Financial Reporting Paper 3

(b) 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.

(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%).

(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%).

(b) Enterprise-wide disclosures about products and services, geographic areas, and major customers are required for all enterprises.

(b) The enterprise shall disclose the following about each reportable segment if the specified amounts are reviewed by the chief operating decision maker:
a. Revenues from external customers
b. Intrasegment revenues
c. Interest revenue and expense (reported separately unless majority of segment’s revenues are from interest and management relies primarily on net interest revenue to assess performance)
d. Depreciation, depletion, and amortization expense
e. Unusual items, extraordinary items
f. Equity in the net income of investees accounted for by the equity method
g. Income tax expense or benefit
h. Significant noncash items
Allocated expenses are not specifically included as a required disclosure.

(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.

(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.

(d) The method chosen for determining what information to report is referred to as the management approach.

(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.

(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.