Financial 2 - Segment Reporting

Question 1

Criteria for Reportable Segments

Answer 1

• A reportable operating segment is one having 10% of all revenue, INCLUDING revenue from unaffiliated sales and from intersegment sales
• Unaffiliated customers sales and intracompany sales must be disclosed separately
• For segment reporting, if an identified segment’s assets constitute more than 10% of the combined assets of all operating segments, the segmet should be reported. The same rule does NOT apply for the segment’s liabilities

*** Remember the 10% of total assets and 10% of total revenues

• Only publicly-traded enterprises are required to report on business segments

Question 2

Calculating Operating Profit/Income

Answer 2

General Rule: Operating profit by segments is based on the measure of profit reported to the “Chief Operating Decision Maker”

• Sales - Traceable operating expenses = Operating Profit
• Interest expense, income taxes, and general corporate expenses are not allocated to the divisions solely for the purposes of segment disclosures; they may be allocated to the divisions if that is how the segments report to the “Chief Operating Decision Maker”

General Rule 2: Equity in Net Income of another company, general corporate expenses, interest, income tax expense, and gains or losses on discontinued operations are all NOT included in segment profit unless they are included in the determination of segment profit reported to the “Chief Operating Decision Maker”

Question 3

Required Enterprise-Wide Reportable Operating Segment Disclosures

Answer 3

• In order to conform to GAAP, FS for public business enterprises must report segment information about a company’s major customer if that customer provides 10% or more of the combined revenue, internal and external, of ALL operating segments

KEY: 10% of ALL operating segments, not just a particular segment

• For each reportable segment of an enterprise, BOTH profit or loss and total assets should be disclosed under GAAP

*** In disclosure questions, disclose the most rather than the least

Question 4

Calculating Reportable Segments

Answer 4

3 Criteria - Must meet at least 1 of 3

1. Reported Revenue (sales to external customers and intersegment sales) greater than or equal to 10% of combined revenue of all operating segments
2. Reported profit/loss greater than or equal to 10% of the greater (absolute value) of
   - combined profit of all operating segments that did not report a loss
   - combined reported loss of all operating segments that did report a loss
3. Assets greater than or equal to 10% of the combined assets of all operating segments

Question 5

Reportable Segments - IFRS vs GAAP

Answer 5

• Segment Cash Flow is NOT reported under IFRS or GAAP
• Segment Liabilities are reported for each reportable segment under IFRS, if this measure is regularly provide to the chief decision maker. NOT reported under GAAP
• Segment profit or loss is reported for each reportable segment under BOTH IFRS and GAAP
• Segment assets are reported for each reportable segment under BOTH IFRS and GAAP