Ifrs 8

Question 1

IFRS 8 requires

Answer 1

Certain entities to disclose information about each of its operating segments that will enable users of the financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environments in which it operates.

Question 2

IFRS 8 applies to entities which

Answer 2

Trade debts or equity instruments in a public market

Question 3

Operating segments definition

Answer 3

Component of entity
1. That engages in business activities from which it may earn revenues and incur expenses

2. Whose operating results are regularly reviewed by the entity’s chief operating Decision maker to make decisions about resources to be allocated to the segment and assess its performance
3. For which discrete financial information is available

Question 4

Not every part of an entity is an operating segment or part of an operating segment . E.g.

Answer 4

Head quarters etc. that do not earn revenue

Pension plan

Question 5

When can two or more operating segments be aggregated and reported as a single operating segment

Answer 5

When they have similar economic characteristics and are similar in the following respects

1, products and services
2, production processes
3, classes of customer
4, distribution methods

Question 6

An entity must separately report information about an operating segment that meets any of the following quantitative thresholds

Answer 6

1. It’s reported revenue, including both sales to external customers and inter segment sales, its 10 percent or more of the combined revenue of all operating segments
2. It’s reported profit or loss is 10 percent or more of the greater, in absolute amount of
   A) combined reported profit of all operating segments that did not report a loss
   B) combined reported loss of all operating segments that reported a loss
3. Its assets are. 10 percent or more of the combined assets of all operating segments.

( atleast 75% of the entity’s external revenue must be included in reportable segments)

Question 7

“All other segments” category

Answer 7

Info about other business activities and reporting segments that are not reportable

Question 8

Disclosure

General

Answer 8

Disclose

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

Question 9

Disclosure

Info about p/l and other segment items

Answer 9

For each reportable segment entity should report

1. Measure of p/l
2. Measure of total assets

Other info regularly provided to chief operating decision maker

Question 10

Segmental reports should be based on info reported to

Answer 10

And used by management even when it is prepared on a different basis from the rest of financial statements

Therefore explain the measurement of segments p/l , assets and liabilities

Question 11

Limitations of segmental reports

Answer 11

1. Trading between segments may distort the results of each operating segment ( esp if transaction were not at fair value
2. IFRS 8 says segments should reflect the way the entity is managed. This means segment info is not useful for comparing the performance of different entities
3. Segmentation process is based on management perspective and some users don’t trust management intentions
4. Entities over aggregate segments thus reducing level of detail reported
5. Common costs can be allocated to segments on whatever basis directors think is fine. This leads to arbitrary allocation