1. a) Discuss FIVE reasons for the existence of small firms in an economy. 10mks

b) Discuss FIVE causes of inflation in a country. 10mks

2. a) Explain FIVE benefits that would accrue to a business person who transports goods by liners rather than tramp streamers. 10mks

b) Explain FIVE sources of finance open to Kenya government. 10mks

3. a) Highlight FIVE indicators used to evaluate a country's economic development.

10mks

Prepare duly balanced three column cash book from the following information.

Jan 1: Balance b/d cash shs.4,000 bank shs 27,000

" 4 Settled Olweny creditors account of shs. 8,000 by cheque having deducted 6%

cash discount.

" 8: Received shs. 6000 cash from Mutoma traders

" 16: Deposited shs. 4,500 to the bank account

" 24: Withdrew shs. 9,200 from the bank for private use.

" 29: Received shs. 19,950 from Kawawa by a cheque after allowing 5% discount.

" 31: Banked all the cash leaving only sh 1,500 in the office.

10mks

4. a) Explain FIVE methods of trade restriction. 10mks

Highlight FIVE problems encountered when measuring the national income of a country.

10mks

5. a) Discuss FIVE roles played by commercial banks in facilitating home trade. 10mks

6. a) Outline FIVE reasons why a business would like to operate its own warehouse.

10mks

b) The following Trial balance was extracted from the books of Likoni Traders on 31st

December 2004.

Likoni Traders Trial balance as at 31st December, 2004

Dr Cr

Shs Shs

Purchases 70,000

Capital 88,800

Returns inwards 1,500

General expenses 5,200

Cash in hand 2,500

Return outwards 2,400

Bank Overdraft 7,500

Salaries 14,000

Debtors 10,500

Creditors 8,500

Fixed Assets 82,000

Sales 95,000

Stock (1:04) 12,500

Bad debts 4,000

202,200 202,200

Additional information

Closing stock was valued at shs. 6,500

Salary outstanding was shs. 2,800

Prepare

Trading, profit and loss account for the period ended 31st December, 2004. 6mks

Balance sheet as at 31st December 2004 4mks

7. a) Artur is an importer of an assortment of goods from different countries.

Explain five benefits he may enjoy while his goods are stored in a bonded warehouse. 10mks

b) Explain five principles of taxation. 10mks

8. a) Explain five reasons to justify the use of economic barriers to control free trade.

10mks

b) Explain five emerging trends related to product promotion. 10mks

9. a) By use of a well labelled diagram, explain the case of a firm earning above normal

profits in a perfectly competitive market structure. 8mks

b) Explain six demerits of inflation to a developing country. 12mks

10. a) Explain five ways in which the central bank of Kenya regulates the operations of banks

in Kenya. 10mks

b) Explain five factors which are likely to influence the level of national income in Kenya. 10mks

11. a) Explain four challenges facing the transport industry in Kenya today. 8mks

Enter the following transactions in the purchases Journal of silver springs Agrovet and post to the ledger for the month of October 2004

October 1st : Purchased a stock of 100 bags of Maclick at sh. 1200 per bag on credit from

Muraya Traders; Invoice no.100.

4th :Purchased on credit from Unga feeds 50 bags of bran animal feed at sh. 2000

per bag; Invoice no 115. A trade discount of 15% was allowed.

11th : Purchased 70 packets of Ridomil on credit from Alpha Ltd at sh. 300 per

packet. A trade discount of 10% was allowed; Invoice no.169.

24th : Bought on credit 30 bags of layers marsh at sh. 4000 each from Chick point at

a trade discount of 20%; Invoice no. 132. 12mks

12. a) The following trial balance was extracted from the books of Kitika traders as at 30/06/2005.

KITIKA TRADERS

TRIAL BALANCE

AS AT 30/06/2005

Sales

Purchases

Return inwards

Return outwards

Carriage inwards

Carriage outwards

Stock (1st July, 2004)

Rent

Delivery van

Bank

Creditors

Debtors

Discount allowed

General expenses

capital

DR (SHS)

600,000

80,000

40,000

3,000

100,000

60,000

180,000

60,000

120,000

18,000

7,000

CR(SHS)

900,000

20,000

170,000

178,000

1,268,000

1,268,000

Additional information

(i) Stock on 30/06/05 was valued at shs 135,000

(ii) Outstanding Rent shs 7000

Required

Prepare the profit and loss account for the year ended 30/06/2005 and the balance sheet 12mks

b) Perth a management consultancy firm has adviced Ponda Mali Company Ltd. to adopt a comprehensive code of conduct. Explain four significances of this on Ponda Mali Company Ltd. 8mks