Chapter 44 - operating segments PDF

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Chapter 44 Operating Segments Chapter 44: Multiple choice – Computational (SET B) – (For classroom instruction purposes) Quantitative thresholds 1. DEMENTED INSANE Co. is preparing its year-end financial statements and has identified the following operating segments: Segment s Revenues Profit (loss) Assets A 4,000,000 800,000 56,000,000 B 4,800,000 560,000 72,000,000 C 1,080,000 (280,000) 48,000,000 D 960,000 (2,800,000) 4,000,000 E 1,160,000 200,000 5,600,000 Totals 12,000,000 (1,520,000) 185,600,000 What are the reportable segments? a. A, B and D b. A, B, C and D

c. A and B

d. A, B, C, D and E

Management approach and Aggregation 2. EMBOSOM CHERISH Co. engages in five diversified operations namely, operations A, B, C, D, and E. Information on these segments are shown below: Segment s Revenues Profit (loss) Assets A 3,200 800 40,000 B 3,200 400 8,000 C 200 40 4,000 D 600 80 8,000 E 800 280 24,000 Totals 8,000 1,600 84,000 Additional information: a. For internal reporting purposes, segments A and B are considered as one operating segment. b. Segment E is considered as an operating segment for internal decision making purposes. c. Segments C and D have similar economic characteristics and share a majority of the aggregation criteria. What are the reportable segments? a. A, B, C, D and E

b. A, B and E c. A and B as one segment and E d. A and B as one segment, E, and C and D as one segment Limit on external revenue 3. SORDID DIRTY Co. is preparing its year-end financial statements and has identified the following operating segments: Segments InterProfit Assets External segment Total revenues revenues revenues A 4,800,000 2,400,000 7,200,000 2,800,000 48,000,000 B 1,600,000 400,000 2,000,000 1,600,000 28,000,000 C 1,000,000 1,000,000 400,000 4,000,000 D 800,000 800,000 320,000 3,200,000 E 600,000 600,000 280,000 2,800,000 F 400,000 400,000 200,000 2,000,000 Totals 9,200,000 2,800,000 12,000,000 5,600,000 88,000,000 Management believes that between segments C, D, E and F, segment C is most relevant to external users of financial statements. What are the reportable segments? a. A and B b. A, B, C and D

c. A, B and C

d. A, B, C, D, E and F

Major customers 4. RUSTIC RURAL Co. has the following information on its operating segments. InterExternal segment Total Segments revenues revenues revenues Profit A 4,800,000 2,400,000 7,200,000 2,800,000 B 1,600,000 400,000 2,000,000 1,600,000 C 1,000,000 1,000,000 400,000 D 800,000 800,000 320,000 E 600,000 600,000 280,000 F 400,000 400,000 200,000 Totals 9,200,000 2,800,000 12,000,000 5,600,000

Assets 48,000,000 28,000,000 4,000,000 3,200,000 2,800,000 2,000,000 88,000,000

RUSTIC Co. shall provide disclosure for major customers if revenues from transactions with a single external customer amount to how much? a. 920,000 b. 280,000 c. 1,200,000 d. 560,000

The answers and solutions to the computational problems above (Multiple choice – Computational (SET B) can be found in the accompanying Teacher’s Manual.

Chapter 44: Theory of Accounts Reviewer 1. Which of the following statements is incorrect? a. A “management approach” is used in identifying operating segments. b. A reportable operating segment is one which management uses in making decisions about operating matters or results from aggregation of two or more segments and qualify under any of the quantitative thresholds. c. Even if an operating segment does not qualify in any of the quantitative thresholds, such operating segment may still be reportable if management believes that information about the segment would be useful to users of the financial statements. d. Disclosures for major customer shall be provided if revenues from transactions with a single external customer amount to 75% or more of the entity’s external revenues. 2. Operating segments that may be aggregated are those which exhibit similar economic characteristics and are similar in the following, except a. the nature of the products and services, their production processes, and distribution methods b. the type or class of customer for their products and services c. their financial position, financial performance, and cash flows d. regulatory environment 3. According to PFRS 8, the quantitative thresholds are I. at least 10% of total revenues (external and internal), II. at least 10% of the higher of total profits of segments reporting profits and total losses of segments reporting losses, in absolute amount (i.e., disregarding negative amounts. III. at least 10% of total assets (inclusive of intersegment receivables). a. I only b. II only c. III only d. I, II and III 4. Disclosures for major customer shall be provided if revenues from transactions with a single external customer amount to a. 10% or more of the entity’s external revenues. b. 10% or more of the entity’s external and internal revenues. c. 75% or more of the entity’s external revenues. d. 75% or more of the entity’s external and internal revenues. 5. For segment reporting, interest revenue and interest expense a. are reported separately for each reportable segment b. may be presented at net amount if the chief operating decision maker relies primarily on net interest revenue to assess the performance of the segment c. are not reported d. a or b 6. OBLITERATE TO ERASE Co. included interest expense in its determination of segment profit, which OBLITERATE's chief financial officer considered in determining the segment's operating budget. OBLITERATE is required to report the segment's financial data under

PFRS 8. Which of the following items should OBLITERATE disclose in reporting segment data? (Item #1) Interest expense; (Item #2) Segment revenues a. No, No b. No, Yes c. Yes, No d. Yes, Yes (AICPA) 7. Which of the following statements is/(are) correct? I. If an entity that is not required to apply PFRS 8 Operating Segments chooses to disclose information about segments that does not comply with PFRS 8, it shall not describe the information as segment information. II. PFRS 8 does not require an entity to report information that is not prepared for internal use if the necessary information is not available and the cost to develop it would be excessive. III. If a financial report contains both the consolidated financial statements of a parent that is within the scope of PFRS 8 as well as the parent’s separate financial statements, segment information is required only the consolidated financial statements. IV. PFRS 8 requires an entity to report interest revenue separately from interest expense for each reportable segment unless a majority of the segment’s revenues are from interest and the chief operating decision maker relies primarily on net interest revenue to assess the performance of the segment and to make decisions about resources to be allocated to the segment. PAS 14, the predecessor of PFRS 8, did not require such disclosure. V. Generally, an operating segment has a segment manager who is directly accountable to and maintains regular contact with the chief operating decision maker to discuss operating activities, financial results, forecasts, or plans for the segment. VI. The term “segment manager” identifies a function which should be a segment manager with a specific title. a. VI only b. I and II c. all except VId. all of the statements 8. PFRS 8 aims to help users of financial statements a. Better understand enterprise performance b. Better assess its prospects for future net cash flows c. Make more informed judgments about the entity as a whole d. all of the choices 9. PFRS 8 is required to be applied by a. entities whose equity securities are traded in a public market and those entities who are in the process of filing its financial statements with a securities commission or other regulatory organization for the purpose of issuing any class of instruments in a public market b. entities whose debt and equity securities are traded in a public market. c. entities whose debt and equity securities are traded in a public market and those entities who are in the process of filing its financial statements with a securities commission or other regulatory organization for the purpose of issuing any class of instruments in a public market d. all entities regardless of whether their securities are being traded or not

10. PFRS 8 Operating Segments is applied in I. Separate or individual financial statements II. Consolidated financial statements a. I only b. I and II c. II only

d. neither I nor II

11. Which of the following may not be considered as the chief operating decision maker of an entity? a. Chief Executive Officer (CEO) c. Chief Operating Officer (COO) b. Executive Committee d. Shareholders 12. The following are required under PFRS 8 Operating Segments to disclose segment information in its financial statements. I. entities whose equity or debt securities are publicly traded II. entities that are in the process of issuing equity or debt securities in public securities markets III. entities whose securities are not publicly traded or not in the process of issuing securities to the public. a. I and II b. I only c. II only d. None of these 13. A non-publicly listed entity may be required to comply with PFRS 8 Operating Segment if a. the entity is a subsidiary whose parent is a listed entity or in the process of issuing securities to the public even in the entity’s individual (separate) financial statements b. the entity has a foreign operation c. at least majority of its revenues comes from intercompany transactions d. it discloses segment information in its general-purpose financial statements 14. In financial reporting for segments of a business enterprise, which of the following should be taken into account in computing the amount of an industry segment's identifiable assets? (Item #1) Accumulated depreciation; (Item #2) Marketable securities valuation allowance a. No, No b. No, Yes c. Yes, Yes d. Yes, No (AICPA) 15. According to PFRS 8, how do firms identify reportable segments? a. By geographic regions c. By industry classification b. By product lines d. By designations used inside the firm 16. An entity shall report separately information about each operating segment that: I. Management deems relevant to external users II. Meets the quantitative thresholds a. I b. I or II c. II d. neither I nor II 17. Operating segments may be aggregated if a. they have similar economic characteristics b. they have different economic characteristics c. they have the same chief operating decision maker

d. the entity has a matrix organization 18. Which of the following tests may be used to determine if an operating segment of an entity is a reportable segment under the provision of PFRS 8 regarding quantitative thresholds? a. Its revenue (both from external customers and internal segments) is equal to or greater than 10 percent of total revenue (external and external). b. The absolute value of its operating profit or loss is equal to or greater than 10 percent of the higher of the total of the operating profit for all segments that reported profits and the total of the losses for all segments that reported losses. c. The segment contains 10 percent or more of the combined assets of all operating segments. d. All of the above. 19. SUBJUGATE CONQUER Corporation sells 5 different types of products. The company is divided for internal reporting purposes into 5 different divisions based on these 5 different product lines. The company should prepare the note disclosure for disaggregated information based upon a. the 5 types of products. b. the 5 different divisions. c. the materialty of each product line based on the revenue or operating profits generated by each product line or the assets utilized by each product line. d. the geographic areas in which the 5 products are sold. (Adapted) 20. Nonreportable segments should a. be aggregated and reported as “all other segments.” b. be aggregated but neither reported nor disclosed c. not reported but may be disclosed if included in the necessary reconciliation of segment assets, liabilities, or profit or loss d. not reported but may be disclosed whether or not included in the necessary reconciliation of segment assets, liabilities, or profit or loss 21. Total external revenue reported by operating segments should a. at least be 75 per cent of the entity’s revenue b. not be more than 75% of the entity’s revenue c. at least be 90% of the entity’s revenue d. no limit set by PFRS 8 22. If the total external revenue reported by operating segments does not meet the limit provided under PFRS 8, additional operating segments shall be identified as reportable segments until the limit is met. Other operating segments may be included as reportable a. if they meet all of the quantitative thresholds b. if they meet any of the quantitative thresholds c. if they meet at least a majority of the quantitative thresholds d. even if they do not meet any of the quantitative thresholds

23. Which of the following is not required under current standards for disaggregated information relating to geographic area information? a. Revenues from external customers from the home country of the firm and from all foreign countries in total. b. The total of long-lived assets located in the firm's home country and located in foreign countries. c. Operating profits from external customers from the home country of the firm and from all foreign countries in total. d. Revenues for any foreign country for which the revenues from that country are material to the firm. (AICPA) 24. Entity-wide disclosures include disclosures about (Item #1) Geographic areas; (Item #2) Allocated costs a. Yes, Yes b. Yes, No c. No, Yes d. No, No (AICPA) 25. Entity-wide disclosures are required by publicly held companies with (Item #1) Only one reportable segment; (Item #2) More than one reportable segment a. Yes, Yes b. Yes, No c. No, Yes d. No, No (AICPA) 26. An entity must disclose all of the following about each reportable segment if the amounts are used by the chief operating decision maker, except a. Depreciation expense c. Interest expense b. Allocated expenses d. Income tax expense. (AICPA) 27. 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. (AICPA) 28. 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. (AICPA) 29. Under PFRS 8, the method used to determine what information to report for operating segments is referred to as the

a. Segment approach. b. Friendly approach.

c. Dramatic approach. d. Management approach.

30. FOLLY EVIL Co has two main classes of business: manufacturing of equipment and servicing of equipment. These classes of business are divided into four divisions: heavy equipment, light equipment, regular service contracts, and normal warranty. The management receives segmental information based on these four divisions in its quarterly internal reports. What should be the basis of FOLLY’s operating segment reporting for purposes of PFRS 8? a. The two main classes of business c. The risks and rewards b. The four divisions d. The quantitative thresholds 31. DEMISE DEATH Corporation operates nationally. DEMISE has a single main product but also produces different products from the sole production process. DEMISE’s internal reporting is structured in to two: the main product and all other incidental products. DEMISE proposed to disclose just one operating segment. Can the entity disclose just one operating segment? a. Yes, PFRS 8 allows an entity to disclose a single operating segment. b. Yes, PFRS 8 allows an entity to disclose a single operating segment if no other operating segments are identified using the “management approach” or no other operating segments meet any of the quantitative thresholds under PFRS 8 or result from aggregation. c. No, PFRS 8 does not allow an entity to disclose just one segment. If there is only one reportable segment then no segment information should be disclosed. d. PFRS 8 is silent on this matter. 32. WISTFUL YEARNING Company established a new research and development division during the year. The division will be financed internally as it will only incur costs but not generate its own revenues. For internal reporting, this new division is considered a “cost center.” WISTFUL has three other business segments: perishable goods, canned goods and packaging. These segments will not receive any apparent benefits from the new division. Will the new division be disclosed under PFRS 8 as a separate reportable segment? a. The new division should be separately reported. b. The new division should be aggregated with the packaging division. c. The new division should be aggregated with either or both the perishable goods and canned goods segment but not the packaging segment. d. The new division it should not be separately reported or combined with the other segments but rather included as part of the “all other segments” category. 33. An entity is in the entertainment industry and organizes outdoor concerts in four different areas of the world: Europe, North America, Australasia, and Japan. The entity reports to the board of directors on the basis of each of the four regions. The management accounts show the profitability for each of the four regions, with allocations for that expenditure which is difficult to directly charge to a region. The concerts are of two types: popular music and classical music. What is the appropriate basis for segment reporting in this entity?

a. The segments should be reported by class of business, that is, popular and classical music. b. The segments should be reported by region, so Australasia and Japan would be combined. c. The segment information should be reported as North America and the rest of the world. d. Segment information should be reported for each of the four different regions. (Adapted) 34. An entity has split its business segments on the basis of the law governing its different types of business. Two business divisions that the entity has identified are insurance and banking. Within the banking group, several different services are provided: retail banking, merchant banking, and small business advisory service. The insurance entities sell travel insurance, health insurance, and property insurance. The entity operates throughout the world in several countries and continents. The operating results of each type of service are regularly reviewed by the entity’s executive committee to make decisions about resources to be allocated the type of service and assess their performance. What basis should the entity report its segmental information? a. On the basis of its business divisions. b. By geographical location. c. On the basis of the services it offers within those divisions. d. The entity should just show one segment, entitled banking and insurance. (Adapted) 35. An entity is engaged in the manufacturing industry and has recently purchased an 80% holding in a small financial services group. This group does not meet any of the threshold criteria for a reportable segment. Can the entity disclose the financial services group as a separate business segment? a. No, because it does not meet any of the PFRS criteria, it cannot be disclosed as a separate segment. b. Yes, even though it does not meet the PFRS criteria, an entity can disclose business segments separately if they are a distinguishable component. c. The entity can disclose only 80% of the results and net assets of the banking group. d. Because of the disparity in types of business, the group sh...