Ch 15 Segment reporting

Question 1

definition

Answer 1

SR are designed to reveal significant information that might otherwise be hidden by process of presenting a signle SPLOCI and SFP

Question 2

OPerating segments

Answer 2

IFRS 8 requires certain entities (those who trade debt or equity instruments in a public market) to disclose info about each of operating segments for users to be able to eval-te nature and fin effects of the business activities

Question 3

an operating segment is component of an entity

Answer 3

1. that engages in business activities from whichit may earn revenues
2. whose operaitng results are reviewed by chief operating decision maker to decide about resource to alllocate to the segment and assess its performance
3. for which discrete fin information is available

corp HQs and other similar dep-s do not earn revenue and are therefore not Oper segment
pension plan is not oper entity

Question 4

aggregation of reporting entities

Answer 4

yes, if similar in following
- products and services
- production processes
- classes of customer
- distrib methods

Question 5

case for when to aggregate

Answer 5

IFRS 8 says that two or more operating segments can be aggregated if they have similar economic characteristics and the segments are similar in the following respects:
- distribution method
- customer segment (types of customer B2B or individual consumers)
- nature of products or services
The standard says that segments have similar economic char-s if they have similar LT gross-margin
X stores and online business sell same types of products, and there are likely no major differences in the types of customers (individual consumers). Therefore, in this respects, the segments are similar
However, customers will collect their goods from store…. THis means that distribution methods are different
Moreover, there are different sales prices b/n stores, giving rise to significant difference in gross margin. This suggests dissimilarity in terms of economic char-s. This means that it might be more approp-te to disclose these two segments separately

Question 6

Quantitative threasholds

Answer 6

must separately report information about an operating segment if meet any of the following
- its oper revenu to external and inter-segment sales is at least 10% of combined rev of all segs
- its reported profit is 10% or more of greater abs of
1.combined reported profit of all segments that did not report loss and
2. combined reported loss of oper segments that reported loss
- assets are 10% or more of combined assets
AT LEAST 75% OF EXTERNAL REVENUE MUST BE INCLUDED IN REPORTABLE SEGMENTS, UNTIL 75% IS REPORTED OTHERS SHOULD BE IDENTIFIED AS REPORTABLE SEGMENTS

Question 7

DISCLOSURE of rpeortable segments

Answer 7

1. types of products and services sold by each reportable segment
2. factors used to identify reportable segments

Question 8

Information profit or loss and other segment items

Answer 8

• measure of profit or loss
• measure of total assets
  other inform should be disclosed if provided to chief operating decision maker
  segment reports usefulness:
• entities prep through mng perspective. Investors are interested in how management views the business
• different parts of the business will have different growth opportunities. Seg-l inf-n may help investors to better predict future performance and future Cash flows
• geogr disclosures are useful for investors in MN businesses bc each country/location may face different risks and growth rate
  benefit of producing such report exceeds the costs as it is prepared for internal use

Question 9

limitations of segm-l reports

Answer 9

• inter-segment trading can distort the results of each operating segment, esp if trans-s do not occur at FV
• based on mng persp-ve and some users lack trust in mng intentions - may try to conceal loss making seg
• over aggreg
• arbit costs allocation as alloc depdnd on what mng believes is reasonable

Question 10

RP - IAS 24 RP Disclosures

Answer 10

the transfer of resources, services or obligations bn RP, regardless of whether price is charged

Question 11

definition of RP

Answer 11

a person or close member of that person’s family is related to a reporting entity if that person:
i. has control or joint control of the reporting entity
ii. has significant influence over reporting entity
iii. is a member of the key mng personnel of the reporting entity or of a parent of reporting entity

Question 12

RP to entity if any following conditions apply

Answer 12

1. members of the same group
2. one entity is an associate or joint venture of the other entity (or same of a member of the group of which the other is member)
3. both entities are joint ventures of the same third party
4. one entity is joint venture of a third entity and the other is associate of the third entity

Question 13

signif influence - IAS 28 investments in associates or joint ventures

Answer 13

power to participate in, but not to control, the financing and operatin decision making

Question 14

Joint control -

Answer 14

the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require an unanimous consent of the parties sharing control

Question 15

not RP

Answer 15

1. director or other member of key mngt personnel is common
2. two joint ventures just bc they share joint control of joint venture
3. a customer or supplier with whom an entity transacts a significant volume of business

Question 16

KMP

Answer 16

those with authority and responsibility for planning, directing, and controlling the activities of the entity, incl any director (whether executive or otherwise) of that entity’

Question 17

RPs ( A is parent for B (60%) and C (70%); C has 35% of D

Answer 17

Entity A:
entities within the same group are RP, B and C are RP; D is associate of C, D is RP of A
C is a member of same group as B. D is RP of B