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

(b) A farmer in Kitale has maize to transport to Mombasa. He could either use road or railway transport. Explain to him five merits of using road instead of railway to transport the maize.

(10mks)

2(a) From the balances extracted from Malimingi Traders books, you are required to prepare statement of affairs as at 31/12/2005.

1/1/2005 31/12/2005

Ksh Ksh

Stock 200,000 250,000

Debtors 40,000 50,000

Premises 60,000 50,000

Creditors 70,000 40,000

Motor vehicle 400,000 350,000

Net profit _______ 40,000

Drawings _______ 10,000

(8mks)

(b) Explain five factors that influence the level of the National Income of a country.(10mks)

3. (a) Explain five roles of the central Bank of Kenya to the country. (10mks)

(b) From the following account balances extracted from the books of Mwema Traders for the year ended 31st Dec. 2005. Prepare trading and profit / loss accounts.

shs

Rates 50,000

Water 60,000

Wages 80,000

Discount on debtors 6,000

Stock 1/1/2005 800,000

Stock 31/12/2005 40,000

Purchases 600,000

Carriage on purchases 100,000

Sales during the year 2,000,000

Return into the business 2,000

Commission received 4,000

Carriage outwards 1,000

General expenses 6,000

Repairs to vehicles 20,000

Bank loan interest 5,000

(10mks).

4. (a) Explain five circumstances under which an insurance contract may be terminated. (10mks)

(b) Explain five negative consequences of a rapidly increasing population. (10mks)

5. (a) With the aid of diagrams, explain the relationship between the industry's equilibrium and a firm's equilibrium under perfect competition. (10mks)

(b) Highlight five points on the importance of a local purchase order. (10mks)

6. (a) Explain any five principles of government expenditures. (10mks)

(b) The following are transactions of Sukuma Week business for the month of June 2005.

June

1st Purchased stock for sh. 84,000 in cash and was given 2% cash discount.

2nd paid workers' wages by cheque shs. 20,000

3rd Sold goods worth sh. 240,000 and received cash after allowing 4% cash discount.

4th Received sh. 400,000 by cheque from a debtor after 2% cash discount allowed.

5th Bought office furniture for sh. 20,000 in cash.

6th sold an old business van for sh. 320,000 receiving the money through the bank

7th Purchased more stocks worth sh.20,000 by cheque.

8th Withdrew sh. 40,000 from bank to cash till.

9th Took sh. 80,000 to bank from the business.

10th Took stock of goods worth sh. 2000 from the business for personal use.

11th Paid electricity bill worth sh 3750,in cash sh. 2000 and the rest by cheque.

12th Received a cheque from Mwendwa a debtor worth sh. 60,000 in settlement of his debt

of sh. 66000.

13th Was given a loan of sh. 100,000 in cash from his bankers.

14th Received payment from a debtor Poro sh. 46,000 by cheque.

15th All the cash at bank was taken to the business for office use except sh. 50,000.

7. Required: Enter the above transactions in the two-column cash book. (10mks)