development of our country (10 mks)

(b) Outline FIVE monetary policies through which inflation in a country can be controlled.

(10 mks)



  1. (a) Business X and Y are located in the same area. X is succeeding yet Y is performing poorly.

Explain FIVE factors that may contribute to the poor performance in Y. (10 mks)

(b) With the aid of a diagram explain how the equilibrium price and output are determined in a

monopolistic competition market (10 mks)



  1. (a) Outline FIVE reasons that have contributed to the rise in mobile phone banking services

(10 mks)

(b)  Explain FIVE reasons that may cause a manager to complain of the bad behaviour of his

Secretary (10mks)



5          (a) Discuss FIVE problems encountered by agricultural marketing board in Kenya (10 mks)


(b)  Juma’s books availed the following

1ST Jan 98                    31st Dec. 98

Stock                                       80,000                          92,000

Debtors                                  143,000                        214,000

Creditors                                 95,000                        99,000

Building                                 420,000                      400,000

Salary payable                         16,000                         19,200

Prepaid Rent                             9,600                         13,000



Dr                                   Cash Book Summary                                                Cr                                                                            shs                                                                       shs

Debtors                             1,460,000            Creditors                                      645,000                   Sales (cash)                           440,000       Cash purchases                            269,000

Salaries                                         143,000                                                                                                              Rent                                              142,000                                                                                                                                     Electricity                                      49,000




Additional Information

  1. Discount received amount to shs.43,000 and discount allowed shs.36,000
  2. Returns inwards shs.18, 000 and returns outwards shs.16, 000.



  1. Determine total sales (3mks)
  2. Determine total purchases                          (3mks)
  • Extract a salaries account (3mks)
  1. Extract a rent account (3mks)




  1. (a) Discuss FIVE adverse effects encountered by a country which has a large population.

(10 mks)


(b)  KK.s books gave the following information for the period ended 31st Dec. 2000


Sales                                                    shs.848, 000

Opening stock                                     shs . 42,000

Stock turnover rate                                       8 times

Gross margin                                                   25%

Expenses –General                                shs.43, 000

– Water                                  shs. 12,000

– Transport                            shs. 20,000



Trading, Profit and Loss account for the period end 31st Dec. 2000                          (10mks)




  1. i) Determine capital as at July, 2007.                                                                 (3mks)
  2. ii) Prepare the Trading Profit and Loss Account for the year Ended 30th June, 2008.


Show all your workings.                                                                                             (9mks)