Advanced Chapter 13

Amounts for 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, including how the company accounts for intersegment transactions, and (b) each segment's assets

International Accounting Standard No. 8?

"Accounting policies, changes in accounting estimates and errors, provides the accounting treatment and disclosures for changes in accounting policies, changes in accounting estimates, and corrections of errors.

Standard cost systems?

Manufacturers that use standard cost systems to compute cost of goods sold and ending inventory should use the same procedures for determining variances for an interim period as are used for the fiscal year. However, variances that are anticipated to be absorbed by the end of the fiscal year are usually not included in computing interim income.

Segment assets?

The following information on each separately reportable segment's 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 and (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.

The measurement basis use to determine revenue earned in an interim period should be the same as that used for the full fiscal year.

True

LIFO temporary liquidations?

Due to seasonality and other factors, companies using the LIFO method of inventory valuation sometimes have temporary liquidations of the LIFO-based inventory during one or more interim periods. These temporary liquidations are expected to be replenished by the end of the fiscal year. In these cases, the interim cost of goods sold is charged for the expected replacement cost of the liquidated inventory, not the LIFO historical cost of the inventory. If, by the end of the year, the LIFO inventory base is not replaced, then the liquidated inventory is charged to cost of goods sold at its LIFO cost base

Temporary differences between book and tax income?

1. Rent collected in advance (reported on tax return in period collected but as revenue on books in period earned.) 2. Estimated expenses and losses (reported on books at time of accrual but on tax return in period paid.) 3. Accelerated depreciation on tax return and straight-line depreciation on the income statement (difference of depreciation expense on books versus tax). 4. Revaluing inventory to lower of cost or market on financial statements (loss shown on books in period of write-down but on tax return in period sold).

What are the three characteristics of an operating segement?

1. The component unit's business activities generate revenue and incur expenses, including any revenue or expenses in transactions with the company's other business units. 2. The component unit's operating results are regularly reviewed by the entity's chief operating decision maker, who then determines the resources to assign to the segment and evaluates its performance. 3. Separate financial information is available for the component unit.

What are the three FASB specified 10 percent significance rules?

1. The segment's revenue, including both external sales and intersegment sales or transfers, is 10 percent or more of the total revenues from external sales plus intersegment transactions of all operating segments. 2. The absolute value of the segment's profit or loss is 10 percent or more of the higher, in absolute value, of (a) the total profit of 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 percent or more of the total assets of all operating segments.

Rules for COGS in interim reporting?

1. Use estimated gross profit rates 2. LIFO temporary liquidations 3. Lower-of-cost-or-market valuations 4. Standard cost systems

The interim reports must disclose the following about each reportable segment?

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

Although an enterprise is required to report the assets of the separately reportable operating segments, ASC 280 also allows companies to report their segments' liabilities if the company finds that the fuller disclosure would be meaningful.

True

Carryback and carryforward provisions apply only to annual results not to interim results.

True

If the total external revenue of the separately reportable operating segments is less than 75 percent of the total consolidated revenue, then management must select and disclose information about additional operating segments until at least 75 percent of consolidated revenue is included in reportable segments.

True

If there are abnormal reasons for why a segment met a 10 percent test than the company is required to disclose why the reportable segment is not disclosed.

True

Investors wish to assess the entity's revenue-generating capability, so they compare revenue of the current interim period with revenue of the corresponding interim period of the prior year.

True

Materiality tests for interim reporting are made based on the relation to the interim period data, not on an estimate of annual data.

True

Most companies traded on the major stock exchange are in the accelerated filers category.

True

Only the direct effects of the change in accounting principle, including any related tax effects are included in the retrospective application to the prior periods' financial statements, including the financial statements for interim periods

True

Prior-period errors are included in the international standard and are accounted for retrospectively just as in U.S. GAAP.

True

Revenue must be recognized and reported in the period in which it is earned and cannot be deferred to other periods to present a more stable revenue stream.

True

The corporate headquarters or corporate administration is not typically included as an operating segment of an enterprise?

True

The form of the interim income statement is the same as the form of the annual income statement.

True

The general principle is that costs and expenses should be charged to interim income in the interim period in which they are incurred.

True

The interim income tax computation poses a particularly troublesome problem for accountants because the actual tax burden is computed on income for the entire fiscal year.

True

The key point is that the revenues, profit or loss, and assets should be reported on the same basis as used for internal decision-making purposes.

True

Specific disclosures for reporting segment information?

1. General information 2. Amounts for each separately reportable segment 3. Measures of segment profit or loss 4. Segment assets 5. reconciliations to consolidated totals

Three categories of required information are included under enterprisewide disclosures

1. the company is required to report revenues from external customers for each major product and service or each group of similar products and services unless doing so is impracticable 2. Information about the geographic areas in which the company operates 3. Information about major customers

After determining which of the segments is reportable under any of the three 10 percent tests, the company must apply a comprehensive test. The comprehensive test is the?

75 percent consolidated revenue test

Reporting segment information?

ASC 280 defines the specific disclosure required for each reportable segment. In segment reporting, the following quantitative and descriptive information must be disclosed for each segment determined to be separately reportable.

Change in accounting estimate?

Changes in accounting estimates are the result of new information that becomes available to the entity. These changes are reported on a current and prospective basis only; that is the changes are reported only in the current period in which the change is made and in the future periods affected by the change

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.

One of the most significant elements of the interim income statement is revenue from sales.

True

Today's large multinational entities have operations in many countries and foreign markets. In addition, a company that obtains a significant percentage of its revenue from just one customer has a different risk profile than a company that has many smaller customers. Thus, ASC 280 established what it termed?

Enterprisewide disclosure standards to provide users more information about the company's risks

Reconciliations to consolidated totals?

Finally, the segment disclosures must include reconciliations between reportable segments' total revenues, total profits or losses, and total assets and the related consolidated totals for those items. If the company decides to disclose liabilities for each reportable segment, a reconciliation required also is between the reportable segments' total liabilities and the consolidated total liabilities

Use estimated gross profit rates?

estimated gross profit rates may be used to compute the interim cost of goods sold. Thus a physical inventory count does not need to be made in each interim period.

The choice of which additional operating segments to report is left to?

management

Information about the operating segments that are not separately reportable is combined and disclosed in the?

"All Other" category

For practicality about 10 is used as an upper limit on the number of reportable segments because more than that number can make the supplemental information overly detailed.

True

If a realization of a tax benefit of an interim operating loss is not assured by the end of the fiscal period, the company cannot show any tax benefit on the interim statements.

True

The minimum content for an interim financial report to be in accordance with IFRS is defined in International Accounting Standard 34, "Interim Financial Reporting"

True

Direct effects?

are those adjustments necessary to make the change in accounting principle in the immediately affected assets or liabilities

Indirect effects?

are those affecting current or future cash flows that result from making the change in accounting principle. Reported in the period the change is made.

Interim reports?

cover a time period of less than one year provide timely information on the entity's operating progress throughout the year. Interim reports can be for a week, a month, a quarter, or several quarters

Accurals?

estimated liabilities

The process of determining separately reportable operating segments that is segments for which separate supplemental disclosures must be made is based on?

management's specification of those operating segments that are used internally for evaluating the enterprise's financial position and operating performance

Deferrals?

prepaid assets

General information?

Information must be disclosed regarding (a) how the company identifies each separately reportable segment, including information about the company's organizational structure, and (b) the types of products or services from which each reportable segment earns its revenues

Lower-of-cost-or-market valuations?

Inventory losses from decreases in market value below cost are recognized in the period of decline. Recoveries of market price in subsequent interim periods should be recognized in the period of recovery as recoveries of losses that were recognized in prior interim periods of that fiscal year. No gains are recognized for increases of market value above cost. Temporary market price declines that are expected to be reversed by the end of the fiscal year do not have to be recognized in the interim period because no loss is expected for the full fiscal year

Changes in the accounting estimates are recognized in the period of the change and future periods (prospectively).

True

Cost of goods sold is generally the largest single expense on the interim income statement.

True

Enterprisewide disclosures are typically made in a footnote to the financial statements.

True

Permanent differences between book and tax income?

1. Life insurance premiums paid by the company on executive policies for which the company is the beneficiary (not tax deductible) 2. Proceeds of life insurance collected (not taxable) 3. Dividends received deduction on dividends received from U.S. corporation stock investments (not taxable) 4. Interest income received on state or local government bonds classified as not taxable 5. Certain types of fines or court penalties designated as not tax deductible

Retrospective application?

Direct effects indirect effects

Measures of segment profit or loss?

Each of the following must be disclosed if the company's chief operating decision maker reviews it to measure the segment profit or loss: (a) revenues from external sales, (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 and, (i) other significant noncash items

A change in entity in an interim period requires retrospective application.

True

In 1973 guidelines were standardized for quarterly reporting.

True

3 Accounting changes in interim periods as specified by the ASC 250?

1. change in accounting principle 2. change in accounting estimate 3. change in reporting entity

The primary examples of changes in reporting entity are?

1. presenting consolidated or combined financial statements rather than individual statements for the separate entities 2. changing the specific subsidiaries that comprise the consolidated entity for which consolidated financials are presented 3. changing the entities that are included in combined financial statements

A common short cut is to compute 10 percent of the denominator of the test and then compare each segment's total revenue with that fraction.

True

A company having more than about 10 reportable segments should consider aggregating the most closely related segments.

True

A segment is separately reportable if it meets any one of the three 10 percent tests.

True