KCB WEEK 3 - SEGMENT REPORTING

Question 1

Brief definition of segment erporting

Answer 1

Different operating segments / lines of business – each line makes profit and have allocated resources

Particularly applicable to large enterprises that:
* Produces a diversified range of products and services
* Have a number of business lines and operations
* Often operate in different geographical areas or countries

Question 2

What is a CODM and what is their main role?

Answer 2

chief operating decision maker - regularly review resources allocated to different oeprating segments

Question 3

Benefits to stakeholders of segment reporting

Answer 3

Possible some make profits and some are making losses
To combine them loss-making sections get hidden with profit-making segments

Question 4

3 Critera for recongition of segments?>

Answer 4

Recognising Segments – 3 Criteria
1) Reported revenue
10% of overall gross revenue (including inter-segment)

2) Absolute amount of the reported profits
Profit segments taken separately and add all together
Loss segments together and add together (without ‘-‘ - )

2 totals then look for 10% / 10% - if overall value (whether profit or loss) of overall total it will qualify

Absolute amount of segments reported profit or loss is 10% or more or the greater of
 Ex -£5m, absolute amount £5 – look at the magnitude (ignore minus)

3) Assets
a. >10% combined assets value (total assets – current liabilities) – if asset value of segment greater then it qualifies for segment reporting

Question 5

75% rule re segmented reporting

Answer 5

Look at segments and total revenue of all segments
If total revenue >75% revenue of whole company – fine, sufficient number of segments
If <75% - will need to go back and select more segments (relax 10% rule)

Question 6

Why might a company decide to report seperately on a dsegment that does not qualify ?

Answer 6

• In growth : want to tell shareholders a poor segment may be good for growth – share price up and eventually it will lead to profit
• If they don’t – market won’t know about company potential linked to the segment undermining share value
• Ex. if they may want to sell the segment down the line – publish separate info for attention to potential buyers