KCSE Past Papers 2017 Business Studies Paper 1 (565/1)

Questions and Answers

2017 Business Studies paper 1

1. State four elements of the demographic environment that may influence the operations of a business. (4 marks)

– The population size.

– The geographical distribution of the population.-

– The population density.

– The distribution of the population by sex/Gender.-

– The distribution of the population by age.

– The population growth rate. .- The birth rate.

– The death rate/mortality rate/attrition rate.-

– Immigration rate.

– Emigration rate

– Health of the population.

2. Outline four circumstances under which goods may be transported by use of containers. (4 marks)

(a). When goods are fragile and require protection from damage.

(b). When goods are highly valued and need to be secured from theft while on transit.

(c). When goods are regular in shape and can easily be packed into containers.

(d). When there is need to minimize handling of goods both at the port and in transit.

(e). When there is need to use the available space more efficiently.

(f). When specialized machines for loading and off-loading are available.

(g). When there is need to cut down on transport.

(h). When there is need to cut down insurance costs.

(i). Where goods are special and require special attention e.g. perishable and inflammable goods.

3. The following information was extracted from the books of Salome Traders: Capital Ksh 1,119,300; Long tenn liabilities Ksh 1,807,000; and current liabilities Ksh 978,700.


(a) Determine Salome Traders Rate of Return on Capital Employed if the business made a net profit of Ksh 438,945. (4 marks)

C E = C + LTL

= 1,119,300 + 1,807,000

= Rate of Return on Capital Employed

ROCE = NP/PE X 100

CE = 438,945/2,926,300 X 100 = 15%

(b) State the importance of the rate of return on capital employed. (1 mark)


  • It enables the business to determine the rate at which net profit is generated in relation to thee total investment into the business with simila ones.
  • Shows whether the financés of the business have been invested wisely or not.. 
  • To compare the performance of the business with similar ones .Determining Salome’s Rate of Return on Capital Employed.

    4 Highlight four indicators of economic growth that may be observed as a country progresses.(4 marks)


  • Increasing national income.
  • Increasing national output/GDP.
  • Improved infrastructure.
  • Improvement in the provision of health facilities.
  • Increased education opportunities.
  • Increasing life expectancies.
  • Improved housing for the population.
  • Provision of more social amenities for leisure e.g. stadia.
  • Improved standards of living for the citizens.
  • Increased per capital income.
  • Increased employment opportunities.
  • Reduced dependency ratio/self employment. .
  • Reduced income disparities.
  • Reduction of negative cultural practices.
  • Good governance/democracy.5. Chem Chemi Ltd is a new cement manufacturer. Outline four factors that may encourage this company to be established in Athi River town where other cement manufacturers are located despite the obvious competition. (4 marks)


  • Availability of raw materials in Athi River.
  • Skilled labour is readily available in Athi River (can be poached from other companies).
  • Market is readily available in Nairobi and its environs.
  • There is ready supply/source of power.
  • Government policy encourages the establishment of such firms in Athi River which is also an E.P.Z.
  • An established transport network
  • An established communication network.
  • sewerage systems and water supply.
  • Availability of security.
  • Availability of auxiliary services e.g. banks.
  • Availability of well-developed social amenities like schools, stadia6. Outline three ways through which a partnership may be formed. (3 marks)

    (a). A simple written agreement between the parties.

    (b). An oral agreement between the partners.

    (c). Action by members implying agreement to conduct business together.

    (d). A signed legal agreement (partnership deed).

    (e). By provision of the partnership act where there is no known agreement.

    7. State four features of land as a factor of production. (4 marks)


  • . It is a natural resource.
  • It is fixed in supply.
  • Its productivity can be varied by varying the inputs.
  • It lacks geographical mobility.
  • It is subject to the law of diminishing returns.
  • Its quality is not homogeneous.
  • It is a basic factor of production.
  • It is occupationally mobile.
  • It’s reward is rent/rates8. State the principles of insurance described in the statements given below: (4 marks)

    (a) Restoring the insured’s financial position afier suffering loss from an insured risk.

    – Indemnity

    (b) Existence of a very close relationship between the loss suffered and the insured risk.

    – Proximate cause

    (c) The insurer taking ownership of the remains of the destroyed property after the insured is duly compensated.

    – Subrogation

    (d) Proof that the insured will suffer direct financial loss if property is destroyed.

    – Insurable interest

    9. Highlight four items that would be included in the measurement of national income using the income approach. (4 marks)


  • Salaries/wages or personal earnings by households.
  • Interest received for use of capital.
  • Profits made by public enterprises.
  • Dividends received by shareholders.
  • Rent received for the use of land.
  • Undistributed profits before tax on firms.
  • Stock appreciation.
  • Transfer payments e. g. grants to students.
  • Depreciation on capital.
  • Net income from abroad.10. The table below shows general price changes over a period of five years:


  • Using year 2010 as the base year, determine the consumer price index for years 2011, 2012, 2013 and 2014. (4 mark

    The C.P.I. for the year:

    2011 = (100.80/90xl00)= 112

    2012 = (103.50/90xl00)= 115

    2013 = (105.30/90xl00) =117

    2014 = (108/90xl00) = 120

    11. List four forms of retail businesses that a school leaver may engage in. (4 mark

    (a) Kiosks

    (b) Canteens

    (c) Tied shops

    (d) Single shops

    (e) Market stalls

    (f) Open air market trading.

    (g) Hawking

    (h) Peddling

    (l) Automatic vending machine.

    (j) Mobile shops

    (k) Roadside selling.

    12. Outline four benefits of using the internet for office communication. (4 marks)


  • Reduced cost of communication.
  • Provides unlimited space for filing.
  • A fast means of communication.
  • Provides a source of information for research.
  • Facilitates quick decision making.
  • Reduces paperwork and the need for paper files.
  • Accords convenience While communicating.
  • Communication can take place at all times. 
  • Information can be passed to many people at different places at the same time.13. The following information relates to Zawadi Traders rental income:

    1.1.15 Had Ksh 50,000 in the rent income account at the beginning of the year.

    10.6.15 Received Ksh 120,000 from tenants.

    12.11.15 Refunded Ksh 20,000 to a tenant who had vacated the premises.


    Prepare Zawadi Traders Rental lncome Account. (4 marks)


  • 14.State four means of payment that may be provided by commercial banks to their customers.(4 marks)


  • Cheques
  • Bank drafts/Banker’s cheques.
  • Standing orders.
  • Traveler’s cheques.
  • Credit transfers.
  • Telegraphic transfers.
  • Use of credit/debit cards.
  • Electronic Funds Transfer.15. The equations given below relate to quantity demanded and quality supplied at the equilibrium point:

    Qde = 4P + 50

    Qsc = 8P + 30

    Determine the equilibrium price and quantity. (4 marks)

    Where: Qde = 4P + 50 and Qse = 8P+3O



    20 = 4P

    4 =P

    equilibrium price = 5

    Equilibrium quantity = (5 X 4) + 50

    = 20 + 50


    16. Outline four Ways in which the balance of payments of a country may be improved. (4 marks)


  • Restriction of imports.
  • Diversification of exports.
  • Export promotion.
  • Devaluation of the count1y’s currency.
  • Deflation/reduced money supply.
  • Value addition to increase the value of the exports.
  • Encouraging foreign investments to the country.
  • Restricting outflow of capital.17. Identify the source documents into which the information given in the below would be recorded. (4 marks)

    (a)Payments recived from debtors

  • Outgoing receipts(b)Purchase made from credits
  • Incoming invoice(c)Valiating payments made by the cashier
  • Payment voucher(d)Requesting payments from a debtor
  • Debit note. 18. Highlight four factors that should be considered by a firm when deciding on the method to use for promoting its products. (4 marks)


  • Nature of the product.
  • The competitors’ promotional strategies.
  • The cost of the methods.
  • The target audience.
  • The level of demand for the product.
  • Urgency of the promotional message.
  • Availability of the promotional media.
  • Government policy/legal requirements.
  • Objectives of the firm/promoter.
  • Geographical coverage of the method19. Outline four features of money that enables it to facilitate the exchange of goods and services.(4 marks)

    (a). General acceptability as a medium of exchange.

    (b). Cognizability.

    (c). Portability/easy to carry.

    (d). Divisibility/can easily be converted to smaller denominations without losing value.

    (e). Made of homogeneous/uniform material.

    (f). Stability in value.

    (g). Malleability.

    (h). Durability.

    (i). Scarcity.

    (j). Not easy to forge (authenticity).

    20. Outline four benefits of proper filing to an organisation. (4 marks)


  • Vital documents will be kept for future reference.
  • Easy retrieval and accessibility of documents.
  • Economic use of available space.
  • Documents are kept safe from damage/loss.
  • Limits accessibility of documents to only authorized personnel.
  • Aids in keeping the office tidy /neat.
  • May help the organization to keep some documents for the length of time as specified by the law.
  • Helps to keep the documents neat.21. Highlight four characteristics of a monopolistic competitive market. (4 marks)


  • There is a large number of buyers and sellers who act independently. There are no baniers to entry or exit from the industry.
  • The sellers offer similar products that are only differentiated. No single firm has control over the factors of production.
  • Firms set their own prices. Buyers and sellers have perfect knowledge of the market.
  • Firms incur huge selling/promotional costs.22. The aggressive campaign for citizens to plan their families seems to be causing a decline in the country’s population growth. Outline four possible effects of this. (4 marks)


  • Reduced pressure on land.
  • Shrinking market for goods and services.
  • Reduced levels of unemployment.
  • Reducing government expenditure on the provision of social amenities. ’
  • Reduced dependency burden.
  • Low labour supply.
  • Reduced social problems like crime, lack of housing, traffic jams.
  • Possibility of attaining optimum population.
  • May lead to increased savings and investment.23. State four functions of commercial attachés. (4 marks)

    (a). Educating and advising exporters on trade regulations/practices in other countries.

    (b). Expansion and diversification of exports.

    (c). Organizing for trade fairs and exhibitions of local goods in foreign markets.

    (d). Expansion and diversification of foreign markets.

    (e). Providing information about available selling opportunities in foreign countries to local producers.

    (f). Developments of bilateral and multilateral trade agreements.

    (g)Select buyers/agents and distributors for the country’s export.

    (h). Publish and advertise their country’s exports in business journals and magazines.

    24. Outline four benefits that may realised when two firms form a merge (4 marks)


  • Increase in the volume of output.
  • Increased control over supplies.
  • Increased influence on the market/customers.
  • Reduced cost of operations as a result of economies of scale.
  • Access to larger capital.
  • Increased ability to control prices of the product.
  • Elimination of unhealthy competition. Ability to employ more qualified personnel.
  • Increased quality of output.
  • Combined talents and skills which may lead to better management.25. Shaban started a shop dealing in ladies clothing but failed after two years. Outline four factors that may have caused this failure. (4 marks)


  • Poor location of the business may have made it inaccessible to customers.
  • Stiff competition from other retailers.
  • Inadequate finances to meet the obligations of the business.
  • Shaban’s lack of commitment to the business.
  • Insecurity
  • Political instability.
  • Improper management practices.
  • Poor customer relations.
  • Inappropriate pricing practices.
  • Lack of market/low demand.
  • Unfavourable government policy.
  • Poor marketing strategies.
  • Inadequate stock.
  • Lack of suitable labour.
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