CH14. Operating Segments

Question 1

What are the components of an operating entitiy?

Answer 1

• must engage in business activities from which it may earn revenue and incur costs (includes intercompany)
• operating results are reviewed regularly by cheif operating decision maker to make decisions about resources to be allocated to the segment and assess its performance - subject to manipulation
• AND for which discrete financial info is avaialble

Question 2

What must be disclosed?

Answer 2

1. HOW the entity identifies it operating segments
2. INFO about the reported segment profit or loss
3. GEOGRAPHICAL AREA - analysis of revenues nd non-current assets by country of domicile and individual foreign country if material
4. MAJOR CUSTOMERS - transactions with revenues >10% of the entities revnues, not amount for for each or their indentity

Question 3

Who has to report operating segments?

Answer 3

compulsory for all listed (quoted) companies

Question 4

Aim of reporting operating segments:

Answer 4

info must evaluate

1. nature and financial effects of the types of business activities it engages in
2. the economic environment

Question 5

Revenue threshold for reporting an operating segment:

Answer 5

Revenue (including intercompany) is 10% or more of the combined revenue of all oeprating segements

Question 6

Profit/Loss threshold for disclosing operating segment:

Answer 6

Profit or Loss is 10% or more of the greater of

1. combined profit of all segments that didn’t report a loss
2. the combined loss of all loss-making segments

Question 7

Assets threshold for disclosing operating segment:

Answer 7

Assets are 10% or more of the combined assets of all segments

Question 8

External revenue rule:

Answer 8

If total external revenue reported by segment is <75% of the entities revenue
- all additional operating segments must be identified as reportable until >75% of the entities revenue is included in reportable segments