Ch. 8 Segments

Profit or loss test

Its profit or loss is 10 percent or more of the combined profit (or combined loss if larger) of all segments reporting a profit. The individual profits and losses are compared to 10 percent of the LARGER of the profit or loss totals.

Revenue test

Its revenues are 10 percent or more of the combined revenue of all reported operating segments

Are intersegment transfers included in the reporting segment tests?

No

What is a company not required to disclose, even if it is material in amount?

Revenues generated from export sales

True things under US GAAP

-Operating segments can be determined by looking at the company's organization chart -Companies that define their operating segments by product lines must provide revenue and asset information for the domestic country, for all foreign countries in total, and for each material foreign country -companies must disclose total assets, investment in equity method affiliates, and total expenditures for long-lived assets by operating segment

Profit or loss disclosure items

-Revenues from external customers. -Transaction revenues from other operating segments. -Interest revenue and expense (reported separately). -Depreciation, depletion, and amortization expense. -Equity in the net income of investees (equity method). -Significant noncash and unusual items. -Income tax expense or benefit.

Revenues from external customers and long-lived assets must be disclosed for:

-The domestic country. -All foreign countries where the enterprise derives revenue or holds assets. -Each foreign country in which a material amount of revenue is derived or assets are held.

Things that must be true for an operating segment

-an operating segment must earn revenues and incur expenses -the chief operating decision maker regularly reviews an operating segment to assess its performance and make resource allocation decisions -discrete financial info generated by the internal accounting system is available for an operating segment

What components make up expenses for the profit and loss test?

-operating expenses -expenses-intersegment sales -interest expense-intersegment loans -income tax expense (savings) general corporate expenses and allocated operating costs cannot be allocated to specific segments and are not included

US GAAP ______ require segment information to be reported in accordance with generally accepted accounting principles

Does not

Segment reporting provides information to help users of financial statements to

-Better understand the enterprise's performance. -Better assess the entity's prospects for future net cash flows. -Make more informed judgments about the enterprise as a whole.

What components make of revenue for the revenue test?

-Sales to outside parties -Intersegment sales -Interest income-external -Interest income-intersegment loans

An operating segment is a component of an enterprise:

-That engages in business activities from which it earns revenues and incurs expenses. -Whose operating results are regularly reviewed by the chief operating decision maker to assess performance and make resource allocation decisions. -For which discrete financial information is available.

What information about revenues by geographic area should a company present?

Disclose separately the amount of sales to unaffiliated customers but not the amount of intra-entity sales between geographic areas

Which of the following is required to be disclosed by geographic area? a. total assets b. revenue from external customers c. profit or loss d. capital expenditures

Revenues from external customers

With regard to a major customer, what must be disclosed?

The operating segment making sales to the major customer With regard to major customers, U.S. GAAP (FASB ASC 280) only requires disclosure of the total amount of revenues from each such customer and the identity of the operating segment or segments reporting the revenues.

Companies also must explain the measurement of segment profit or loss and segment assets, including a description of any differences in measuring:

1) Segment profit or loss and consolidated income before tax. 2) Segment assets and consolidated assets. 3) Segment profit or loss and segment assets. The basis of accounting for intersegment transactions also must be described.

when and what types of information must be disclosed for geographic areas?

For companies with international activities, two items must be reported: 1. Revenues from external customers. 2. Long-lived assets

"United States, Canada and Mexico, Germany, Italy" Is this an acceptable presentation of countries for providing information by geographic area?

No should be: United States, Mexico, Japan, Spain, All Other Countries.

Topic 280

"Segment Reporting"

What if the company has only one operating segment and does not provide segment information?

it must report geographic area information

Which of the following operating segment disclosures is NOT required? a. liabilities b. interest expense c. intersegment sales d. unusual items

liabilities

A segment is considered reportable if it satisfies only one of 3 tests

1. Revenue test 2. Profit or loss test 3. Asset test

Required Segment Disclosures—General Information

1.Significant company information is required to be disclosed for each operating segment 2.General information about each operating segment: a)Factors used to identify reportable operating segments. b)Types of products and services from which each operating segment reported derives its revenues. Segment profit or loss must be disclosed if it is regularly provided to or included in the measure of segment profit or loss reviewed by the chief operating decision maker

The combined sales revenues of the disclosed segments must be at least ___ of total company sales, excluding intra-entity sales.

75% Segments must be added until the 75 percent test is met (even if the additional segments do not meet the reportable segment criteria). Although a maximum number is not prescribed, FASB ASC 280-10-50-18 suggests that 10 separately reported segments might be the practical limit.

Asset test

Its assets are 10 percent or more of the combined assets of all operating segments

T/F Companies must combine individual foreign countries into geographic areas to comply with the geographic area disclosure requirements

False

T/F an operating segment regularly generates a profit from its normal ongoing operations

False

Reconciliations to Consolidated Totals

The total of reportable segments' revenues must be reconciled to consolidated revenues. The total of reportable segments' profit or loss must be reconciled to consolidated income before tax. The total of the reportable segments' assets must be reconciled to consolidated total assets.

T/F Under IFRS, the a company that has managers responsible for product and service lines of business and managers responsible for geographic areas (matrix form of organization) must refer to the core principle of IFRS 8 to determine operating segments.

True

Operating segments do not have to report what?

Research and development expense

What does US GAAP consider to be an objective of segment reporting?

a. It helps users better understand the enterprise's performance. b. It helps users better assess the enterprise's prospects for future cash flows. c. It helps users make more informed judgments about the enterprise as a whole.

Major customers

A reporting entity must indicate its reliance on any major external customer Whenever 10 percent or more of a company's consolidated revenues is derived from a single external customer. The existence of all major customers must be disclosed along with the related amount of revenues and the identity of the operating segment generating the revenues.