Advanced Chapter 13 Accounting

75 percent consolidated revenue test

The total revenue from external sources by all separately reportable operating segments but equal at least 75% of the total consolidated revenue. must identify additional operating segments as reportable until this test is met

Interim income tax

Computation poses a problem because the actual tax burden is computed on income for the entire fiscal year.

Example in the book 10% revenue test

Look at chart on p.688. In this case, reportable segments are those with 60,000 or more in total revenue (look at short cut on 10% revenue test)

Operating Segment

1.) The component unit's business activities generate revenue and incur expenses 2.) The component unit's operating results are regularly viewed by the entity's chief operating decision-maker, who then determines the resources to assign to the segment and evaluates it performances 3.) Separate financial information is available for the component unit

Interim reports must disclose:

1.)revenues from external customers 2.) intersegment revenues 3.) a measure of segment profit or loss 4.) total assets for which there has been a material change from the most recent annual report 5.) any differences from the most recent annual report in the definition of operating segments or in how segment profit or loss is computed 6.) a reconciliation of the total segment profit or loss to the entity's consolidated totals

if the company decides to disclose liabilities for each reportable segment

a reconciliation is required also is between the reportable segments' total liabilities and the consolidated total liabilites

Reporting Segment information: 3.) Measures of segment profit or loss

must be disclosed if the company's chief operating decision maker reviews it to measure the segment profit or loss: a. revenues from external b. revenues from transactions with other operating segments of the company c. interest revenue d. interest expense e. depreciation and amortization expense f. equity in the income of investees accounted for by the equity method g.income tax expense or benefit h. extraordinary items i. other significant noncash items

What do you do to determine what is usually a segment or just falls as a segment one time?

must exercise judgement and use the concept of interperiod comparability should be follow in deciding whether the segment should be disclosed in the current period.

Example on 75% Consolidated revenue test

p. 690. This percentage is equal to or higher than 75%, no futher operating segments must be separately reported.

ASC 280 specifies

segment disclosures also must be made in interim statements such as the quarterly financial statements

Reporting Segment information: 5.) reconciliations to consolidated totals

segment disclosures must include reconciliations between the reportable segments' total revenues, total profits or losses, and total assets and the related consolidated totals for those items.

Reportable operating segments

segments for which separate supplemental disclosures must be made is based on management's specifications of those operating segments that are used internally for evalutating teh enterprise's financial position and operating performance

Special circumstances

segments may meet or fail one of the specific tests because of unusual situtations

Where do companies present these disclosures?

separate schedules or in the footnotes

10% profit (loss) test

the profit or loss test is the second test to determine which operating segments are separately reportable. A segment's profit or loss is = to or more than 10% of the absolute value

Number of reportable segments

the upper limit is 10 more than that can make the supplemental information overly detailed

Reported in the External Disclosure

whatever is used for internal decision making purposes to measure the operating segment's profit or loss should be reported

International Reporting Standard No. 8 (IFRS 8)

"Operating Segments" requires disclosure of information about an entity's reportable operating segments in both its annual and its interim finanical statements

10 percent significance rule

(1) The segment's revenue is 10% or more of the total revenues (2) The absolute value of the segment's profit or loss is 10% or more of (a) the total profit for all operating segments that did not report a loss or (b) the total loss of all operating segments that did report a loss. (3) The segment's assets are 10% or more of the total assets of all operating segments.

ASC 280

-states allocations of revenues and costs should be included for a reported segment only if they are included in the segment's profit or loss that the chief operating decision maker uses -segment disclosure should include the reportable segments' measures of profit or loss

Interim reports

Cover a time period of less than one year, provide timely information on the entity's operating progress throughout the year.

Reporting Segment information: 2.) Amounts of each separately reportable segment

Segment disclosures must include amounts for: a. each segment's profit or loss and the measurement procedures used to determine the profit or loss b. each segment's assets

Reportable operation segments

Segments for which separate supplemental disclosures must be made.

Enterprise-wide disclosure

Standard to provide users more information about the company's risks. Typically made in a footnote to the financial statements

10% Revenue Test

The first 10% test is applied to each operating segment's total revenue as a percentage of the combined revenue of all segments before elimination of intersegment transfers and sales

10% assets test

The last of the tests to determine whether a segment is separately reportable is the 10% asset test. Regonize that it really is up to management to define what is and what is and what is not included in each of the definitions of segment profit or loss and the segment assets

Issue of defining the income of a segment

allocation of costs to specific segments

Reporting Segment information: 4.)Segment Assets

must be disclosed if the company's chief operating decision maker includes it in computing: a.)the amount of investment in equity-method investees b.)the total expenditures for increases to long-term productive assets through the capital budget because these expenditures often indicate which segments the company is building for the future

Example 10% profit (loss) test

chart on p. 688 and 689. The higher absolute total is the $279,000 of profits. The amount becomes the denominator for the 10% operating profit or loss test.

Example on 10% assets test

chart on p. 689 1.) $10,000 unrealized intercompany profit from intersegment inventory transactions that has not been realized in sales to third parties 2.) 100,000 of intersegment notes. THESE INTERCOMPANY AMOUNTS MUST BE ELIMINATED

If over 10 segments

company should considered combining closely related segments.

Short cut for 10% Revenue Test

compute 10% of the denominator of the test and then compare each segment's total revenue with that fraction.

Companies provide comparative date how?

for each of the three fiscal years ending on the balance sheet date

Reporting Segment information: 1.) general information

info must be disclosed regarding a. how the company identifies each separately reportable segment including info about the company's organizational structure b. the types of products or services from which each reportable segment earns its revenues

Reportable Segment

is reportable if it meets any of the 10% tests