KCSE Business Studies Paper 1 (565/1) is a 2-hour paper of 25 short compulsory questions worth 100 marks, usually 4 marks each. It rewards precise, point-by-point answers on topics such as the office, home trade, transport, communication, warehousing, insurance, product promotion, the national economy, accounting equations and the balance sheet. Paper 2 (565/2) is the essay paper. Below are original practice questions in the Paper 1 style, with answers written the way a marking scheme expects them.
Original CBC Guides questions in the KCSE format, not an official KNEC paper.
Practice Questions With Answers
1. Outline four factors a trader should consider when choosing a means of transport. (4 marks)
Answer: cost of the transport compared with the value of goods; urgency, so perishables go by the fastest means; nature of goods, for example bulky, fragile or perishable; distance to be covered; security of the goods; availability and reliability of the means; flexibility, for door-to-door delivery.
2. Highlight four circumstances under which an insurer may refuse to compensate an insured. (4 marks)
Answer: where the loss was caused deliberately by the insured; where the insured had no insurable interest; where material facts were not disclosed, breaking utmost good faith; where premiums were not paid and the policy had lapsed; where the risk that caused the loss was not covered by the policy; where the claim is above the sum insured, so only the agreed sum is paid.
3. Accounting equation (4 marks)
On 1 January 2026, Akinyi started a business with KSh 200,000 cash. She bought stock on credit for KSh 60,000 and furniture by cash for KSh 45,000. Show the accounting equation after these transactions.
Working: Assets: cash 200,000 − 45,000 = 155,000; stock 60,000; furniture 45,000. Total assets = 260,000. Liabilities: creditors 60,000. Capital 200,000. Assets 260,000 = Capital 200,000 + Liabilities 60,000.
4. State four differences between a private limited company and a public limited company in Kenya. (4 marks)
Answer: a private company’s shares cannot be offered to the public, while a public company may invite the public to buy shares; a private company restricts the transfer of shares, a public company’s shares are freely transferable, for example on the Nairobi Securities Exchange; a private company’s name ends in “Limited” and a public one’s in “PLC” under the Companies Act 2015; a public company has stricter disclosure and must publish audited accounts; a private company may have one director, while a public company must have at least two.
5. Calculate the rate of stock turnover (4 marks)
A trader had opening stock of KSh 40,000, closing stock of KSh 60,000 and cost of sales of KSh 450,000. Find the rate of stock turnover and state what it means.
Working: Average stock = (40,000 + 60,000) ÷ 2 = 50,000. Rate of stock turnover = cost of sales ÷ average stock = 450,000 ÷ 50,000 = 9 times. It means the trader sold and replaced the average stock 9 times in the period.
6. Outline four reasons why the Kenyan government controls prices of some goods. (4 marks)
Answer: to protect consumers from exploitation, especially for essential goods such as fuel; to control inflation; to keep basic commodities affordable to low-income earners; to protect local producers by guaranteeing minimum prices; to stabilise prices of strategic goods. Fuel prices, for example, are reviewed monthly by EPRA.
7. Identify the books of original entry in which the following are recorded. (4 marks)
(a) Goods returned by a customer; (b) purchase of a motor van on credit; (c) cash sales; (d) credit purchases of stock.
Answer: (a) returns inwards journal (sales returns journal); (b) general journal; (c) cash book; (d) purchases journal.
8. Give four reasons why a firm might prefer advertising on radio to newspapers. (4 marks)
Answer: radio reaches people who cannot read; it covers remote rural areas where newspapers do not reach; vernacular stations let the firm target specific communities; a message can be repeated many times in a day; radio can reach people while they work or travel.
Scoring Well In Paper 1
- Read the command word. “State” wants a short point, “explain” wants a point plus a reason, and “outline” sits in between.
- A 4-mark question with “four” in it is one mark per point. Write exactly four clear points, numbered; extra points rarely gain marks and use up time.
- In calculations, always write the formula first. The method mark is awarded even if the arithmetic goes wrong.
- Learn your book-keeping layouts: the balance sheet, the trading account, the three-column cash book and the ledger. They appear every year.
See all subjects on the KCSE practice papers page, and read KCSE minimum grades for degree, diploma and certificate for what comes after results.