Segment Reporting

Question 1

WHAT type of entity is required to report on business segments?

Answer 1

Publicly-traded enterprise(s)

i.e. public entities must report financial and descriptive information about its reportable operating segments

Question 2

WHAT factors determine whether an identified segment of an enterprise should be reported in the enterprise’s financial statements?

Answer 2

1) Its reported revenue, including both external sales and intersegment sales, is 10% or more of the combined revenue of all reporting segments
2) The absolute amount of its reported profit or loss is 10% or more of the greater of: the combined profit of all segments that do not report a loss and the combined reported loss of all segments that did report a loss
3) Its assets are 10% or more of the combined assets of all reporting segments.

NOTE: A segment’s liabilities are NOT taken into account when determining if a particular segment needs to be disclosed

Question 3

True or False.

General operating expenses are a factor in determining the operating profit or loss of a manufacturing segment.

Answer 3

FALSE.

A segment’s operating profit or loss is calculated by reducing its sales (including sales to unaffiliated customers and intersegment sales) by OPERATING EXPENSES that are traceable to that segment, and by an allocation of INDIRECT OPERATING EXPENSES

Question 4

True or False.

Public entities are required to provide information about certain major customers.

Answer 4

TRUE

Public entities are required to provide information about certain major customers

i.e. The fact that transactions with a particular external customer constitute more than 10% of the total enterprise revenues

NOTE: The company does NOT need to disclose the identity of the customer or the amount of revenue that each segment reports from that customer.

Question 5

True or False.

Disclosure is required by publicly-held companies if 10% or more of total revenues are derived from Sales to a single customer.

Answer 5

FALSE

Disclosure is required by publicly-held companies if 10% or more of total revenues are derived from Sales to a single customer OR if 10% or more of total revenues are derived from foreign operations (i.e. Export sales)

Question 6

A public company should present revenues from foreign operations by:

Answer 6

Disclosing separately the amount of sales to unaffiliated customers and the amount of intra-company sales between geographic areas

Question 7

WHAT is the name of the method used in segment reporting to help define what constitutes a “segment?

Answer 7

THE “Management approach”

i.e. This method is used to help determine what segments are part of an entity

Question 8

WHEN are revenue items included in determining if a segment is a reportable segment?

Answer 8

WHEN there are:

(1) Sales to unaffiliated customers
(2) Intersegment product sales

Question 9

True or False.

Sales to other segments are factored when determining a segment’s operating income.

Answer 9

TRUE.

When calculating a segment’s operating income, revenues resulting from sales to external customers and from transactions with other operating segments will be included.

Question 10

WHAT are the three tests to determine if a unit or component is an operating segment?

Answer 10

(1) Revenue Test
(2) Asset Test
(3) Profit or Loss Test

NOTE: This test is the same whether you are calculating under US GAAP or under IFRS

Question 11

WHAT method of cost recognition would be used when collection is not assured or progress toward completion cannot be measured reliably?

Answer 11

THE “Completed Contract” method

NOTE: Progress billings are not considered under this method.

Using this method, total revenue is recognized in the period in which the contract is completed

Question 12

WHAT cost recognition method is recommended when collection is assured and the estimates of progress toward the completion are reasonably dependable?

Answer 12

THE “Percentage of Completion” method

Question 13

WHAT ration is used when calculating the income recognized in the third year of a five-year construction contract accounted for using the percentage-of-completion method?

Answer 13

Total Costs incurred to date to Total Estimated Costs

Question 14

HOW would you determine what the Percentage of Completion is for a current project?

Answer 14

TAKE the Project costs to date and divide it by the total estimated costs

Question 15

Regardless of the method of accounting being used, Losses:

Answer 15

Are recognized in the earliest period in which they can be anticipated and estimated for Long-term Construction Contracts

NOTE: Under the “Completed Contract” method NO profit is recognized until the project is “complete”

Question 16

WHEN it is expected that a loss on a contract will be incurred:

Answer 16

THE entire loss is recognized IMMEDIATELY

Question 17

True or False.

Bond discount amortization is added back to Net Income when reporting Cash Flows from “Operating Activities” under the indirect method.

Answer 17

TRUE.

Bond discount amortization is added back to Net Income when reporting Cash Flows from “Operating Activities” under the indirect method.

WHY? - Because it increases interest expense and reduces net income without requiring a cash outflow. It is added back to income in determining cash flows from “Operating Activities.”

Question 18

IF used equipment is sold at a gain, the amount shown as a cash inflow from “Investing Activities” equals the carrying amount of the equipment:

Answer 18

Plus the gain

NOTE: If it is sold at a loss, then it would be the carrying value minus the loss.

Question 19

WHAT part of the Statement of Cash Flows is affected for Dividends received from investments?

Answer 19

Cash flows from “Operating Activities” using the Direct Method

i.e. THIS would increase reported cash flows from operating activities

Question 20

True or False.

An entity may report payments for interest as either a cash outflow for operating activities or for financing activities, under IFRS.

Answer 20

TRUE.

Under IFRS, an entity may report payments for interest as either a cash outflow for operating activities or for financing activities NOT investing activities.