advanced ch 8 note packet

According to FASB Accounting Standards Codification (ASC) Topic 280, "Segment Reporting," 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 judgements about the enterprise as a whole

General information about the operating segment:

-factors used to identify reportable operating segments -types of products and services from which each operating segment reported derives its revenues

Operating Segment Tests: Other guidelines

-how many operating segments should be disclosed? -a sufficient number of segments is presumed to be included only if the combined segment sales to unaffiliated customers are at least 75 percent of total company consolidated sales made to outsiders -segments must be added until the 75 percent test is met (even if the additional segments do no meet the reportable segment criteria) -although a maximum number is not prescribed, FASB ASC 280-10-50-18 suggests 10 separately reported segments might be the practical limit

Total segment assets and the following related items:

-investment in equity method affiliates -expenditures for additions to long-lived assets

Segment profit or loss and each of the following it it is regularly provided to or included in the measure of segment profit or loss reviewed by the chief operating decision maker:

-revenues from external customers -revenues from transactions with other operating segments -interest revenue and interest expense (reported separately) -depreciation, depletion, and amortization expenses -unusual items -equity in the net income of invests accounted for by the equity method -income tax expense or benefit -other significant non cash items included in segment profit or loss

Companies with international activities are required to report on two items

-revenues from external customers -long lived assets for: 1. the domestic country 2. all material foreign countries in total in which the enterprise derives revenues or holds assets (FASB suggests 10%)

What is an operating segment?

-that engages in business activities from which it earns revenue and incurs expenses -whose operating results are regularly reviewed by the chief operating decision maker to asses performance and make resource allocation decisions -for which discrete financial information is available

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

-the nature of the products or services provided by each operating segment -the nature of the production process -the type or class of customer -the distribution methods -the nature of the regulatory environment

In addition

-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

Asset test

its assets are 10 percent or more of the combined assets of all operating 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

Revenue test

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

We apply three tests to determine which operating segments are

of significant size to warrant separate disclosure based on the criteria of quantitative thresholds

What are the Quantitative Thresholds?

a segment is considered reportable if it satisfies only one of these tests