20-C: Segment Reporting
Taylor Corp., a publicly owned corporation, assesses performance and makes operating decisions using the following information for its reportable segments: Total revenues $768,000 Total profit and loss 40,600 Included in the total profit and loss are intersegment profits of $6,100. In addition, Taylor has $500 of common costs for its reportable segments that are not allocated in reports used internally. For purposes of segment reporting, Taylor should report segment profit of $35,000 $34,500 $41,100 $40,600
$40,600 (d) An enterprise shall report a measure of profit and loss based on the measure reported to the chief operating decision maker for purposes of making decisions. The information used by management includes intersegment profits and should be included, but common costs are not allocated to the segments when assessing performance and should not be included.
The following information pertains to Aria Corp. and its operating segments for the year ended December 31, year 1:Sales to unaffiliated customers $2,000,000 Intersegment sales of products similar to those sold to unaffiliated customers 600,000 Interest earned on loans to other industry segments 40,000Aria and all of its divisions are engaged solely in manufacturing operations and evaluates divisional performance based on controllable contribution. Aria has a reportable segment if that segment�s revenue exceeds $264,000 $260,000 $204,000 $200,000
(b) $260,000 Selected data for a segment is reported separately if one of three criteria is met. One of these criteria is met when a segment�s revenue is greater than or equal to 10% of the combined revenues of all industry segments. Combined revenue includes sales to unaffiliated customers and intersegment sales or transfers. Thus, Aria has a reportable segment if that segment�s revenues exceed $260,000 [($2,000,000 + $600,000) � 10%]. The $40,000 interest would not be included in combined revenue because it is not controllable at the division level.
An enterprise must disclose all of the following about each reportable segment if the amounts are used by the chief operating decision-maker, except Depreciation expense Allocation expense Interest expense Income tax expense Intersegment revenues. Cost of goods sold. Unusual items. Income tax expense.
As per segment Reporting, Allocated Expenses is not required to be disclosed. Other Expenses like Depreciation expense, Interest expense & Income tax expense are required to be disclosed as per Segment Reporting and required for decision by Chief Operating Decision-makers.
4. Grum Corp., a publicly owned corporation, is subject to the requirements for segment reporting. In its income statement for the year ended December 31, year 1, Grum reported revenues of $50,000,000, operating expenses of $47,000,000, and net income of $3,000,000. Operating expenses include payroll costs of $15,000,000. Grum's combined identifiable assets of all industry segments at December 31, year 1, were $40,000,000. Reported revenues include $30,000,000 of sales to external customers. External revenue reported by operating segments must be at least a. $22,500,000 b. $15,000,000 c. $12,500,000 d. $37,500,000
Correct Answer: A) $22,500,000 Notes (a) There must be enough segments reported so that at least 75% of unaffiliated revenues is shown by reportable segments (75% test). Sales to external customers total $30,000,000 so external revenues reported by operating segments must be at least $22,500,000 ($30,000,000 × 75%).
Enterprise-wide disclosures are required by publicly held companies with I. Only one reportable segment II. More than one reportable segment a. Both I and II b. I only c. II only d. Neither I nor II
Correct Answer: A) Both I and II Notes (a) Enterprise-wide disclosures are to be reported by all public business enterprises, including those with a single reportable segment because the criteria for splitting the enterprise into reportable segments are not met.
Enterprise-wide disclosures include disclosures about I. Geographic areas II. Allocated costs a. Both I and II b. I only c. II only d. Neither I nor II
Correct Answer: B) I only Notes (b) Enterprise-wide disclosures about products and services, geographic areas, and major customers are required for all enterprises.
12. Rocket Corporation prepares its financial statements in accordance with IFRS. For segment reporting purposes, which tests must Rocket apply to determine if a unit or component is an operating segment? a. Revenue test and asset test. b. Revenue test, asset test, and profit or loss test. c. Revenue test, asset test, and expense test. d. Revenue test, asset test, and cash flow test.
Correct Answer: B) Revenue test, asset test, and profit or loss test. Notes (b) IFRS 8 on segment reporting includes guidance very similar to US GAAP. It requires a management approach to identifying operating segments. The three tests required include a revenue test, profit or loss test, and an asset test.
8. In financial reporting for segments of a business, an enterprise shall disclose all of the following except a. Types of products and services from which each reportable segment derives its revenues. b. The title of the chief operating decision maker of each reportable segment. c. Factors used to identify the enterprises reportable segments. d. The basis of measurement of segment profit or loss and segment assets.
Correct Answer: B) The title of the chief operating decision maker of each reportable segment. Notes (b) An enterprise shall disclose general information, including factors used to identify reportable segments and the types of products and services from which each reportable segment derives its revenues. An enterprise shall disclose certain information about reported segment profit and loss, assets, and basis of measurement. The accounting standards do not require disclosures about the term chief operating decision maker and specifically states that this term identifies a function, not necessarily a manager with a specific title.
9. In financial reporting for segments of a business enterprise, segment data may be aggregated a. Before performing the 10% tests if a majority of the aggregation criteria are met. b. If the segments do not meet the 10% tests but meet all of the aggregation criteria. c. Before performing the 10% tests if all of the aggregation criteria are met. d. If any one of the aggregation criteria are met.
Correct Answer: C) Before performing the 10% tests if all of the aggregation criteria are met. Notes (c) Two or more operating segments may be aggregated into a single operating segment if all of the aggregation criteria are met or if after performing the 10% test a majority of the aggregation criteria are met.
1. Correy Corp. and its divisions (each is an operating segment) are engaged solely in manufacturing operations. The following data (consistent with prior years' data) pertain to the operations conducted for the year ended December 31, year 1: Operating Segment A: Total Revenue: $10,000,000 Operating Profit: $1,750,000 Identifiable assets at 12/31/Y1: $20,000,000 Operating Segment B: Total Revenue: $8,000,000 Operating Profit: $1,400,000 Identifiable assets at 12/31/Y1: $17,500,000 Operating Segment C: Total Revenue: $6,000,000 Operating Profit: $1,200,000 Identifiable assets at 12/31/Y1: $12,500,000 Operating Segment D: Total Revenue: $3,000,000 Operating Profit: $550,000 Identifiable assets at 12/31/Y1: $7,500,000 Operating Segment E: Total Revenue: $4,250,000 Operating Profit: $675,000 Identifiable assets at 12/31/Y1: $7,000,000 Operating Segment F: Total Revenue: $1,500,000 Operating Profit: $225,000 Identifiable assets at 12/31/Y1: $3,000,000 TOTAL: Total Revenue: $32,750,000 Operating Profit: $5,800,000 Identifiable assets at 12/31/Y1: $67,500,000 In its segment information for year 1, how many segments meet at least one of the 10% tests? a. Three b. Four c. Five d. Six
Correct Answer: C) Five Notes (c) A division is significant if it satisfies at least one of the three 10% tests: 1. Revenue is 10% or more of the combined segment revenue (including intersegment revenue). 2. Operating profit (loss) is 10% or more of the greater of the absolute combined segment profit or loss. 3. Identifiable assets are 10% or more of the combined segment identifiable assets. Industry A, B, C, and E pass the revenue and operating profit tests, but A, B, C, D, and E all pass the identifiable assets test. Since a division only has to pass one of the three 10% tests to be considered a reportable segment, Corey Corp. has five reportable segments.
3. Grum Corp., a publicly owned corporation, is subject to the requirements for segment reporting. In its income statement for the year ended December 31, year 1, Grum reported revenues of $50,000,000, operating expenses of $47,000,000, and net income of $3,000,000. Operating expenses include payroll costs of $15,000,000. Grum's combined identifiable assets of all industry segments on December 31, year 1, were $40,000,000. Reported revenues include $30,000,000 of sales to external customers. In its year 1 financial statement, Grum should disclose major customer data if sales to any single customer amount to at least a. $300,000 b. $1,500,000 c. $4,000,000 d. $5,000,000
Correct Answer: D) $5,000,000 Notes (d) If 10% or more of the revenue of an enterprise is derived from sales to any single customer, that fact and the amount of revenue from each customer shall be disclosed. In this problem, Grum reported revenues of $50,000,000 and thus should disclose major customer data if sales to any single customer amount to $5,000,000 ($50,000,000 × 10%). Its not asking the criteria for segment reporting $5,000,000. Under FAS 131 (1997), if revenues from transactions with a single customer amount to 10% or more of a firm's total revenue, that fact must be disclosed, along with the total revenues from each such customer. For this firm with revenues of $50,000,000, 10% of total revenues is $5,000,000
10. The method used to determine what information to report for business segments is referred to as the a. Segment approach. b. Operating approach. c. Enterprise approach. d. Management approach.
Correct Answer: D) Management approach. Notes (d) The method chosen for determining what information to report is referred to as the management approach.
