KCSE Past Papers 2020 Business Studies Paper 1 (565/1)

Questions and Answers 2020 KCSE Business Studies paper 1

1. List four external environmental factors that may influence the operations of a business.


  • Legal/regulatory issues/ Government policy
  • Economic factors
  • Sociocultural factors
  • Technological factors
  • Physical facilities/infrastructure
  • Demographic considerations (population)
  • Political environment.
  • Competitors Suppliers
  • Natural factors e.g. climate Market/ customers Security2. State four characteristics of direct production.


  • Production is for own use / Subsistence production Low level of technology is used in production Good produced are often low quality
  • Goods are produced in low quantities/ no surplus
  • Producer is involved in all stages of production/ lacks division of labour
  • Producer earns no extra income
  • Producer’s living standards lack variety
  • Producer strives to produce a variety of commodities/ lacks specialization3. Name the document described in each of the following statements:(4 marks)

    (a) Used to demand for payment before goods are delivered

    – Proforma invoice

    (b) Used as a reply to a specific letter of inquiry

    – Quotation

    (c) Informs the buyer that goods ordered for have been dispatched

    – Advice note

    (d) Used to correct an overcharge

    – Credit note

    4. Highlight four reasons for government involvement in business.


  • Provide subsidized essential services/at low cost
  • To protect citizens from exploitation
  • To create employment To earn revenue
  • To stimulate economic growth
  • To provide commodities that are too sensitive to be left in the hands of private investors e.g. printing of money and manufacture of firearms
  • To prevent foreign dominance of the local economy
  • To provide commodities which private investors are unwilling to venture into due to low profit
  • Safeguard national interest by controlling strategic industries To attract foreign investment5. 5. State four factors that may lead to a shift in demand as shown in the diagram below.(4 marks)


  • Decrease in consumer’s income
  • Unfavourable government policies (increased taxes, strict licensing)
  • Decrease in population
  • Future expectation that prices will decline
  • Unfavourable/off peak season for particular commodities
  • Negative taste & preference for a particular product(or fashion) Availability of better substitutes
  • Reduced prices of substitute goods.
  • Increase in price of complimentary goods
  • Unfavourable terms of sales6. Outline four circumstances under which a trader would prefer to transport goods by air.(4 marks)


  • When the goods are perishable
  • When goods are urgently required
  • When securing highly valuable goods
  • When accessing remote areas (not accessed by other means)/only means available
  • When goods are to be delivered over a long distance
  • When the business can afford to use it.
  • When it is the policy of the business to transport goods by air7. The following information was obtained from the books of Sindo Limited on 31 December 2015:


    Details Ksh
    Capital 24,000
    Stock 1,500
    Debtors 2,000
    Machinery 20,000
    Cash 4,000

    Determine the total liabilities of the business.

    (3 marks)

    Total asset = 20,000+ 1,500 +2,000 +4,000 = 27,500

    Capital = 24,000

    Assets = Capital + Liabilities

    Liabilities = Assets-Capital

    = 27,500-24,000


    8. Highlight four services that commercial banks offer to their customers.

    (4 marks)


  • Accepting deposits(from clients)
  • Lending money to clients
  • Safekeeping of valuable items
  • Effects payments for clients/money transfer services
  • Providing foreign exchange services
  • Giving investment advice to clients
  • Guarantor to their customers when taking loans with other financial institutions.
  • Acts as a referee/ trustee9. Outline four reasons that may make Kenya restrict trade with other countries.

    (4 marks)


  • To protect local infant industries from unhealthy competition
  • To safeguard against overdependence on foreign firms for essential commodities
  • To raise revenue through tariffs
  • To prevent dumping of substandard goods in the country.
  • To curb against borrowing of unacceptable foreign culture
  • To correct unfavourable balance of payments
  • To remind entry of harmful goods
  • To protect strategic industries
  • Recreate employment opportunities
  • To make use of natural resources4. Classify the following resources as natural, man-made or human:

    (4 marks)


    Resource Classification
    (a) Architect
    (b) Boat
    (c) Soda ash
    (d) Driver


    Resource Classification
    (a) Architect Human
    (b) Boat Man-made
    (c) Soda ash Natural
    (d) Driver Human

    11. List four sources of capital that may be available to a sole proprietorship.

    (4 marks)


  • Owner’s savings
  • Contribution from friends/relatives
  • Borrowing from financial institutions/friends
  • Credit buying (Trade credit, hire purchase)
  • Ploughing back profits/retained earnings Inheritance
  • Leasing of assets
  • Renting of assets12. Highlight four circumstances under which a firm may be located near the source of raw materials.(4 marks)


  • Where it is cheaper to transport finished goods than raw materials
  • Where the firm needs to ease handling of bulky raw materials
  • When dealing with highly perishable raw materials to avoid spoilage
  • If the government policy requires the firm to be located near the source of raw materials
  • Where the firm wants to control an important raw material Where the raw materials are fragile/brittle
  • Where the raw material is dangerous to carry over long distances When the firms needs to easy handling heavy raw materials13. The following information was extracted from the books of Kombo Traders on 30 April 2018:


    Details Ksh
    Land and buildings 150,000
    Creditors 1,500
    Motor car 120,000
    Cash 25,500
    Capital 311,000
    Bank 4,000
    Sales 5,000
    Purchases 18,000


    Prepare Kombo Traders Trial Balance. (5 marks)


        Kombo Traders

    Trial Balance

    As at 30th April, 2018

    Particulars Dr.
    Land and buildings 150,000
    Motor car 120,000
    Bank 4,000
    Cash 25,500
    Creditors 1,500
    Sales 5,000
    Purchases 18,000
    Capital 311,000
    TOTALS        317,500 317,500

    14. Outline four reasons that would make an entrepreneur prepare a business plan.

    (4 marks)


  • To foresee and avoid mistakes that could be committed in future
  • To identify, strengths and devise ways of dealing with the weaknesses of the business
  • It’s a requirement by financiers
  • To help determine required resources and allocate them appropriately
  • To enable an entrepreneur identify potential market
  • To enable the business organization avoid goal blindness
  • To allocate resources appropriately
  • To use it as a monitory tool
  • To motivate employees
  • To adapt future changes15. Identify the office equipment described in each of the statements below:

    (4 marks)


    Description Equipment
    (a) Used to make postage stamp impressions on envelopes
    (b) Used to transmit verbal messages
    (c) Used to store confidential documents and valuable items
    (d) Used to record and store information in audio tapes


    Description Equipment
    (a) Used to make postage stamp impressions on envelopes Franking machine
    (b) Used to transmit verbal messages Telephone / radio call
    (c) Used to store confidential documents and valuable items Safe / cabinet
    (d) Used to record and store information in audio tapes Dictaphone / dictating machine / recorder

    16. State four sources of government revenue. (4 marks)


  • Court fines
  • Rent & rates received for use of government property
  • License fees
  • Dividends & profits earned from its investments
  • Taxes
  • Internal borrowing External borrowing
  • Proceeds from sales of government property Interest earned on loans
  • Grants and donations17. Outline four measures which may be taken by a government to address the problem of underdevelopment. (4 marks)


  • Increasing(government) investments to create more job opportunities
  • Control population explosion to reduce overdependence & pressure on resources
  • Improve infrastructure to ease communication, movement and access to inputs
  • Improve technology for maximum utilization of natural resources
  • Improve education system to alleviate illiteracy & impart appropriate skills
  • Income redistribution
  • Invest in social amenities to foster welfare
  • Provision of incentives to promote culture of savings and investment
  • Encourage good governance to promote self-reliance
  • Sensitizing and legislation on outdated cultural practices18. Highlight four benefits of personal selling to a trader. (4 marks)


  • The trader is able to reach both literate and illiterate customers Able to demonstrate the uses and capabilities of a product
  • The trader is able to get immediate feedback
  • Can tailor the presentation to suit the needs of individual customers
  • Facilitates establishment of interpersonal relationship with clients which promotes repeat purchaser/ create customer loyalty
  • Enables the trader to focus on a targeted group of customers
  • Seller has opportunity to get information on competitors from the buyers May promote instant sales
  • Its more persuasive and convincing customers19. Outline four channels that may be used for distributing imported goods.

    (4 marks)


  • foreign producer → agent → wholesaler → retailer → consumer foreign producer → local wholesaler → retailer → consumer
  • foreign producer → local consumer
  • foreign producer → local wholesaler → consumer foreign producer → local retailer → consumer
  • foreign producer →local agent → wholesaler → retailer → consumer foreign producer → local producer → local producer representative → wholesaler → retailer → consumer20. State four merits of a bonded warehouse to the government.

    (4 marks)


  • Enable the government to earn revenue
  • Enable the government to control the quality quantity of goods imported
  • Helps the government prevent importation of harmful commodities Enables the government to curb tax evasion
  • Helps the government collect statistics on imported goods goods on transit
  • Enables the government to inspect goods entering the country/ type of goods
  • It helps the government solve the problem of unemployment
  • Enables the government control quantity of goods imported21. ldentify the source documents from which the information posted in the following journals would be extracted:

    (4 marks)


    Journal Source Document
    (a) Sales Returns Journal
    (b) Purchases Journal
    (c) Cash Receipts Journal
    (d) Sales Journal


    Journal Source Document
    (a) Sales Returns Journal Outgoing credit note/ issued
    (b) Purchases Journal Purchases invoice/incoming/ received
    (c) Cash Receipts Journal Copy of cash sale receipt/cash receipt
    (d) Sales Journal Sales invoice/ outgoing invoice

    22. State four ways through which leakages of national income may happen in a four-sector economy. (4 marks)


  • Savings by households
  • Government taxes on citizens and firms
  • Payment for imports
  • Transfer payments by government
  • Foreign aid and grants by government
  • Retained profits by firms23. State four benefits of using computers in an office. (4 marks)


  • Facilitates easy communication through the internet
  • They are efficient in preparation and reproduction of documents/saves time
  • They reduce paperwork
  • They are capable of storing huge volumes of information Facilitates easy access to information( retrieving of information)
  • Facilitate E- commerce.
  • Output is presentable/ neat
  • Enhances security of documents( information) It is labour saving24. Identify the factor of production that relates to each of the following resources:


    Resource Factor of production
    (a) Supervision
    (b) Tractor
    (c) Trees
    (d) Owner


    Resource Factor of production
    (a) Supervision Labour
    (b) Tractor Capital
    (c) Trees Land
    (d) Owner Entrepreneurship

    25. List four sources of business ideas.


  • Print media e.g. newspaper, journals and magazines
  • Electronic media e.g. television, computer Vocational training
  • Hobbies/Talents
  • Listening to what people say Unutilized waste materials
  • Observing established entrepreneurs/ role models Experience
  • Research and development/surveys Shows and exhibitions
  • Spotting a market gap Brainstorming
  • Business seminar/ workshops
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