CHAPTER 11- Operating Segments

CHAPTER 11 OPERATING SEGMENTS QUESTION 11-1 What is the “core principle” of PFRS 8 on operating segments? ANSWER 11-1 The core principle of PFRS 8 is as follows: “An entity shall disclose information to enable users of its financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environment in which it operates”. QUESTION 11-2 What is the scope of PFRS 8? ANSWER 11-2 PFRS 8 shall apply to the separate or individual financial statements of an entity and to the consolidated financial statements of a group with a parent: a. Whose debt or equity instruments are traded in a public market. b. That files or is in the process of filling the consolidated financial statements with the securities commission or other regulatory organization for the purpose of issuing any class of instruments in a public market. However, if a financial report contains both the consolidated financial statements of the parent and the parent’s separate financial statements, segment information is required only in the consolidated financial statements. QUESTION 11-3 What is an “operating segment”? ANSWER11-3 An operating segment is a component of an entity: a. That engages in business activities from which it may earn revenue and incur expenses, including revenue and expenses relating to transactions with other components of the same entity. b. Whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance. c. And for which discrete financial information is available.

An operating segment may engage in business activities for which it has yet to earn revenue. For example, start-up operations may be operating in segments before earning revenue. Not every part of an entity is necessarily operating segment or part of an operating segment. For example, corporate headquarters or some functional departments that may not earn revenue or may earn revenue that is incidental only to the activities of the entity would not be operating segments. An entity’s postemployment benefit plans are not also operating segments. QUESTION11-4 Explain the term “chief operating decision maker”. ANSWER11-4 The term “chief operating decision maker” identifies a function and not necessarily a manager with a specific title. This function is “to allocate resources to the segments and assess their performance”. The chief operating decision maker may be the entity’s chief executive officer, chief operating officer or a group of executive directors depending on who within the organization is responsible for the allocation of resources and assessing the performance of operating segments. QUESTION11-5 What is the “management approach” of identifying operating segments? ANSWER11-5 The management approach means that the operating segments are identified on the basis of internal reports about components of the entity that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance. In other words, operating segments are identified based on the components of the entity that are considered to be important for internal management purposes. A component of entity that sells primarily or exclusively to other operating segments is included in the definition of an operating segment if the entity is managed that way. The idea is that the reporting of segment information is seen through the “eyes of management” and users would wish to see the business as the chief operating decision maker sees it.

PFRS8 has abandoned the “risks and reward approach” of identifying operations by business segments and geographical segments. QUESTION 11-6 What are the “quantitative thresholds” of identifying an operating segment? ANSWER 11-6 An entity shall disclose information about an operating segment that meets any of the following quantitative thresholds: 1. The segment revenue, including both sales to external customers and intersegment sales or transfers, is 10% or more of the combined revenue, internal and external of all operating segments. 2. The absolute amount of profit or loss is 10% or more of the greater in absolute amount of: a. Combined profit of all operating segments that reported a profit. b. Combined loss of all operating segments that reported a loss. 3. The assets of the segment are 10% or more of the combined assets of all operating segments. Operating segments that do not meet any of the quantitative thresholds may be considered reportable and separately disclosed on a voluntary basis if management believes that information about the segment would be useful to the users of the financial statements. QUESTION 11-7 Explain the “75% of the entity revenue” threshold of identifying operating segments. ANSWER 11-7 If the total external revenue of reportable operating segments constitutes less than 75% of the entity external revenue, additional operating segments shall be identified as reportable segments even if they do not meet the quantitative thresholds until at least 75% of the entity external revenue is included in reportable segments. This “overall size test” is to ensure that all entities present a sufficient level of information regarding their business activities in order that users of financial statements can make informed economic decisions. QUESTION 11-8 What is the practical limit to the number of reportable segments to be disclosed separately by an entity? ANSWER 11-8

There may be a practical limit to the number of reportable segments to be disclosed separately by an entity beyond which segment information may become too detailed. Although no precise limit has been determined, as the number increase above ten, the entity shall consider whether a practical limit has been reached. In other words, the standard suggests that if the number of reportable segments exceeds ten, it is likely that the information may become too detailed and consequently lose its usefulness. QUESTION 11-9 Explain the “aggregation” of two or more operating segments to constitute a “single operating segment”. ANSWER 11-9 Two or more operating segments may be aggregated into a “single operating segment” if the aggregation is consistent with the core principle of segment reporting, the segments have similar economic characteristics and the segments are similar in each of the following respects: a. b. c. d. e.

Nature of the product or service Nature of the product process Type or class of customers Marketing method or the method used to distribute the product The nature of the regulatory environment, for example, banking, insurance or public utility

Accordingly, an entity may combine information about operating segments that do not meet the quantitative thresholds to achieve the “75% of entity external revenue” threshold if the operating segments have similar economic characteristics and share a majority of the five aggregation criteria. QUESTION 11-10 Explain the treatment of e reportable segment in the immediately preceding period but no longer reportable in the current period.

ANSWER 11-10 If the management judges that an operating segment identified as a reportable segment in the immediately preceding period is of continuing significance, information about the segment shall continue to be reported separately in the current period even if it no longer meets any of the quantitative thresholds for reportability. QUESTION 11-11 Explain the treatment of reportable segment in the current period but not reportable in the prior period.

ANSWER 11-11 If an operating segment is identified as a reportable segment in the current period in accordance with the quantitative thresholds, segment data for a prior period presented for comparative purposes shall be stated to reflect the newly reportable segment even if that segment did not satisfy any of the quantitative thresholds in the prior period. However, prior period information shall not be restated if the necessary information is not available and the cost to develop it would be excessive. QUESTION 11-12 What are the disclosures required under PFRS 8? ANSWER 11-12 An entity shall disclose the following for each period: 1. General information about the operating segment. 2. Information about reported profit or loss, including specified revenue and expenses included in the measure of profit or loss, segment assets, segment liabilities and the basis of measurement. 3. Reconciliations of the totals of segment revenue, profit or loss, segment assets, segment liabilities and other material segment items to corresponding items in the entity’s financial statements. QUESTION 11-13 What data are included in the “general information” disclosure for an operating segment? ANSWER 11-13 An entity shall disclose the following general information about an operating segment: 1. Factors used to identify the reportable segments, including the basis of organization. For example, whether management has chosen to organize the entity around differences in products and services, geographical areas, regulatory environment, or a combination of factors, and whether operating segments have been aggregated. 2. Types of products and services from which each reportable segment derives its revenue. An example of disclosure about type of products and services is as follows: An entity has three reportable operating segments, namely car parts, motor vessels and software.

The car parts segment produces replacement parts of sale to car parts retailers. The motor vessels segment produces replacement parts for serve the offshore oil industry and similar businesses. The software segment produces application software for sale to computer manufacturers and retailers. QUESTION 11-14 What information shall be disclosed by an entity about segment profit or loss, assets and liabilities? ANSWER 11-14 An entity shall disclose for each reportable segment a measure of profit or loss, total assets and total liabilities. Under the old version of PFRS 8, the measure of profit or loss and total assets for each reportable segment shall be disclosed under all circumstances, meaning mandatory. However, under the amended version, an entity shall also disclose a measure of total assets and total decision maker. QUESTION 11-15 Specifically, what information shall be disclosed by an entity about the measure of profit or loss? ANSWER 11-15 An entity shall disclose the following if the specified amounts are included in the measure of segment profit or loss or otherwise regularly provided to the chief operating decision maker even if not included in the measure of segment profit or loss: 1. 2. 3. 4. 5. 6. 7.

Revenue from external customers Revenue from transactions with other operating segments of the same entity Interest revenue Interest expense Depreciation and amortization Material items of income and expense as required by paragraph 97 of PAS 1. The entity’s interest in the profit or loss of associate and joint venture accounted for by the equity method 8. Income tax expense 9. Material noncash items other than depreciation and amortization Note that interest revenue and interest expense must be reported separately, unless a majority of the segment revenue is from interest and the chief operating decision maker

relies primarily on net interest revenue in assessing the performance of the segment and in making decisions about resources to be allocated to the segment. Note also that the specified amounts are disclosed because they are included in the measure of profit or loss reviewed by the chief operating decision maker or otherwise regularly provided to the chief operating decision maker if not included in the measure of profit or loss. QUESTION 11-16 Define segment revenue and segment expense.

ANSWER 11-16 PFRS 8 does not define any more segment revenue and segment expense. As a consequence, entities shall have a wide direction in determining the measurement of these items. PFRS 8 simply states that the amount of segment revenue and segment expense shall be the measure reported to the chief operating decision maker. The definition in the old standard may be of help. Segment revenue is revenue that is directly attributable to a segment and the relevant portion of entity revenue that can be allotted on a reasonable basis to the segment. Specifically, segment revenue includes sales to external customers and intersegment sales. Segment expense is expense resulting from the operating activities of the segment that is directly attributable to the segment and the portion of an expense that can be allotted on a reasonable basis to the segment. QUESTION 11-17 Define segment assets. ANSWER 11-17 PFRS 8 does not also define segment assets. The amount of total assets disclosed for a reportable segment shall be the measure reported to the chief operating decision maker. The old definition of segment assets may be of help. Segment assets are those operating segments that are employed by a segment in its operating activities that are either attributable to the segment or can be allocated to the segment on a reasonable basis.

Examples of segment assets include current assets that are used in the operating activities of the segment, property, plant and equipment, and intangible assets. Segment assets include goodwill that is directly attributable to a segment or can be allocated to a segment on a reasonable basis. Under PFRS 8, segment assets that are not required to be disclosed include deferred tax assets, postemployment benefit assets, financial instruments, and rights arising under insurance contracts. QUESTION 11-18 Define segment liabilities. ANSWER 11-18 PFRS 8 does not define segment liabilities. The amount of total liabilities reported for a reportable segment shall be the measure reported to the chief operating decision maker. The old definition of segment liabilities may be of help. Segment Liabilities are those liabilities that result from the operating activities of a segment and that are either directly attributable to the segment or can be allocated to the segment on a reasonable basis. Examples of segment liabilities include trade and other payables, accrued liabilities, customer advances, product warranty liabilities and other claims relating to provision of goods and services. QUESTION 11-9 Illustrate disclosure of segment profit or loss, total assets and total liabilities using the following information for a reportable segment: Sales-external Sales-Internal Total sales Cost of sales Gross profits Interest revenue Distribution costs Administrative expenses Doubtful accounts Employee benefits expense Depreciation and amortization Interest expense Impairment loss

60,000 10,000 70,000 (30,000) 40,000 3,000 (8,000) (4,000) (1,000) ( 500) (2,500) (2,000) (5,000)

Profit or loss

20,000

Total assets Additions to noncurrent assets sold Carrying amount of noncurrent assets sold Total liabilities

60,000 8,000 5,000 20,000

ANSWER 11-19 The minimum disclosures under PFRS 8 relating to the reportable segment shall include the following: Sales-external Sales-internal Interest revenue Interest expense Depreciation and amortization Impairment loss Profit or loss Total assets Additions to noncurrent assets Total liabilities

60,000 10,000 3,000 2,000 2,500 5,000 20,000 60,000 8,000 20,000

Note that the amount for profit or loss is disclosed under all circumstances. The other items disclose are specified in PFRS 8 and are disclosed only because they are included in the measure of profit or loss assets and total liabilities reviewed by the chief decision maker. The impairment loss is disclosed because the amount is deemed material.

Question 11-20 What specific segment assets shall be disclosed by an entity for each reportable segment? ANSWER 11-20 An entity shall disclose for each reportable segment the if the specified amounts are included in the measure of segment total assets or if not included, are regularly provided to the chief operating decision maker. 1. The amount of investment in associates and joint ventures accounted for by the equity method. 2. The amount of additions to noncurrent assets, other than the financial instruments, deferred tax assets, postemployment benefit assets, rights arising under insurance contracts.

QUESTION 11-21 Explain the reconciliations of segment amounts and entity amounts shown in the statement of financial position and income statement. ANSWER 11-21 An entity shall provide reconciliations of all the following: 1. The total revenue reportable segments to the entity revenue. 2. The total profit or loss of all reportable segments to the entity profit or loss before income tax expense and discontinued operations. 3. The total assets of all reportable segments to the entity total assets. 4. The total liabilities of all reportable segments to the entity total liabilities. 5. The total for every other material item of information disclosed by the reportable segments to the corresponding amount for the entity. Illustration of reconciliations Revenue Total revenue of reportable segments Other revenue-nonreportable segments Elimination of investigation revenue Entity revenue

78,000 2,000 (9,000) 71,000

Profit or loss Total profit or loss of reportable segments Other profit or loss-nonreportable segments Elimination of Intersegment profit Unallocated amount: Ligation settlement received Corporate expenses Entity profit or loss

7,800 200 (1,000) 1,000 (1,500) 6,500

Total assets Total assets of reportable segment Other assets-nonreportable segments Unallocated other assets Entity total assets

158,000 4,000 3,000 165,000

Total liabilities Total liabilities of reportable segments Other liabilities-nonreportable segments Unallocated liabilities

85,000 5,000 10,000

Entity total liabilities

100,000

QUESTION 11-22 What are “entity-wide disclosures”? ANSWER 11-22 “Entity –wide disclosures” are additional information that is required to be disclose by all entities if such information is not provided as part of the reportable segment information. Entity-wide disclosures include the following: 1. Information about products and services 2. Information about geographical areas 3. Information about major customers QUESTION 11-23 Explain the entity wide disclosure of information about products and services. ANSWERS 11-23 An entity shall disclose the revenue from external customers for each product and services, or each group of similar products and services, unless the necessary information is not available and the cost to develop it would be excessive. QUESTION 11-24 Explain the entity-wide disclosure information about geographical areas. ANSWER 11-24 An entity shall disclose the following geographical information: a. Revenue from external customer in the entity’s country or domicile, and in all foreign operations in total. b. Separate disclosure of material revenue from external customer in an individual foreign country. c. The basis for attributing revenue from external customers to individual countries. d. Noncurrent assets, other than financial instruments, deferred tax assets, postemployment, benefit assets and rights under insurance contracts, located in the entity’s country of domicile and in all foreign countries in total. An example of an entity-wide disclosure of information about geographical areas as follows:

Philippines Japan China USA Other countries

REVENUE 150,000 30,000 35,000 40,000 10,000

NONCURRENT ASSETS 90,000 35,000 65,000 20,000 15,000

Total

265,000

225,000

QUESTION 11-25 What is a “major customer”? ANSWERS 11-25 A “major customer” is defined as a single external customer providing revenue which amounts to10% or more of an entity’s external revenue. For purpose of PFRS 8, the following shall be considered a single customer: 1. A group of entities under common control. 2. A government and entities under the control of such government. QUESTION 11-26 Explain the “major customer disclosure”. ANSWER 11-26 The major customer disclosure means that “an entity shall provide information about extent of its reliance on its major customers”. The entity shall disclose such facts of reliance on major customers, the total amount of revenue from such customer and the identity of the segments or segments reporting the revenue. The entity is not required to disclose the identity of the major customer or the amount of revenue that each segments reports from that customer. QUESTION 11-27 MULTIPLE CHOICE (PFRS 8) 1. What is the “core principle significant “of PFRS8 on operating segments? a. An entity shall disclose significant financial, information by business segments geographical segments. b. An entity shall disclose information to enable users of its financial statements to evaluate the nature and financial effects of business activities which it engages. c. An entity shall disclose information to enable users to evaluate the nature and financial effects of the environment in which it operates. d. An entity shall disclose information to enable users to evaluate the nature and financial effect of the business activities in which it engages and the economic environment in which it operates. 2. PFRS 8 shall apply to a. Separate financial statements of entity only.

b. Consolidated financial statements of a group only. c. Both the separate financial statement of an entity and the consolidated financial statement of a group. d. Neither the separate financial statement of an entity nor the consolidated financial statement of a group.

3. PFRS 8 shall apply to the separate financial statement of an entity and to the consolidated financial statements of a group with a parent I. II.

a. b. c. d.

Whose debt and equity instruments are traded in a public market. That files or is in the process of filling the consolidated financial statements with a securities commission for the purpose of issuing any class of instruments in a public market. I only II only Both I and II Neither I nor II

4. If a financial report contains both the consolidated financial statements of a parent and the parent’s separate financial statements, segment information is required in a. b. c. d.

The separate financial only The consolidated financial statements only Both the separate and consolidated financial statements Neither the separate nor the consolidated financial statements

5. An operating segment is a component of an entity I. That engages in business activities from which it may earn revenue and incur expenses, including revenue and expenses relating to transactions with other components of the same entity. II. Whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance. III. For which discrete information is available a. b. c. d.

I only II only I and III only I,II and III

6. Which may be considered an operating segment? a. Start-up operations before earning revenue

b. Corporate headquarters that earn revenue c. Functional department d. Postemployment benefit plans 7. What is the function of the chief operating decision maker? a. To allocate resources to the operating segments only. b. To assess the performance of the operating segments only. c. To provide general information to financial statement users about operating segments. d. To allocate resources to the operating segments and asses their performance.

8. Who could be the chief operating decision maker? a. b. c. d.

Chief operating officer Chief executive officer Group of executive directors All those mentioned depending on who within the organization is responsible for the allocation of resources and assessing the performance of operating segments.

9. What is the approach prescribed by PFRS 8 in identifying an operating segment? a. b. c. d.

Management approach Risk and rewards approach Matrix approach Geographical segment approach

10. What is the “management approach” of identifying operating segment? I. Operating segments are identified on the basis of internal reports about components of an entity that are regularly reviewed by a chief operating decision maker in order to allocate resources to the segment and assess its performance. II. Operating segments are identified on the basis of the dominant source and nature of the entity’s risk and rewards. a. b. c. d.

I only II only Both I and II Neither I or II

ANSWER 11-27

1. d 2. c 3. c 4. b 5. d

6. 7. 8. 9. 10.

a d d a a

QUESTION 11-28 Multiple choice (PFRS 8) 1. An entity disclose information about an operating segment when a. Its reported external and internal revenue is 10 % or more of the combine external revenue of all operating segments. b. Its reported external revenue is 10% or more of the combine external and internal revenue of all operating segments. c. Its reported external revenue is 10% or more of the combine external revenue of all operating segments. d. Its reported external and internal revenue is 10% or more of the combine external and internal revenue of all operating segments.

2. An entity shall disclose information about an operating segment when the absolute amount of its profit or loss is a. 10% or more of the absolute amount of the combine profit or loss of all operating segments. b. 10% or more of the absolute amount of the combine profit of all operating segment that reported a profit. c. 10% or more of the absolute amount of the combine loss of all operating segments that reported a loss. d. 10% or more of the greater in absolute amount between the combine profit of all operating segments that reported a profit, and the combine loss of all operating segments that reported a loss. 3. An entity shall disclose information about an operating segment when a. Its assets are 10% or more of the combine assets of all operating segments. b. Its net assets are 10% or more of the combine assets of all operating segments. c. Its net assets are 10% or more of the combine net assets of all operating segments. d. Its assets are 10% or more of the total assets of the entity. 4. Operating segments that do not meet of the any quantitative thresholds a. Cannot be considered reportable.

b. Maybe considered reportable and separately disclosed if management believes that information about the segments would be useful to the users of the financial statements. c. Maybe considered and separately disclosed if the information is for internal use only. d. Maybe considered reportable and separately disclose if this is the practice within the economic environment in which the entity operates. 5. What is the quantitative requirement for the revenue that must be reported by reportable operating segments? a. The total external and internal revenue of all reportable segments is 75% or more of the entity external revenue. b. The total external revenue of all reportable segments is 75% or more of entity external and internal revenue. c. The total external revenue of all reportable segments is 75% or more of the entity external revenue. d. The total internal revenue of all reportable segments is 75% or more of the entity internal revenue. 6. Two or more operating segments may be aggregated into a single operating segment if (choose the incorrect one) a. The aggregation is consistent with the core principle of segment reporting. b. The segments have similar characteristics. c. The segments are similar in the nature of product or service, nature of production process, class of customer, method of product distribution and regulatory environment. d. The segments have dissimilar characteristics.

7. What is the practical limit to the number of reportable operating segments? a. Five segments b. Ten segments c. No precise limit but if the number increases above five, the entity shall consider whether a practical limit has been reached. d. No precise limit but if the number increases above ten, the entity shall consider whether a practical limit has been reached. 8. Which is correct concerning segment reporting? I. An operating segment identified as a reportable segment in the immediately preceding period shall continue to be reported separately in the current period

even if it no longer meets any of the quantitative thresholds, if management judges the segment to be of continuing significance. II. If an operating segment is identified as reportable segment in the current period in accordance with the quantitative thresholds, prior segment data presented for comparative purposes shall be restated to reflect the newly reportable segment even if that segment did not satisfy any of the quantitative thresholds in the prior period. a. b. c. d.

I only II only I and II Neither I nor II

9. Under PFRS 8, an entity shall disclose for each period I. General information about the operating segment. II. Information about segment for profit or loss, including specified revenue and expenses included in profit or loss, segment assets and segment liabilities. III. Reconciliations of total segment revenue, total segment profit or loss, total segment assets and total segment liabilities to the corresponding amounts in the entity’s financial statement. a. b. c. d.

I only I and II only I and III only I, II and III

10. An entity shall disclose which of the following general information? I. Factors used to identify the entity’s reportable segments including the basis of organization. II. Types of products and services from which each reportable segment derives its revenue. a. b. c. d.

I only II only Both I and II Neither I nor II

ANSWERS 11-28

1. 2. 3. 4. 5.

d d a b c

6. 7. 8. 9. 10.

d d c d c

QUESTION 11-29 multiple choice (PRFS 8) 1. An entity shall disclose for each reportable segment a measure of all the following, except a. Profit or loss b. Total assets if such amount is regularly provided to the chief operating decision maker c. Total liabilities if such amount is regularly provided to the chief operating decision maker. d. Net assets 2. An entity shall disclose for each reportable segment all of the following specified amounts included in the measure of profit or loss, except a. b. c. d.

Revenue from external customers Revenue from transactions with other operating segments of the same entity Interest revenue Gain on disposal of investment

3. An entity shall disclose for each reportable segment all the following specified amounts included in the measure of profit or loss, except a. Depreciation and amortization b. The entity’s interest in the profit or loss of associates and joint ventures accounted for by the equity method. c. Income tax expense d. General corporate expenses 4. An entity shall disclose for each reportable segment which of the following specified amounts that are included in the measure of segment assets? a. The amount of investment in associates and joint ventures accounted for by the equity method. b. Financial instrument c. Deferred tax assets d. Postemployment benefits assets 5. Which of the following statements in relation to reporting is true?

I. If an entity changes the way it is structured internally so its reportable segments change, the comparative information for earlier periods must be restated. II. Disclosure is always required of the profit or loss of each reportable segment. a. b. c. d.

I only II only Both I and II Neither I nor II

6. Which of the following statements in relation to information about profit or loss or a reportable operating segment is true? I. The measurement of profit or loss to be disclosed for each reportable segment is defined in PFRS 8. II. The profit or loss disclosed for a reportable segment shall relate to the total assets attributed to that segment. a. b. c. d.

I only II only Both I and II Neither I nor II

7. Entity-wide disclosure include all of the following, except a. b. c. d.

Information about products and services Information about geographical areas Information about major customers Information about intersegment sales or transfers

8. Information about geographical areas includes all of the following, except a. Revenue from external customers for each product or service. b. Revenue from external customer in entity’s country of domicile and in all foreign operations in total. c. Separate disclosure of material revenue from external customers attributed to an individual foreign country. d. Noncurrent assets other than financial instruments, deferred tax assets and postemployment benefit assets in the entity’s country domicile and all foreign countries in total 9. The “major customer” disclosure includes all the following, except a. The fact of the entity’s reliance on major customers. b. The total amount of revenue from each such customer.

c. The identity of the segment or segments reporting the revenue from major customers. d. The identity of the major customer. 10. Under PFRS 8, which of the following statements is true about major customer disclosure? I. A major customer is defined as one providing revenue which amounts to 10% or more combined external revenue of all operating segments. II. The identities of major customers need not to be disclosed. a. b. c. d.

I only II only Both I and II Neither I nor II

ANSWERS 11-29 1. d 6. d 2. d 7. d 3. d 8. a 4. a 9. d 5. c 10. c QUESTION 11-30 Multiple choice (IFRS) 1. What is the definition of “major customers”? a. Those customers that individually account for revenue of 10% or more of the entity external revenue. b. Those customers that individually accounts for revenue of 10% or more entity external and internal revenue. c. Those customers that individually account revenue of at least 90% of the entity revenue. d. Those customers who have been dealing with the entity for at least 5 years regardless of volume of revenue. 2. A chemical entity has no overseas sales. The entity produces different products from process. The entity sells its product to small businesses, larger national business and multinational entities. Internal reports are reviewed by the chief operating decision maker on this basis. The management of the entity proposed to disclose just one business segment. Can entity disclose just one business segment because it sells all of its products nationally?

a. Yes, PFRS 8 will allow the entity to disclose a single business segment. b. No, the entity can identify three different sets of customer and shall therefore disclose information on that basis. c. Yes, even though there are three different groups of customer they all present the same risk to the entity d. PFRS 8 on “segment reporting” is silent on this matter. 3. An entity is in the entertainment industry and organizes outdoor concerts in four different areas of the world, Europe, North America, Australia and Japan. The entity reports to the board directors on the basis of each of the four regions. The records show the profitability for each of the four regions. The concerts are two types: popular music and classical music. What is the appropriate basis for segment reporting in this entity? a. The segments shall be reported by class of business, that is popular and classical music b. The segments shall be reported by region, so Australia and Japan would be combined. c. The segment information shall be reported as North America and the rest of the world. d. Segment information shall be reported for each of the four different regions. 4. An entity is engaged in the manufacturing industry and has recently purchased an 80% holding in a small financial service group. This group does not meet any of the threshold criteria for a reportable segment. Can entity disclose the financial service group as a separate operating segment? a. No, because it does not meet any of the criteria for a reportable segment b. Yes, even though it does not meet the criteria for a reportable segment, an entity can disclose operating segments separately if management believes that information about the segment would be useful to the users of the financial statements. c. The entity can disclose only 80% of the results and the net assets of the financial service group. d. Because of the disparity in type of business, the entity shall disclose its segmental information on a geographical basis. 5. An entity manufacturer suits, cloth bed linen and various cotton and manmade fiber products. The entity has several segments which are reported internally as follows: Segments

Sales

Profit

Segments assets

Suits Shirts Bed linen Blinds Cloth

40% 30% 15% 8% 7%

45% 35% 10% 6% 4%

50% 33% 7% 5% 5%

100%

100%

100%

The table represents the percentages of sales, profit and segment assets that are attributable to be different segments. The entity wants to present bed linen and cloth as single segment but is wondering whether the information can be aggregated. How would segmental information be presented in the financial statements? a. Bed linen and cloth, suits, and shirts would all be shown as separate segments with blinds in the other category. b. All of the segments shall be presented separately. c. Suits, shirts, bed linen would be separate segments with blinds and cloth shown as a single segment. d. Suits and cloth would be one segment with shirts, bed linen and blinds shown as other separate segments. ANSWERS 11-30 1. a 2. b 3. d 4. b 5. a