Segment Reporting

Question 1

Operating segments must have three characteristics. Name them.

Answer 1

1. The segment is involved in revenue producing and expense incurring activities.
2. The operating results of the segment are reviewed by the company’s chief operating decision maker on a regular basis.
3. There is discrete financial information available for the segment.

Question 2

Are all operating segments reportable segments?

Answer 2

No. Not all operating segments are reportable segments. Disclosure is required only for reportable segments.

Question 3

A reportable segment meets one or more of which three quantitative tests?

Answer 3

1. The operating segment’s revenue from all sources (internal and external) is 10% or more of the combined (internal and external) revenues of all of the company’s reported operating segments.
2. The operating segment’s operating profit or loss (absolute value) is 10% or more of the greater of the following two amounts (absolute value). Operating profit is pretax.
   
   1. The combined operating profit of all operating segments that did not report an operating loss
   2. The combined loss of all operating segments that did report an operating loss
3. The operating segment’s identifiable assets are 10% or more of the combined assets of all operating segments.

Question 4

What is the 75% rule in segment reporting?

Answer 4

The total external revenue reported by reportable segments must be at least 75% of the company’s total consolidated revenues.