Learn how to answer CSEC CXC PAST PAPERS ANSWERS – CXC POB Past Paper / Principles of Business (POB) 2019 Past Paper Questions. Please see below a pdf copy of January 2019- Paper 02 Question Paper, followed by Suggested Answers. These answers could be incorporated into your Principles of Business Notes for effective studying.

Disclaimer: Kindly note that these should be used as a guide. Also, want to get familiar which changes to the CSEC Principles of Business Exam, check out the post on CSEC Principles of Business Exam Format. Should you have any questions or suggestions, feel free to let me know in the comment section below. Don’t forget to share, like and follow this blog. Happy Studying! 🙂

Question 1

Topics: Capital, Factors of Production, Sources of Capital, Partnership

(a) Define the term ‘capital’ as a factor of production and give TWO examples.

Capital in the context as a factor of production refers to the money that a business uses to purchase resources as well as the physical assets organisations use when producing goods and services such as machinery and factories. Capital is a critical factor of production since it is what is used to pay for labour and purchase land, which are two other critical factors of production. Hence, capital are man made resources that are used in the operation or production of a business.

Capital as a factor of production
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Figure 1.0: Capital as a factor of Production Principles of Business CSEC January 2019

Some examples of capital includes:

  • Fixed capital such as buildings, machinery, vehicle.
  • Financial capital e.g. money.
  • Working Capital e.g. raw material

(b) FOUR sources of capital that could be used when setting up a business are:

  • Friends and family Loans – to borrow money from friends and family.
  • Personal savings
  • Government grants and subsidies e.g. running a sustainable or green energy business you may receive grants from the government or United Nations.
  • Bank Loans
  • Credit Union Loans and Loans from other financial institutions
  • Equity
  • Venture Capital
  • Crowdfunding
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Figure 2.0 : Partnership – Principles of Business January 2019 Solutions

(c) (i) A partnership is a legal business that is forms with a minimum of 2 or more persons. All partners sign a legal agreement among 2 to 20 individuals to form themselves into a business. A partnership is formed by signing the Deed of Partnership Agreement by all partners which contain the number of partners, amount of capital contributed, type of trade engaged in, how to share profits or losses accruing to each partner, salary of each partner and mechanism for dissolution. Examples of partnerships are usually formed by lawyers and doctors.

(c) (ii) TWO benefits that June can benefit from by establishing a partnership over a sole trader type business are:

  • A partnership business type can allow June to raise more capital which can be raised by combining the resources of several partners, whereas as a sole trader, June would have to raise all the capital by herself.
  • The workload can be shared among partners whereas as a sole trader, June would have to do all the work by herself.
  • Continuity is ensured by a partnership whereas a sole trader when June die; the supermarket may end up being closed.
  • A partnership can progress or grow into a large company, whereas a sole trader may not.

(iii) THREE ethical issues that June should consider in setting up and operating her business are :

  • June needs to establish proper accounting practices for her business in order to accurately report the cost and sales incurred by the business which will assist her in accurately reporting for taxation purposes. Also, June will need to take care and not practice unscrupulous practices such as “cooking her books”. Likewise, Juen should not evade taxes.
  • Locating in a residential area, thus failing to observe zoning laws
  • Polluting the environment; land pollution and odour which can cause health issues if spoiled items are not disposed of properly.
  • Discrimination and Harassment
  • Improper disposal of waste
  • Observance of the minimum wage legislation
  • Non-compliance with safety standards e.g. Health and Safety Standards (OSHA Act)
  • Unfair trade practices e.g. bribery, ensuring products sold are not expired, ensuring products are not counterfeit. Also, ensuring customers get value for money.
  • False advertising e.g. advertise a product stating that is high quality when in reality it is poor in quality.

(iv) Explain to June the importance of conducting a feasibility study.

The importance of conducting a feasibility study are:

  • To ascertain the viability of business ideas, products or services. Is your business idea possible, would it make a profit or a loss? Is the business idea doable or practical?
  • To determine the possible costs attached to the project.
  • To identify possible sources of finance.
  • To assess prospective employees – is the labour readily available?
  • To ascertain the needs of the targeted area – would you have the demand for the proposed products or services?
  • To get an accurate assessment of the practicality of the proposal.

Question 2

Topics: Business Documents, Reasons for using Business Documents, Insurance and Assurance.

(a) (i) THREE types of business documents used are:

  • Pro forma invoices
  • Purchase requisitions
  • Statements of accounts
  • Stock cards.
  • Letter of enquiry – is an invitation to treat.
  • Quotations – a quotation is an offer.
  • Purchase order – a purchase order usually creates a contract.
  • Credit note
  • Delivery note

(a) (ii) THREE reasons why firms utilize documents in business transactions are:

  • For record keeping purposes in a business e.g. proof that a transaction is recorded. Managers may need to track business activities. It may help in seeing trends in the business e.g. whether a product is profitable or need to order more or less of a particular product.
  • The value of utilizing business document to add value in satisfying requirements for taxation purposes and auditing. These may satisfy legal aspects of a business since its aids in auditing, taxation and control of money laundering.
  • Source documents for accounting purposes e.g. Balance Sheet, Profit and Loss Account, Cash Flow Statements. Businesses require weekly, monthly and annual accounts.
  • Proof of sale of products to reconcile with stocks/ inventory reconciliation.
  • Tracking products that may be shipped.
  • May be required for insurance purposes. For instance, National Insurance records must be available.
  • Records are needed on occupational health and safety, control of hazardous chemicals, and environmental and other issues.

(b) The difference between Insurance and Assurance:

Insurance refers to the likelihood of a risk-taking place, however, no one knows when or if indeed it will take place. There might a flood, fire or burglary but may not happen. On the other hand, assurance is based on a risk that is inevitable or bound or known to happen, for instance death. Hence, insurance might happen while assurance will happen.

(c) TWO types of insurance policies are:

  • Auto/ Motor Vehicle Insurance
  • Life Insurance
  • Home/ Rental Insurance
  • Health Insurance
  • Fire Insurance
  • Business Insurance
Types of Insurances
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Figure 3.0 : Types of Insurance- Principles of Business Solutions January 2019

Some examples of Business Insurances are :

General Insurance against perils such as fire, marine insurance, business interruption insurance, fidelity insurance, life assurance to key executives, public liability insurance, employers liability insurance.

(d) ONE principle upon which insurance is based:

  • Pooling of risks
  • Subrogation
  • Proximate cause – What is the real cause of the damage? Is it covered by the policy?
  • Indemnity – damage usually limited to actual value.
  • Utmost good faith – full disclosure of facts.
  • Contribution – with several policies, each company pays for part of the damage.
  • Insurable interest – client must risk an actual lost.

(e) TWO ways in which insurance is beneficial to a firm are:

  • It protects manufacturers and businesspeople against personal risk such as accidents at plants, fire, and burglary. The value of the insurance coverage would assist in lowering the risks associated with conducting business.
  • It protects exporters and shippers against the hazard of the sea or damage or loss of cargo. Even if a business burns down, it can rebuild because of fire insurance.
  • It is a source of capital for business since it can act as security for credit facilities e.g., Commercial Loans. The insurance can cover the cost and mitigate the risk if for instance a sole trader takes commercial loan and dies, the bank will recover funds to repay loan facility.
  • It assist the company to protect themselves against injuries to people and other parties by having liability insurance. For instance, if a customer or employee is injured on the premises and be able to utilise insurance to pay medical bills.

Question 3

Topics: Terms of Sale (Cash, Hire Purchase, Layaway), Factors influencing Consumer Behaviour, Traditional Distribution Channel and Problems encountered in the Distribution Channel

(a) TWO advantages to the customers of utilising EACH of the following terms of sales:

(i) Cash

  • May avail of discounts when paying for merchandise at some stores.
  • Do not have to worry about POS cost associated with using a bank card or credit card – cheaper to pay with cash than using a bank card or credit card.
  • Not subject to interest payments as those related to using hire purchase so cost savings to the customer.

(ii) Hire Purchase

  • The customer does not have to pay the full amount for the product upfront
  • Flexible payments terms which can be more convenient to the customer. For instance, assist the customer to purchase big ticket items.
  • The customer can use the asset immediately without paying the entire amount at once.

(iii) Layaway

  • The customer is able to make a purchase even if they do not have the entire sum of money needed to pay for the items they want.
  • The customer is not charged interest, nor do they require to have a good credit score in order to participate when compared to a utilising other payment such as credit cards.
  • Layaway can assist customers to plan ahead e.g. if a customer wants an item for Christmas, they can pay for it weekly or even assist in purchasing big ticket items.

(b) ONE factor that could influence the behaviour of consumers are:

Factors influencing Consumer Bahaviour
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Figure 4.0: Consumer Behaviour
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  • Price
  • Price of substitutes
  • Quality
  • Taste
  • Tradition
  • Income (affordability)
  • Spending patterns
  • Brand loyalty


Traditional Distribution Channel
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Figure 5.0 : Traditional Distribution Channel
Principles of Business Paper 02 Solutions January 2019

(d) FOUR problems that are likely to be encountered in the distribution of goods are:

  • Relationship between the availability of airport, harbour and docking facilities and the efficient distribution of goods
  • Delayed shipment
  • Spoilage of goods
  • Misdirection of goods -sent to the wrong place
  • Natural disasters
  • Inadequate warehousing facilities to facilitate storage of goods and spoil goods.
  • lack of proper security measures
  • Industrial unrest
  • Ineffective communication.
  • Government intervention e.g. taxes at the ports.

(e) ONE appropriate mode of transportation for EACH of the following products

(i) Fresh meat from processing plant to supermarket – Refrigerated Truck (Road Transportation)

(ii) Cement from factory to construction site – Truck (Road Transportation)

(iii) Oil from oilfield to refinery – Pipelines

(iv) Bauxite from mine to the processing plant – Truck (Road Transportation)

Question 4

Topics: Personal Budgeting, Use of Budgets, Commercial Banks Services and Functions of the Central bank

(a) TWO ways in which a budget could assist persons in the management of their personal income are:

Personal Budgeting
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Figure 6.0: Personal Budgeting Principlesof Business Blog https://principlesofbusiness.com
  • A primary reason why personal budgeting is important is that it encourages households to avoid impulse buying, thereby promoting financial discipline and cutting back on nonessential purchases. By taking the time to itemize all income and all expenses, households are forced to tabulate their needs and decide on essential as opposed to nonessential purchases.
  • Personal budgeting promotes the objective of saving and can encourage thrift, thereby helping to develop a culture of better financial management. By encouraging households to save, personal budgeting can provide financial institutions with money for loans and in the long run, enable citizens to take advantage of investment opportunities.
  • Personal budgeting also assists households to set goals and engage in long-term planning. By setting aside a portion of income, they can save money to purchase property, pay for children’s education, or take advantage of investment opportunities.
  • Budget helps know how much income (sources) and outflow (expenses).

TIP: There are many personal budgets templates (online and from excel). Also, there are many personal budget apps you can download and utilise.

Functions of Commercial Banks

(b) THREE services offered by Commercial Banks are:

Figure 7.0: Commercial Banks Services      Principles of Business Blog                    https://principlesofbusiness.net
Figure 7.0: Commercial Banks Services Principles of Business Blog https://principlesofbusiness.net
  • Accepting deposits
  • Providing loans and mortgages (real estate)
  • Cashing cheques
  • Offering money transfer services
  • Providing ATMs
  • Issuing credit/debit cards
  • Offering online banking services
  • Making payments on behalf of customers
  • Foreign exchange
  • Safety Deposit Boxes
  • Chequing Accounts, Savings Accounts, Fixed Deposit Accounts
  • Payments through cheques, debit cards, bank drafts, telegraphic transfers.

Functions of Central Banks Function

(c) FOUR functions of a Central Bank.The Central Bank is the government’s bank.

  • Issue notes and coins.
  • Control of money supply.
  • Provide financial advice to government.
  • Act as bankers’ bank.
  • Serve as government’s banker.
  • Lender of last resort
  • Manages public debt.
  • Promotes financial stability.
  • Manages monetary policies.
  • Influences interest rate.
  • Issues Treasury Bonds.
  • Manages foreign exchange and golds reserve.
  • Provides financial and economic education.
  • Research, data collection and analysis.
  • Regulates commercial banks.

(d) Explain how the Central Bank uses EACH of the following measures to regulate the activities of Commercial Banks.

(i) Open market operations

The open market operations is one of three traditional tools to conduct its monetary policy. The open market operations monetary policy utilised by the Central Bank involved the buying and selling of government bonds or securities to Commercial Banks to regulate the economy. For instance, if there is too much money in an economy or too many persons have easy access to credit or money or bank has loan interest and you borrow can lead to inflation.

In order to inject money into an economy , the Central Bank will buy the Treasury bills or the bonds will increase the money supply and credit becomes cheaper and easier. However, if the economy has too much inflation, the Central Bank will go to the open market and sell the bonds and this takes money out of circulation and decrease money supply and slows down the economy. For instance, within the U.S., the open market operations is seen when the Central Bank buys or sells U.S. Treasury bonds which influences the number of bank reserves as well as the interest rate levels.

(ii) Liquid asset requirements

Commercial Banks must maintain a predetermined percentage of their total deposits and other liabilities in the form of liquid assets, which refers to the liquid asset requirement, or ratio. For instance, Central Bank may ask Commercial Banks to maintain 10% and reduce the amount of money available by banks to offer loans, hence interest rates go up na d the cost to borrow increases.

However, if the Central Bank reduces the amount of the liquid asset requirements to be held by Commercial Banks, then banks could lend more at lower interest rates.All licensed financial institutions are required to maintain a fraction of their deposit liabilities in a non-interest earning cash reserve account with the Bank.

Therefore, by lowering or increasing this fraction, the Bank can increase or reduce liquidity in the banking system.The Central Bank regularly monitors the cash balances of the banks and non-banks to ensure that these institutions meet their statutory requirements. There is a stipulated cash penalty for failure to adhere to the reserve requirements.

Question 5

Topics: Taxation, Progressive Tax, Proportional Tax, Role of Government.

(a) (i) Progressive Tax

Progressive Tax
Principles of Business Blog
Figure: 8.0 – Progressive Tax

A progressive tax is designed to place the lightest burden on those who make the least money. Hence, the wealthy pay greater percentage of their income. The percentage of tax increases as income increases. The main reason in favor of a progressive tax system is to achieve fairness or equity in taxation, as those who are abler will pay more.

Stronger responses stated that as an individual’s income increases the taxes he/she pays increases and therefore the higher income earner would pay more totally, than the lower income earner.

(ii) Proportional Tax

Proportional Tax 
Principles of Business Blog
Figure 9.0 : Proportional Tax

By using a proportional tax system, everyone pays the same percentage of taxes. Higher income earners would pay more because, with proportional taxes, everyone pays the same percentage in tax. However, higher income earners would pay more from their more substantial earnings than would lower income.

(b) THREE reasons why governments charges taxes.

  • Raising revenue to fund expenditure.
  • Taxing of imports encourages the purchase of local products which could encourage fledgling industries to thrive.
  • Taxation encourages the redistribution of incomes.
  • The government charges taxes to deter behaviour that would affect health or breach legislation. Also, discourage alcohol and tobacco.
  • To curb inflation by reducing the supply of money in the economy.
  • To remove competition from local goods in order to protect infant or fledgling industries by taxing imports at high rates which assist and support local businesses.
  • To lower employment by encouraging persons to buy local produce thus encouraging linkages among sectors.
  • To achieve greater equality in the distribution of wealth and income by taxing the higher income earners so as to provide social services for the majority of citizens.

(c) THREE ways in which governments regulate the activities of businesses are:

  • The use of taxation, subsidies, licences and agencies set up to implement, monitor and regulate business activity.
  • Passing laws to protect the environment and persons who live in it.
  • They can do so by devising zoning laws to prevent firms from setting up commercial activities in residential areas.
  • Setting rules as to how firms should dispose of their waste in order to to avoid them becoming health hazards.
  • Insisting that stipulated guidelines on how to set prices.
  • Apply a penalty for those businesses that do not comply.
  • Helping businesses to expand by giving them low interest loans.
  • Firms that qualify can use these funds to grow their businesses.
  • Requiring that firms protect the safety of their workers by following occupational health and safety regulations.
  • Setting up schools to provide specialized training, for example, in tourism and transportation sectors where employers must send workers for training.
  • This will assist firms within these industries to get trained workers which will help to enhance the productivity of their business.

(d) TWO measures used by governments to protect consumers are:

  • The use of the various agencies of government to protect consumers from malpractice by members of the business community
  • Two ways in which governments protect consumers through direct means such as the hire purchase laws, through ensuring that their rights are acknowledged and through various institutions or agencies such as the Bureau of Standards.
  • Governments can make laws to provide a code of conduct for the operation of businesses. This will ensure that businesses maintain the standards set out in the law. This will ensures that orders governing business relationships are maintained.
  • Governments can also require businesses to be licensed to conduct or sell certain products. These licenses should be renewed after a number of years.
  • Governments can set price controls to ensure that merchants do not overcharge for their goods and services. That basic food items are within the reach of consumers.
  • Governments can legally require certain businesses, especially those that sell food items to be regularly inspected so that they are operating in harmony with health regulations.
  • Consumer Affairs department and rights of consumers through laws.
  • Governments can also have in place bureaus of standards to ensure compliance with packaging, weights and measures.

(e) The government of your country has set up centres to train citizens in computer engineering and small appliance repair.

Explain TWO benefits that could be gained from this initiative.Job creation and increase employment levels. Reduce brain drain, and reduce the outflow of foreign exchange. Likewise, reduce the dependency on foreign countries

  1. Job creation and increase employment levels. Reduce brain drain, and reduce the outflow of foreign exchange. Likewise, reduce the dependency on foreign countries.
  2. Exporting small appliances – improve balance of payment and facilitate International Trade and foreign exchange.
  3. Increase the knowledge base of the human resource of the country with the training and the engineers would become more efficient and productive which increase GDP and productivity.

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