Observation

Majority of the candidates attempted this question and their performance was poor. Some of them failed to differentiate between a branch and a department while many gave wrong reasons for the preparation of branch accounts.

Some of the expected responses were:

(a) Closing entries
Closing entries are journal entries made at the end of an accounting period which are later transferred to the income statement

OR

Closing entries are journal entries passed to close the accounts relating to income, expense, gains and losses at the end of the accounting period.

(b) Distinction between a Branch and a Department
A Branch is a segment/unit of a business located outside the head office; but a Department is a unit of an organization under the same roof;

OR

A branch can replicate all the activities of the head office; but a department operates only a single line of production or service of the firm which differs from those of the other units.

(c) Reasons for the preparation of branch accounts Branch accounts are prepared to:

(i) be used as a basis to reward hardworking staff;

(ii) serve as basis for management decision making;

(iii) compare the results of performance of various branches;

(iv) know the profitable and unprofitable branches;

(v) determine which of the branches could be closed down;

(vi) help management control the organization’s activities.