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Since 1977
FAR
OCAMPO/CABARLES/SOLIMAN/OCAMPO
FAR.2847-Operating Segments
MAY 2020
DISCUSSION PROBLEMS 1.
Which statement is incorrect regarding reporting of segment information in accordance with PFRS 8? a. PFRS 8 requires that an entity should disclose information to enable users of its financial statements to evaluate the nature and financial effects of the types of business activities in which it engages and the economic environments in which it operates. b. PFRS 8 applies to the financial statements of an entity whose debt or equity instruments are traded in a public market. c. If an entity that is not required to apply PFRS 8 chooses to disclose information about segments that does not comply with PFRS 8, it shall not describe the information as segment information. d. None, all the statements are correct.
2.
The method used to determine what information to report for operating segments is referred to as the a. Segment approach c. Enterprise approach b. Operating approach d. Management approach
3.
Which statement is incorrect regarding the term ‘chief operating decision maker (CODM)’? a. The term identifies a function, not necessarily a manager with a specific title. b. The function of the CODM is to allocate resources to and assess the performance of the operating segments of an entity. c. Often the CODM of an entity is its chief executive officer or chief operating officer but, for example, it may be a group of executive directors or others. d. CODM is synonymous to segment manager
4.
5.
An operating segment is a component of an entity: a. That engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity). b. Whose operating results are reviewed regularly by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance. c. For which discrete financial information is available. d. All of the above. An entity shall report separately information about an operating segment that meets which of the following quantitative thresholds? a. Its reported revenue, including both sales to external customers and intersegment sales or transfers, is 10 per cent or more of the combined revenue, internal and external, of all operating segments. b. The absolute amount of its reported profit or loss is 10 per cent or more of the greater, in absolute amount, of (i) the combined reported profit of all operating segments that did not report a loss and (ii) the combined reported loss of all operating segments that reported a loss. c. Its assets are 10 per cent or more of the combined assets of all operating segments. d. Any of these.
Page 1 of 4
6.
Company A is a listed diversified retail company. It has three main types of stores: general department stores, liquor stores and specialist toy stores. Each of these stores has different products, customer types and distribution processes. Company A has identified three business segments: general department stores, liquor stores and specialist toy stores. All three business units earn most of their revenue from external customers. Total consolidated revenue of Company A is P600 million.
Revenue Segment profit Assets
General Dept. stores P400M 15M 900M
Liquor stores P100M 7M 200M
Toy stores P50M 4M 100M
All segments P550M 26M 1,200M
In its segment information, how many reportable segments does the company have? a. Three c. One b. Two d. None 7.
Celine Corporation and its divisions are engaged solely in manufacturing. The following data pertain to the industries in which operations were conducted for the current year: Operating Profit (Loss) Division A P30,000,000 B 10,000,000 C ( 8,000,000) D ( 2,000,000) E 5,000,000 In its current year financial statements, Celine Corporation should disclose an operating segment if operating profit or loss is at least a. P1,000,000 c. P4,500,000 b. P3,500,000 d. P5,500,000
8.
Rainee Corporation's revenue for the current year were as follows: Consolidated revenue per income statement Intersegment sales Intersegment transfers Combined revenues of all operating segments
P1,200,000 180,000 60,000 P1,440,000
Rainee has a reportable segment if that operating segment's revenues is at least a. P144,000 c. P24,000 b. P120,000 d. P 6,000 9.
PFRS 8 defines a. Segment revenue b. Segment expense
c. Segment result d. None of these
10. The following information pertains to Nolte Corp. and its divisions for the current year. Sales to unaffiliated customers Intersegment sales similar to those sold to unaffiliated customers Interest earned on loans to other operating segments
www.prtc.com.ph
P2,000,000 600,000 40,000
FAR.2847
EXCEL PROFESSIONAL SERVICES, INC. Nolte and all of its divisions are engaged solely in manufacturing operations. Nolte has a reportable segment if that segment's revenue is at least a. P264,000 c. P260,000 b. P204,000 d. P200,000 Use the following information for the next four questions. Grum Corp. a publicly owned corporation, is subject to the requirements for segment reporting. In its income statement for the current year, Grum reported revenues of P50,000,000, operating expenses of P47,000,000, and net income of P3,000,000, Operating expenses include payroll costs of P15,000.000. Grum's combined identifiable assets of all industry segments at the end of the current year were P40,000,000. Reported revenues include P30,000,000 of sales to external customers. 11. In its current year financial statements, Grum should disclose major customer data if sales to any single customer amount to at least a. P 300,000 c. P4,000,000 b. P3,000,000 d. P5,000,000 12. If revenues from transactions with a single external customer amount to 10 per cent or more of an entity’s revenues, the entity need not disclose a. That fact. b. The total amount of revenues from each such customer. c. The identity of the segment or segments reporting the revenues. d. The amount of revenues that each segment reports from a major customer.
16. The equity of The Kaiaho Company is traded on a recognized stock exchange. Kaiaho regularly reports the financial results of five different business units to its chief operating decision maker. The relevant revenues for the current year for these five operations, as a percentage of total external and internal revenue, were as follows: Business operation 1 2 3 4 5
% internal 3 10 15 0 0 28
% external 35 14 5 9 9 72
% total 38 24 20 9 9 100
The reportable segments of Kaiaho are a. 1 and 2 only c. 1,2,3 and 4 only b. 1,2 and 3 only d. 1,2,3,4 and 5 17. The following segments have been identified for a business, along with their sales. No segment qualifies on any other criterion for determining reportable segments except possibly for revenue. Sales for each segment, and the total for the company follow: Segment 1 2 3 4 5 6 7
Sales 500,000 200,000 100,000 800,000 150,000 200,000 175,000 P2,125,000 (total company sales) P
13. External revenue reported by operating segments must be at least a. P22,500,000 c. P12,500,000 b. P15,000,000 d. P37,500,000
What is the minimum number of reportable segments for this company? a. 5 c. 3 b. 4 d. 2
14. What should the entity do if the total external revenue reported by operating segments constitutes less than 75 per cent of the entity's revenue? a. Additional operating segments must be identified as reportable segments. b. Additional operating segments must be identified as reportable segments even if they do not meet the quantitative thresholds. c. Additional operating segments must be identified as reportable segments until at least 75 per cent of the entity's revenue is included in reportable segments. d. All of the above.
18. There may be a practical limit to the number of reportable segments that an entity separately discloses beyond which segment information may become too detailed. What did the IASB decide was a reasonable upper limit for the number of segment that a company must disclose? a. Five c. Twelve b. Ten d. Fifteen
15. Two or more operating segments may be aggregated into a single operating segment if aggregation is consistent with the core principle of PFRS 8, the segments have similar economic characteristics, and the segments are similar in each of the following respects: I. The nature of the products and services II. The nature of the production processes III. The type or class of customer for their products and services IV. The methods used to distribute their products or provide their services V. The nature of the regulatory environment, for example, banking, insurance or public utilities a. b. c. d.
I, II, II, IV and V I, II, III, and IV only I, III and V only I and V only
Page 2 of 4
19. Taft Corp. discloses operating-segment information. The following information is available for the current year: Operating Segment A B C
Sales P1,000,000 800,000 600,000 P2,400,000
Traceable Operating Expenses P 600,000 500,000 350,000 P1,450,000
Additional current year expenses, not included above, are as follows: Indirect operating expenses General corporate expenses
P360,000 240,000
In the measure of segment profit or loss reviewed by the chief operating decision maker, appropriate common operating expenses are allocated to segments based on the ratio of a segment’s sales to total sales, but general corporate expenses are not. Segment C’s current year profit for external reporting purposes was a. P100,000 c. P160,000 b. P130,000 d. P250,000
www.prtc.com.ph
FAR.2847
EXCEL PROFESSIONAL SERVICES, INC. 20. Norte Company has three manufacturing divisions, each of which has been determined to be a reportable segment. Common costs are appropriately allocated on the basis of each division’s sales in relation to Norte’s aggregate sales. In the current year, Division I had sales of P6,000,000, which was 20% of Norte’s total sales, and had traceable operating costs of P3,800,000. Norte incurred operating costs of P1,000,000 that were not directly traceable to any of the divisions. In addition, Norte incurred interest expense of P600,000. In reporting segment information, what amount should be shown as operating profit of Division I for the current year? a. P2,000,000 c. P1,880,000 b. P1,400,000 d. P2,200,000
21. In accordance with PFRS 8, an entity shall disclose a. Factors used to identify the entity’s reportable segments. b. The judgments made by management in applying the aggregation criteria. c. Types of products and services from which each reportable segment derives its revenues. d. All of these. 22. In accordance with PFRS 8, entity-wide disclosures do not include a. Information about products and services b. Information about geographical areas c. Information about major customers d. Information about profit or loss, assets and liabilities - now do the DIY drill -
DO-IT-YOURSELF (DIY) DRILL 1.
Australia Company has three business segments with the following Information:
Sales to outsiders
One P8,000,000
Intersegment transfers Interest income outsiders Interest income intersegment loans
4.
Two Three P4,000,000 P6,000,000
600,000
1,000,000
1,400,000
400,000
500,000
600,000
300,000
400,000
500,000
Segment 1 2 3 4 5 6 7
What is the minimum amount of revenue that each of those segments must have to be considered reportable? a. P1,950,000 c. P2,250.000 b. P2,100,000 d. P2,370,000 2.
Revenue P1,400,000 1,200,000 900,000 1,500,000 500,000 P5,500,000
Expenses P 800,000 1,300,000 750,000 1,900,000 220,000 P4,970,000
Fragment Corporation and its divisions are engaged solely in manufacturing. The following data pertain to the industries in which operations were conducted for current year: Segment
1 2 3 4 5
Operating Profit (Loss) 8,000,000 2,000,000 (1,300,000) 3,000,000 (1,000,000)
In its segment information, which is(are) reportable segment(s)? a. Segments 1, 2, 3, 4 & 5 b. Segments 1, 2, 3 & 4 c. Segments 1, 2, & 4 d. Segments 3 & 5
Page 3 of 4
Inter-segment Sales P 3,000,000 1,500,000 1,100,000 2,300,000 500,000 700,000 1,400,000 P10,000,000
Total P13,000,000 3,500,000 3,700,000 7,000,000 3,300,000 3,700,000 5,800,000 P40,000,000
5.
CDO Company, a publicly owned corporation, is subject to the requirements for segment reporting. In its income statement for the current year ended, CDO reported revenue of P150,000,000, operating expenses of P100,000,000 and net income of P50,000,000. Operating expenses include payroll costs of P20,000,000. CDO’s combined identifiable assets of all industry segments at year end were P80,000,000. The reported revenue includes P120,000,0000 of sales to external customers. External revenue reported by operating segments must be at least a. P112,500,000 c. P 90,000,000 b. P 37,500,000 d. P 60,000,000
6.
An entity should disclose information to enable users of its financial statements to evaluate the nature and financial effects of the types of business activities in which it engages and the economic environments in which it operates. To give effect to this principle, an entity shall disclose a. General information b. Information about profit or loss, assets and liabilities c. Reconciliations d. All of these
The reportable business segment(s) using the segment result test is (are) a. Segments 1, 2, 3, 4 & 5 b. Segment 1, 2, 3 & 4 c. Segments 1, 3, & 5 d. Segments 1, 3, 4 & 5 3.
External Sales P10,000,000 2,000,000 2,600,000 4,700,000 2,800,000 3,000,000 4,400,000 P30,000,000
What is the minimum number of reportable segments for this entity? a. 3 c. 5 b. 4 d. 6
In preparing its segment-reporting schedule, the High Corporation has developed the following information for each of its 5 segments: Segment 1 2 3 4 5 Total
The following segments have been identified for an entity, along with their sales. No segment qualifies on any other criteria for determining reportable segments. Sales for each segment and the total for the entity follow:
www.prtc.com.ph
- done -
FAR.2847
EXCEL PROFESSIONAL SERVICES, INC. LECTURE NOTES SUMMARY OF PFRS 8 OPERATING SEGMENTS Core Principle An entity shall disclose information to enable users of its 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.
Measurement
•
Scope PFRS 8 applies to the separate or individual financial statements of an entity (and to the consolidated financial statements of a group with a parent): • whose debt or equity instruments are traded in a public market; or • that files, or is in the process of filing, its (consolidated) financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market. However, when both separate and consolidated financial statements for the parent are presented in a single financial report, segment information need be presented only on the basis of the consolidated financial statements. Definition of Operating Segment An operating segment is a component of an entity: • that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity); • whose operating results are reviewed regularly by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance; and • for which discrete financial information is available. The term ‘chief operating decision maker’ identifies a function, not necessarily a manager with a specific title. That function is to allocate resources to and assess the performance of the operating segments of an entity. Often the chief operating decision maker of an entity is its chief executive officer or chief operating officer but, for example, it may be a group of executive directors or others. Reportable segments PFRS 8 requires an entity to report financial and descriptive information about its reportable segments. Reportable segments are operating segments or aggregations of operating segments that meet specified criteria: • its reported revenue, from both external customers and intersegment sales or transfers, is 10 per cent or more of the combined revenue, internal and external, of all operating segments; or • the absolute measure of its reported profit or loss is 10 per cent or more of the greater, in absolute amount, of (i) the combined reported profit of all operating segments that did not report a loss and (ii) the combined reported loss of all operating segments that reported a loss; or • its assets are 10 per cent or more of the combined assets of all operating segments.
Page 4 of 4
If the total external revenue reported by operating segments constitutes less than 75 per cent of the entity's revenue, additional operating segments must be identified as reportable segments (even if they do not meet the quantitative thresholds set out above) until at least 75 per cent of the entity's revenue is included in reportable segments.
•
•
•
The amount of each segment item reported shall be the measure reported to the chief operating decision maker for the purposes of making decisions about allocating resources to the segment and assessing its performance. Adjustments and eliminations made in preparing an entity’s financial statements and allocations of revenues, expenses, and gains or losses shall be included in determining reported segment profit or loss only if they are included in the measure of the segment’s profit or loss that is used by the chief operating decision maker. Similarly, only those assets and liabilities that are included in the measures of the segment’s assets and segment’s liabilities that are used by the chief operating decision maker shall be reported for that segment. If amounts are allocated to reported segment profit or loss, assets or liabilities, those amounts shall be allocated on a reasonable basis.
Disclosure Requirements Required disclosures include: • general information about how the entity identified its operating segments and the types of products and services from which each operating segment derives its revenues; • information about the reported segment profit or loss, including certain specified revenues and expenses included in segment profit or loss, segment assets and segment liabilities and the basis of measurement; and • reconciliations of the totals of segment revenues, reported segment profit or loss, segment assets, segment liabilities and other material items to corresponding items in the entity's financial statements. • some entity-wide disclosures that are required even when an entity has only one reportable segment, including information about each product and service or groups of products and services. • Analyses of revenues and certain non-current assets by geographical area – with an expanded requirement to disclose revenues/assets by individual foreign country (if material), irrespective of the identification of operating segments. • information about transactions with major customers. • considerable segment information at interim reporting dates.
www.prtc.com.ph
J - end of FAR.2847 - J
FAR.2847
FAR
OCAMPO/CABARLES/SOLIMAN/OCAMPO
FAR.2847-Operating Segments
MAY 2020
DISCUSSION PROBLEMS 1.
Which statement is incorrect regarding reporting of segment information in accordance with PFRS 8? a. PFRS 8 requires that an entity should disclose information to enable users of its financial statements to evaluate the nature and financial effects of the types of business activities in which it engages and the economic environments in which it operates. b. PFRS 8 applies to the financial statements of an entity whose debt or equity instruments are traded in a public market. c. If an entity that is not required to apply PFRS 8 chooses to disclose information about segments that does not comply with PFRS 8, it shall not describe the information as segment information. d. None, all the statements are correct.
2.
The method used to determine what information to report for operating segments is referred to as the a. Segment approach c. Enterprise approach b. Operating approach d. Management approach
3.
Which statement is incorrect regarding the term ‘chief operating decision maker (CODM)’? a. The term identifies a function, not necessarily a manager with a specific title. b. The function of the CODM is to allocate resources to and assess the performance of the operating segments of an entity. c. Often the CODM of an entity is its chief executive officer or chief operating officer but, for example, it may be a group of executive directors or others. d. CODM is synonymous to segment manager
4.
5.
An operating segment is a component of an entity: a. That engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity). b. Whose operating results are reviewed regularly by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance. c. For which discrete financial information is available. d. All of the above. An entity shall report separately information about an operating segment that meets which of the following quantitative thresholds? a. Its reported revenue, including both sales to external customers and intersegment sales or transfers, is 10 per cent or more of the combined revenue, internal and external, of all operating segments. b. The absolute amount of its reported profit or loss is 10 per cent or more of the greater, in absolute amount, of (i) the combined reported profit of all operating segments that did not report a loss and (ii) the combined reported loss of all operating segments that reported a loss. c. Its assets are 10 per cent or more of the combined assets of all operating segments. d. Any of these.
Page 1 of 4
6.
Company A is a listed diversified retail company. It has three main types of stores: general department stores, liquor stores and specialist toy stores. Each of these stores has different products, customer types and distribution processes. Company A has identified three business segments: general department stores, liquor stores and specialist toy stores. All three business units earn most of their revenue from external customers. Total consolidated revenue of Company A is P600 million.
Revenue Segment profit Assets
General Dept. stores P400M 15M 900M
Liquor stores P100M 7M 200M
Toy stores P50M 4M 100M
All segments P550M 26M 1,200M
In its segment information, how many reportable segments does the company have? a. Three c. One b. Two d. None 7.
Celine Corporation and its divisions are engaged solely in manufacturing. The following data pertain to the industries in which operations were conducted for the current year: Operating Profit (Loss) Division A P30,000,000 B 10,000,000 C ( 8,000,000) D ( 2,000,000) E 5,000,000 In its current year financial statements, Celine Corporation should disclose an operating segment if operating profit or loss is at least a. P1,000,000 c. P4,500,000 b. P3,500,000 d. P5,500,000
8.
Rainee Corporation's revenue for the current year were as follows: Consolidated revenue per income statement Intersegment sales Intersegment transfers Combined revenues of all operating segments
P1,200,000 180,000 60,000 P1,440,000
Rainee has a reportable segment if that operating segment's revenues is at least a. P144,000 c. P24,000 b. P120,000 d. P 6,000 9.
PFRS 8 defines a. Segment revenue b. Segment expense
c. Segment result d. None of these
10. The following information pertains to Nolte Corp. and its divisions for the current year. Sales to unaffiliated customers Intersegment sales similar to those sold to unaffiliated customers Interest earned on loans to other operating segments
www.prtc.com.ph
P2,000,000 600,000 40,000
FAR.2847
EXCEL PROFESSIONAL SERVICES, INC. Nolte and all of its divisions are engaged solely in manufacturing operations. Nolte has a reportable segment if that segment's revenue is at least a. P264,000 c. P260,000 b. P204,000 d. P200,000 Use the following information for the next four questions. Grum Corp. a publicly owned corporation, is subject to the requirements for segment reporting. In its income statement for the current year, Grum reported revenues of P50,000,000, operating expenses of P47,000,000, and net income of P3,000,000, Operating expenses include payroll costs of P15,000.000. Grum's combined identifiable assets of all industry segments at the end of the current year were P40,000,000. Reported revenues include P30,000,000 of sales to external customers. 11. In its current year financial statements, Grum should disclose major customer data if sales to any single customer amount to at least a. P 300,000 c. P4,000,000 b. P3,000,000 d. P5,000,000 12. If revenues from transactions with a single external customer amount to 10 per cent or more of an entity’s revenues, the entity need not disclose a. That fact. b. The total amount of revenues from each such customer. c. The identity of the segment or segments reporting the revenues. d. The amount of revenues that each segment reports from a major customer.
16. The equity of The Kaiaho Company is traded on a recognized stock exchange. Kaiaho regularly reports the financial results of five different business units to its chief operating decision maker. The relevant revenues for the current year for these five operations, as a percentage of total external and internal revenue, were as follows: Business operation 1 2 3 4 5
% internal 3 10 15 0 0 28
% external 35 14 5 9 9 72
% total 38 24 20 9 9 100
The reportable segments of Kaiaho are a. 1 and 2 only c. 1,2,3 and 4 only b. 1,2 and 3 only d. 1,2,3,4 and 5 17. The following segments have been identified for a business, along with their sales. No segment qualifies on any other criterion for determining reportable segments except possibly for revenue. Sales for each segment, and the total for the company follow: Segment 1 2 3 4 5 6 7
Sales 500,000 200,000 100,000 800,000 150,000 200,000 175,000 P2,125,000 (total company sales) P
13. External revenue reported by operating segments must be at least a. P22,500,000 c. P12,500,000 b. P15,000,000 d. P37,500,000
What is the minimum number of reportable segments for this company? a. 5 c. 3 b. 4 d. 2
14. What should the entity do if the total external revenue reported by operating segments constitutes less than 75 per cent of the entity's revenue? a. Additional operating segments must be identified as reportable segments. b. Additional operating segments must be identified as reportable segments even if they do not meet the quantitative thresholds. c. Additional operating segments must be identified as reportable segments until at least 75 per cent of the entity's revenue is included in reportable segments. d. All of the above.
18. There may be a practical limit to the number of reportable segments that an entity separately discloses beyond which segment information may become too detailed. What did the IASB decide was a reasonable upper limit for the number of segment that a company must disclose? a. Five c. Twelve b. Ten d. Fifteen
15. Two or more operating segments may be aggregated into a single operating segment if aggregation is consistent with the core principle of PFRS 8, the segments have similar economic characteristics, and the segments are similar in each of the following respects: I. The nature of the products and services II. The nature of the production processes III. The type or class of customer for their products and services IV. The methods used to distribute their products or provide their services V. The nature of the regulatory environment, for example, banking, insurance or public utilities a. b. c. d.
I, II, II, IV and V I, II, III, and IV only I, III and V only I and V only
Page 2 of 4
19. Taft Corp. discloses operating-segment information. The following information is available for the current year: Operating Segment A B C
Sales P1,000,000 800,000 600,000 P2,400,000
Traceable Operating Expenses P 600,000 500,000 350,000 P1,450,000
Additional current year expenses, not included above, are as follows: Indirect operating expenses General corporate expenses
P360,000 240,000
In the measure of segment profit or loss reviewed by the chief operating decision maker, appropriate common operating expenses are allocated to segments based on the ratio of a segment’s sales to total sales, but general corporate expenses are not. Segment C’s current year profit for external reporting purposes was a. P100,000 c. P160,000 b. P130,000 d. P250,000
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FAR.2847
EXCEL PROFESSIONAL SERVICES, INC. 20. Norte Company has three manufacturing divisions, each of which has been determined to be a reportable segment. Common costs are appropriately allocated on the basis of each division’s sales in relation to Norte’s aggregate sales. In the current year, Division I had sales of P6,000,000, which was 20% of Norte’s total sales, and had traceable operating costs of P3,800,000. Norte incurred operating costs of P1,000,000 that were not directly traceable to any of the divisions. In addition, Norte incurred interest expense of P600,000. In reporting segment information, what amount should be shown as operating profit of Division I for the current year? a. P2,000,000 c. P1,880,000 b. P1,400,000 d. P2,200,000
21. In accordance with PFRS 8, an entity shall disclose a. Factors used to identify the entity’s reportable segments. b. The judgments made by management in applying the aggregation criteria. c. Types of products and services from which each reportable segment derives its revenues. d. All of these. 22. In accordance with PFRS 8, entity-wide disclosures do not include a. Information about products and services b. Information about geographical areas c. Information about major customers d. Information about profit or loss, assets and liabilities - now do the DIY drill -
DO-IT-YOURSELF (DIY) DRILL 1.
Australia Company has three business segments with the following Information:
Sales to outsiders
One P8,000,000
Intersegment transfers Interest income outsiders Interest income intersegment loans
4.
Two Three P4,000,000 P6,000,000
600,000
1,000,000
1,400,000
400,000
500,000
600,000
300,000
400,000
500,000
Segment 1 2 3 4 5 6 7
What is the minimum amount of revenue that each of those segments must have to be considered reportable? a. P1,950,000 c. P2,250.000 b. P2,100,000 d. P2,370,000 2.
Revenue P1,400,000 1,200,000 900,000 1,500,000 500,000 P5,500,000
Expenses P 800,000 1,300,000 750,000 1,900,000 220,000 P4,970,000
Fragment Corporation and its divisions are engaged solely in manufacturing. The following data pertain to the industries in which operations were conducted for current year: Segment
1 2 3 4 5
Operating Profit (Loss) 8,000,000 2,000,000 (1,300,000) 3,000,000 (1,000,000)
In its segment information, which is(are) reportable segment(s)? a. Segments 1, 2, 3, 4 & 5 b. Segments 1, 2, 3 & 4 c. Segments 1, 2, & 4 d. Segments 3 & 5
Page 3 of 4
Inter-segment Sales P 3,000,000 1,500,000 1,100,000 2,300,000 500,000 700,000 1,400,000 P10,000,000
Total P13,000,000 3,500,000 3,700,000 7,000,000 3,300,000 3,700,000 5,800,000 P40,000,000
5.
CDO Company, a publicly owned corporation, is subject to the requirements for segment reporting. In its income statement for the current year ended, CDO reported revenue of P150,000,000, operating expenses of P100,000,000 and net income of P50,000,000. Operating expenses include payroll costs of P20,000,000. CDO’s combined identifiable assets of all industry segments at year end were P80,000,000. The reported revenue includes P120,000,0000 of sales to external customers. External revenue reported by operating segments must be at least a. P112,500,000 c. P 90,000,000 b. P 37,500,000 d. P 60,000,000
6.
An entity should disclose information to enable users of its financial statements to evaluate the nature and financial effects of the types of business activities in which it engages and the economic environments in which it operates. To give effect to this principle, an entity shall disclose a. General information b. Information about profit or loss, assets and liabilities c. Reconciliations d. All of these
The reportable business segment(s) using the segment result test is (are) a. Segments 1, 2, 3, 4 & 5 b. Segment 1, 2, 3 & 4 c. Segments 1, 3, & 5 d. Segments 1, 3, 4 & 5 3.
External Sales P10,000,000 2,000,000 2,600,000 4,700,000 2,800,000 3,000,000 4,400,000 P30,000,000
What is the minimum number of reportable segments for this entity? a. 3 c. 5 b. 4 d. 6
In preparing its segment-reporting schedule, the High Corporation has developed the following information for each of its 5 segments: Segment 1 2 3 4 5 Total
The following segments have been identified for an entity, along with their sales. No segment qualifies on any other criteria for determining reportable segments. Sales for each segment and the total for the entity follow:
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FAR.2847
EXCEL PROFESSIONAL SERVICES, INC. LECTURE NOTES SUMMARY OF PFRS 8 OPERATING SEGMENTS Core Principle An entity shall disclose information to enable users of its 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.
Measurement
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Scope PFRS 8 applies to the separate or individual financial statements of an entity (and to the consolidated financial statements of a group with a parent): • whose debt or equity instruments are traded in a public market; or • that files, or is in the process of filing, its (consolidated) financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market. However, when both separate and consolidated financial statements for the parent are presented in a single financial report, segment information need be presented only on the basis of the consolidated financial statements. Definition of Operating Segment An operating segment is a component of an entity: • that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity); • whose operating results are reviewed regularly by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance; and • for which discrete financial information is available. The term ‘chief operating decision maker’ identifies a function, not necessarily a manager with a specific title. That function is to allocate resources to and assess the performance of the operating segments of an entity. Often the chief operating decision maker of an entity is its chief executive officer or chief operating officer but, for example, it may be a group of executive directors or others. Reportable segments PFRS 8 requires an entity to report financial and descriptive information about its reportable segments. Reportable segments are operating segments or aggregations of operating segments that meet specified criteria: • its reported revenue, from both external customers and intersegment sales or transfers, is 10 per cent or more of the combined revenue, internal and external, of all operating segments; or • the absolute measure of its reported profit or loss is 10 per cent or more of the greater, in absolute amount, of (i) the combined reported profit of all operating segments that did not report a loss and (ii) the combined reported loss of all operating segments that reported a loss; or • its assets are 10 per cent or more of the combined assets of all operating segments.
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If the total external revenue reported by operating segments constitutes less than 75 per cent of the entity's revenue, additional operating segments must be identified as reportable segments (even if they do not meet the quantitative thresholds set out above) until at least 75 per cent of the entity's revenue is included in reportable segments.
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The amount of each segment item reported shall be the measure reported to the chief operating decision maker for the purposes of making decisions about allocating resources to the segment and assessing its performance. Adjustments and eliminations made in preparing an entity’s financial statements and allocations of revenues, expenses, and gains or losses shall be included in determining reported segment profit or loss only if they are included in the measure of the segment’s profit or loss that is used by the chief operating decision maker. Similarly, only those assets and liabilities that are included in the measures of the segment’s assets and segment’s liabilities that are used by the chief operating decision maker shall be reported for that segment. If amounts are allocated to reported segment profit or loss, assets or liabilities, those amounts shall be allocated on a reasonable basis.
Disclosure Requirements Required disclosures include: • general information about how the entity identified its operating segments and the types of products and services from which each operating segment derives its revenues; • information about the reported segment profit or loss, including certain specified revenues and expenses included in segment profit or loss, segment assets and segment liabilities and the basis of measurement; and • reconciliations of the totals of segment revenues, reported segment profit or loss, segment assets, segment liabilities and other material items to corresponding items in the entity's financial statements. • some entity-wide disclosures that are required even when an entity has only one reportable segment, including information about each product and service or groups of products and services. • Analyses of revenues and certain non-current assets by geographical area – with an expanded requirement to disclose revenues/assets by individual foreign country (if material), irrespective of the identification of operating segments. • information about transactions with major customers. • considerable segment information at interim reporting dates.
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FAR.2847
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