Ad Ch. 8

If a company has only one operating segment and does not provide segment information...

It must report geographic area information

Do common costs get allocated to different segments to determine profit/loss?

Not if this is not done normally for internal purposes

What criteria should management cosider to determine whether to combine operating segments?

1. The nature of the products or services 2. The nature of the production process 3. The type or class of customer 4. The distribution methods 5. The nature of the regulatory environment

What must be done in addition to disclosing information for operating segments?

1. The total of reportable segments' revenues must be reconciled to consolidated revenues 2. The total of reportable segments' profit or loss must be reconciled to consolidated income before tax 3. The total of the reportable segments' assets must be reconciled to consolidated total assets.

What is an operating segment?

A component of an enterprise: 1. That engages in business activities from which it gets revenues and expenses 2. Whose operating results are regularly reviewed by the chief operating decision maker to assess performance and make resource allocation decisions 3. For which discrete financial information is available

What is the 75% rule?

A sufficient number of segments is presumed to be included only if the combined segment sales to unaffiliated customers are at least 75% of total company consolidated sales made to outsiders

How do you decide if there should be separate disclosure?

Apply the three tests to determine which operating segments are of significant size

What do yo udo with segments not of significant size?

Combine and disclose as aggregate amounts in an All Other category with appropriate disclosure of the source of revenues

What is required to be disclosed for each operating segment?

1. General information about the operating segment 2. Segment profit or loss and other info if it is regularly provided to or included in the measure of segment profit or loss reviewed by the chief operating decision maker 3. Total segment assets , investment in equity method affiliates, and expenditures for additions to long-lived assets

What must companies with international activities report?

1. Revenue from external customers 2. Long-lived assets for the domestic country and all material foreign countries in total in which the enterprise derives revenues or holds assets. 10% is recommended by FASB

What does segment reporting help with?

1. Better understand enterprise performance 2. Better assess the entity's prospects for future net cash flows 3. Make more informed judgements about the enterprise as a whole

What does FASB require concerning major customers?

1. Disclose its reliance on whenever 10 percent or more of a company's consolidated revenues is derived from a single external customer. 2. Eistence of all major customers must be disclosed along with the related amount of revenues and the identity of the operating segment generating the revenues.