. Zen Manufacturing Company is considering replacing a four-year-old machine with a new, advanced model. The old machine was purchased for USD 60,000, has an estimated useful life of 10 years with no PDF

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Download . Zen Manufacturing Company is considering replacing a four-year-old machine with a new, advanced model. The old machine was purchased for USD 60,000, has an estimated useful life of 10 years with no PDF

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Chapter 13 Operating segment

Problem 13-1 Timmy Company provided the following information in relation to revenue earned by operating segments for the current year:

Segment Alo Bix Cee Dill Combined Elimination Consolidated

Sales to unaffiliated customers 5,000 8,000 4,000 43,000 60,000 60,000

Intersegment sales

Total revenue

3,000 4,000 16,000 23,000 (23,000) -

8,000 12,000 4,000 59,000 83,000 (23,000) 60,000

What total revenue should be disclosed by the reportable segments? a. b. c. d.

60,000 83,000 71,000 51,000 Answer:

Bix Dill

Total revenue 12,000 59,000 71,000

Problem 13-2 Correy Company provided the following data relating to operating segments: Industry revenue profit total assets A 10,000,000 1,750,000 20,000,000 B 8,000,000 1,400,000 17,500,000 C 6,000,000 1,200,000 12,500,000 D 3,000,000 550,000 7,500,000 E 4,250,000 675,000 7,000,000 F 1,500,000 225,000 3,000,000 How many reportable segments does Correy have?

a. b. c. d.

Three Four Five Six Answer: Revenue 30.53% 24.43% 18.32% 9.16% 12.98% 4.58% 100.00%

A B C D E F

Profit 30.17% 24.14% 20.69% 9.48% 11.64% 3.88% 100.00%

Assets 29.63% 25.93% 18.52% 11.11% 10.37% 4.44% 100.00%

A, B, C, D and E reportable because their revenue or operating profit or asset is at least 10% of the combined amount.

Problem 13-3 Aurora Company provided the following profit (loss) relating to operating segments: V W X Y Z

3,400,000 1,000,000 (2,000,000) 400,000 ( 200,000)

What are the reportable segments based on profit or loss? a. b. c. d.

V, W, X and Y V, W and X V and W V, W, X, Y and Z Answer:

V W X Y Z

3,400,000 1,000,000 2,000,000 400,000 4,800,000

200,000 2,200,000

The total profit figure is the basis for identifying the reportable segments because it is higher than the total loss figure. Accordingly, those segments with profit or loss of at least 10% of P4,800,000 or P480,000 are reportable. Thus V, W and X are reportable

Problem 13-4 Macbeth Company, an entity listed on a recognized stock exchange, reports operating results from a North American division to the chief operating decision maker. The segment information for the current year is as follows: Revenue Profit Assets Number of employees

3,800,000 1,200,000 1,600,000 2,500

The entity’s result for all of the segments in total are: Revenue Profit Assets Number of employees

40,000,000 10,000,000 20,000,000 25,000

Which piece of information determines that the North American division is a reportable segment? a. b. c. d.

Revenue Profit Assets Number of employees Answer: 1,200,000/10,000,000

12%

Problem 13-5 Aris Company provided the following information in relation to operating for the current year: Sales to unaffiliated customers Intersegment sales of products similar to those sold to unaffiliated customers Interest earned on loans to other industry segments

20,000,000 5,000,000 1,000,000

The entity and all of its division are engaged solely in manufacturing operations. Under the revenue test, what is the minimum revenue of a reportable segment? a. b. c. d.

2,500,000 2,600,000 2,100,000 2,000,000 Answer: Sales to unaffiliated customers Intersegment sales Interest earned on loans Total segment revenue Revenue criterion (10% x 26,000,000)

20,000,000 5,000,000 1,000,000 26,000,000 2,600,000

Problem 13-6 Grum Company is subject to the requirements of segments reporting. In the income statement for the current year, the intersegment sales of P10,000,000, expenses of P47,000,000 and net income of P3,000,000. Expenses included payroll costs of P15,000,000. The combined total assets of all operating segments at year-end amounted to P45,000,000. 1. What is the minimum amount of sales to a major customer? a. b. c. d.

5,000,000 4,000,000 6,000,000 4,500,000 Answer: 10% x 45,000,000

4,500,000

2. What is the minimum amount of external revenue to be disclosed by reportable segments? a. 22,500,000 b. 30,000,000

c. 33,750,000 d. 37,500,000 Answer: 75% x 45,000,000

33,750,000

Problem 13-7 Graf Company discloses supplemental operating segment information. The following information is available for the current year: Segment X Y Z

Sales 5,000,000 4,000,000 3,000,000

Traceable expenses 3,000,000 2,500,000 1,500,000

Additional expenses Indirect segment expenses General corporate expenses Interest expense Income tax expense

1,800,000 1,200,000 600,000 400,000

The interest expense and income tax expense are regularly reviewed by the chief operating decision maker as a measure of profit or loss. Appropriate common expenses are allocated to segments based on the ratio of a segment’s sales to total sales. What is Segment Z’s operating profit? a. b. c. d.

900,000 950,000 800,000 500,000 Answer: Sales Traceable expenses Indirect expenses (25% x 1,800,000) General Corporate expenses (25% x 1,200,000) Interest expense (25% x 600,000) Income tax expense (25% x 400,000)

3,000,000 (1,500,000) ( 450,000) ( 300,000) ( 150,000) ( 100,000) 500,000

Problem 13-8 Clay Company has three lines of business, each of which was determined to be reportable segment. Sales aggregated P7,500,000 in the current year, of which Segment One contributed 40%. Traceable costs were P1,750,000 for Segment One out of a total of P5,000,000 for the entity as a whole. The entity allocates common costs of P1,500,000 based on the ratio of a segment’s income before common costs to the total income before common costs. What amount should be reported as operating profit for Segment One? a. 1,250,000 b. 1,000,000 c. 650,000 d. 500,000 Answer: Segment 1 Sales 3,000,000 Traceable costs (1,750,000) Profit before common cost 1,250,000 Common cost (1,250,000/2,500,000 x1,500,000) ( 750,000) Segment profit 500,000

Total revenue 7,500,000 (5,000,000) 2,500,000 (1,500,000) 1,000,000

Problem 13-9 Hyde Company has three reportable segments. Common costs are appropriately allocated on the basis of sales. In the current year, Segment A had sales of P3,000,000, which was 25% of Hyde’s total sales, and had traceable costs of P1,900,000. In the current year, the entity incurred segment costs of P500,000 that were not directly traceable to any of the divisions. Segment A incurred interest expense of P300,000 in the current year. Interest expense is included in the measure of profit or loss. What amount should be reported as Segment A’s profit for the current year?

a. b. c. d.

875,000 900,000 975,000 675,000 Answer: Sales – Segment A Expenses: Traceable cost Allocated indirect cost (25% x 500,000) Interest expense Segment profit

3,000,000 1,900,000 125,000 300,000

2,325,000 675,000

Problem 13-10 Eagle Company operates in several different industries. Total sales for the entity totaled P14,000,000, and total common costs amounted to P6,500,000 for the current year. For internal reporting purposes, the entity allocates common costs based on the ratio of a segment’s sales to total sales. Segment 1 2 3 4 5

Contribution to total sales 25% 12% 31% 23% 9%

Costs specific to the segment 1,100,000 1,000,000 1,300,000 880,000 400,000

What is the operating profit of Segment 1? a. 3,500,000 b. 1,875,000 c. 2,400,000 d. 775,000 Answer: Sales – Segment 1 (25% x 14,000,000) Specific cost – Segment 1 Allocated common costs (25% x 6,500,000) Operating profit

3,500,000 (1,100,000) (1,625,000) 775,000

Problem 13-11 Colt Company has four manufacturing divisions, each of which has been determined to be a reportable segment. Common costs are appropriately allocated on the basis of each division’s sales in relation to Colt’s aggregate sales. Colt’s Delta division accounted for 40% of Colt’s total sales in the current year. For the current year, Delta division had sales of P8,000,000 and traceable costs of P4,800,000. In addition, the Delta division incurred interest expense of P640,000. In the current year, Colt incurred costs of P800,000 that were not directly traceable to any of the divisions. It is an entity policy that interest expense is included in the measure of profit or loss that is reviewed by the chief operating decision maker. What amount should be disclosed as Delta’s profit for the current year? a. b. c. d.

3,200,000 3,000,000 2,880,000 2,240,000 Answer: Sales – Delta’s Traceable costs Interest expense Incurred cost (40% x 800,000) Profit

8,000,000 (4,800,000) ( 640,000) ( 320,000) 2,240,000

Problem 13-12 Taylor Company assesses performance and makes operating decisions using the following information for the reportable segments: Total revenue Total profit or loss

9,000,000 1,500,000

The total profit and loss included intersegment profit of P300,000. In addition, the entity had P100,000 of common costs for the reportable segments that are not allocated in reports provided to the chief operating decision maker. For purposes of segment reporting, what amount should be reported as segment profit?

a. b. c. d.

1,400,000 1,200,000 1,800,000 1,500,000 Answer: Total profit or loss Common cost Segment profit

1,500,000 ( 100,000) 1,400,000

Problem 13-13 Diversity Company had total assets of P65,000,000 at year-end and provided the following condensed income statement for the current year: Sales Expenses Income before income tax Income tax expense Net income

45,000,000 (33,000,000) 12,000,000 ( 3,800,000) 8,200,000

The entity has two reportable segments and has developed the following related information:

Sales Segment expenses Segment assets

Segment A

Segment B

Others

25,000,000 18,000,000 35,000,000

15,000,000 9,000,000 18,000,000

5,000,000 4,000,000 7,000,000

The total assets of P65,000,000 include general corporate assets of P5,000,000. The total segment expenses of P33,000,000 include general corporate expenses of P2,000,000. The chief operating decision maker does not allocate income tax as a measure of profit or loss. Required: 1. Prepare the necessary disclosures for Diversity Company in relation to operating segments. 2. Prepare the reconciliations between segment information and amount shown in the entity’s financial statements.

Answer: Disclosure of profit or loss and assets

Sales Profit or loss Total assets

Segment A

Segment B

Others

Total

25,000,000 7,000,000 35,000,000

15,000,000 6,000,000 18,000,000

5,000,000 1,000,000 7,000,000

45,000,000 14,000,000 60,000,000

Reconciliation Revenue Revenue of reportable segments Revenue of nonreportable segments Entity revenue shown in income statement

40,000,000 5,000,000 45,000,000

Profit and loss Profit or loss of reportable segments Profit or loss of nonreportable segments Corporate expenses Unallocated income tax expense Entity net income shown in income statement

13,000,000 1,000,000 ( 2,000,000) ( 3,800,000) 8,200,000

Total assets Total assets of reportable segments Total assets of nonreportable segments General corporate assets Entity total assets shown in statement of financial position

53,000,000 7,000,000 5,000,000 65,000,000

Problem 13-14 Congo Company does business in several different industries. The condensed income statement for the entire entity for the current year is as follows: Sales Costs of goods sold Gross income Expenses Depreciation Income tax expense Net income

60,000,000 (28,000,000) 32,000,000 (14,000,000) ( 4,000,000) ( 4,000,000) 10,000,000

The entity has two major reportable segments, X and Y. an analysis reveals that P1,000,000 of the total depreciation expense and P2,000,000 of the expenses are related to general corporate activities. The chief operating decision maker allocates income tax expense to reportable segments as a measure of profit or loss. The expenses and sales are directly allocable to segment activities according to the following percentages: Segment X Sales Costs of goods sold Expenses Depreciation Income tax expense

40% 35 40 40 50

Segment Y 45% 50 40 45 40

Others 15% 15 20 15 10

Required: 1. Prepare a schedule that reports the segment profit or loss. 2. Prepare the disclosures required for operating segments. 3. Prepare the reconciliations between segment information and amounts shown in the entity’s financial statements. Answer: Segment X Sales 24,000 Cost of goods sold ( 9,800) Gross income 14,200 Segment expenses ( 4,800) Depreciation ( 1,200) Income tax expense ( 2,000) Segment profit or loss 6,200

Segment Y 27,000 (14,000) 13,000 ( 4,800) ( 1,350) ( 1,600) 5,250

Others 9,000 (4,200) 4,800 (2,400) ( 450) ( 400) 1,550

Total 60,000 (28,000) 32,000 (12,000) ( 3,000) ( 4,000) 13,000

Segment Y 27,000 5,250 1,350

Others 9,000 1,550 450

Total 60,000 13,000 3,000

Disclosure of segment profit or loss

Sales Profit or loss Depreciation

Segment X 24,000 6,200 1,200

Reconciliation Revenue Revenue of reportable segments Revenue of nonreportable segments Entity revenue shown in income statement

51,000,000 9,000,000 60,000,000

Profit and loss Profit or loss of reportable segments Profit or loss of nonreportable segments Unallocated depreciation General corporate expenses Entity net income shown in income statement

11,450,000 1,550,000 ( 1,000,000) ( 2,000,000) 10,000,000

Problem 13-15 Easy Company provided the following statement of financial position at year-end and income statement for the current year: Current assets Property, plant and equipment Goodwill Investment in associate

130,000 500,000 100,000 70,000

Total assets

800,000

Current liabilities Noncurrent liabilities Share capital Retained earnings

90,000 60,000 400,000 250,000

Total liabilities and equity

800,000

Revenue Cost of goods sold Gross profit Other income Distribution cost Administrative expenses Other expenses Finance cost Share in profit of associate

1,800,000 (1,200,000)

( ( ( (

600,000 60,000 200,000) 100,000) 50,000) 60,000) 10,000

Income before tax Income tax expense

260,000 ( 90,000)

Net income 

170,000

The entity is organized for management purposes into three major operating segments, namely furniture, stationery and computer products. There are other smaller operating segments.

Furniture Stationery Computer products Other segments 

 

External sales

Intersegment sales

800,000 500,000 400,000 100,000

200,000 150,000 50,000

The costs of goods sold, distribution cost, administrative expenses and finance cost can be allocated as 50% to furniture, 25% to stationery, 20% to computer products, and 5% to other segments. The cost of sales related to intersegment sales amounted to P24,000,000 to be allocated as 50% to furniture, 40% to stationery, and 10% to computer products The segment assets and liabilities are as follows:

Furniture

Stationery

Computer products

others

Current Asset Property, Plant and Equipment Goodwill

80,000

40,000

5,000

2,000

300,000 60,000

100,000 30,000

85,000 10,000

3,000 -

Total asset

440,000

170,000

100,000

5,000

45,000

30,000

8,000

1,000

30,000

20,000

7,000

2,000

Total liabilities 75,000

50,000

15,000

3,000

Current Liabilities Noncurrent Liabilities

The remaining assets and liabilities are general corporate assets and liabilities are general corporate assets and liabilities identified with the entity as a whole.

 

The other income and other expenses are not allocated to the operating segments as a measure of profit or loss. The chief operating decision maker does not allocate income tax expense to reportable segments as a measure of profit or loss.

Required: 1. Determine the profit or loss for all the operating segments. 2. Prepare the disclosure required for operating segments. 3. Prepare the necessary reconciliations between the segment information and amounts shown in the entity’s financial statements. Answer: Segment profit or loss

External sales Intersegment sales Total revenue Cost of sales – external Cost of sales – internal Gross profit Distribution cost Administrativ e expense Finance cost Segment profit or loss

Furniture

Stationery

Computer

Others

Total

800,000

500,000

400,000

100,000

1,800,000

200,000

150,000

50,000

-

400,000

1,000,000 (600,000)

650,000 (300,000)

450,000 (240,000)

100,000 (60,000)

2,200,000 (1,200,000)

(120,000)

(96,000)

(24,000)

-

(240,000)

280,000 (100,000)

254,000 (50,000)

186,000 (40,000)

40,000 (10,000)

760,000 (200,000)

(50,000)

(25,000)

(20,000)

(5,000)

(100,000)

(30,000) 100,000

(15,000) 164,000

(12,000) 114,000

(3,000) 22,000

(60,000) 400,000

Furniture

Stationery

Computer

Others

Total

800,000

500,000

400,000

100,000

1,800,000

200,000

150,000

50,000

-

400,000

100,000

164,000

114,000

22,000

400,000

Minimum disclosures

External sales Intersegmen t sales Profit or loss

Finance cost Total assets Total liabilities

30,000 440,000 75,000

15,000 170,000 50,000

12,000 100,000 15,000

3,000 5,000 3,000

60,000 715,000 143,000

Reconciliation Revenue Sales of reportable segments Sales of nonreportable segments Elimination of intersegment sales Entity sale in income statement

2,100,000 100,000 ( 400,000) 1,800,000

Profit and loss Profit or loss of reportable segments Profit or loss of nonreportable segments Elimination of intersegment profit Share in profit of associate Unallocated items: Other income Other expenses Income tax expense Entity net income in income statement

378,000 22,000 (160,000) 10,000

Intersegment sales Cost of sales – intersegment sales Intersegment gross profit

400,000 (240,000) 160,000

60,000 (50,000) (90,000) 170,000

Total assets Total assets of reportable segments Total assets of no...