Reporting Segments of an Enterprise Flashcards
An entity is trying to decide whether its operating segments are large enough to warrant disclosure. It is currently applying the profit or loss test. How does the entity compute the profit or loss for a particular segment?
An entity determines the profit or loss of each segment for testing purposes in the same way that it determines profitability for its internal decision-making. In other words, there is no prescribed method. The entity uses the same technique for this test as it does for its won internal purposes.
An entity is computing the operating profit or loss of its operating segments to determine if separate disclosure of information is needed. The entity has general operating expenses. How are those general expenses assigned to the individual segments?
for testing purposes, general operating expense of an entity should be assigned to individual segments in the same manner as they are done for internal decision-making. There is no set method that must be used. It is assumed that the entity uses the best method of allocation and that should be followed. In fact, if the expenses are not allocated to segments for internal purposes, they should not be allocated for determining the significance of the segment.
In reporting information about its various operating segments, how does an entity divide its operations into operating segments?
for disclosure purposes, the operating segments should be identified in the same way that management does for internal reporting and decision-making purposes. This may be geographic, by the type of marketing, product line, or some other method that is assumed to be most useful by management.
One important key to this decision is that the results of each operating segment must be reviewed separately by the chief operating officer/ decision-maker for the entity.
Which companies must report information about their operating segments?
Only publicly held companies are required to disclose information about their various operating segments. All companies are allowed to present information, but it is only required of publicly held companies.
What is necessary before a part of an entity can be identified as an operating segment for disclosure purposes?
each operating segment must be engaged in business activities from which it earns revenues and incurs expenses. Revenues do not have to be earned externally. However, a segment can be identified that only has internal revenues
each operating segment must have its own financial info available
each operating segment must have its financial results reviewed separately by the chief operating officer/decision-maker for the entity
An entity has identified its various operating segments. It is now trying to decide which of these segments is of significant size to warrant separate disclosure. How is this judgment made?
the segment must make up 10% or more of any of the following
revenue
profits/loss
assets
in addition to these three tests, there is an additional requirements as to the number of segments that are reported. This 75% rule states that at least 7% of the unaffiliated revenue must be reported. If, after applying the three tests, this rule is not met, additional segments must be identified and reported separately.
An entity has identified its various operating segments. It is now trying to decide which of these segments is of significant size to warrant separate disclosure. How is this judgment made?
the segment must make up 10% or more of any of the following
revenue
profits/loss
assets
in addition to these three tests, there is an additional requirements as to the number of segments that are reported. This 75% rule states that at least 7% of the unaffiliated revenue must be reported. If, after applying the three tests, this rule is not met, additional segments must be identified and reported separately.
An operating segment has sales to outsiders as well as internal transfers. In performing the revenue test to see if this segment is of significant size to to warrant separate disclosure, which of these revenues is included?
in performing the revenue test, both sales to outsiders as well as intersegment revenues are included.
An entity only has one operating segment and it makes up the entire entity. Does that relieve the entity from reporting any segment information?
Regardless of the number of operating segments, the following information must be disclosed for the enterprise as a whole
revenue generated from external customers for each product and service
revenues from external customers and the amount of long-lived assets for domestic operations
Revenues from external customers and the amount of long-lived asset for foreign operations
revenues and assets for any specific foreign country, if material
sales of 10% or more of consolidated revenues made to a single customers
