OPERATING SEGMENT

THEORIES

TRUE OR FALSE. Determine if statement is true or false.

1. Segment reporting is the disclosure of certain financial information about the products and services
an entity produces and the geographical areas in which an entity operates to enable investors and
users make better assessment of each business activity leading to the understanding of the
performance of the entity as a whole. True

2. To qualify as an operating segment, one must be a profit center (earns its own revenues and incurs
its own expenses), whose operating results are used internally by management for decision making
and on which separate financial information is available. True

3. PFRS 8 adopts a management approach to identifying reportable segments. True

4. For segment reporting purposes, revenue test, cash flow test, and profit or loss test must be applied
to determine if a component is a reportable operating segment. False

5. Operating segments that do not meet any of the quantitative thresholds may be considered
reportable and separately disclosed if management believes that information about the segment
would be useful to the statement users. True

6. If the total external and internal revenue of reportable operating segments constitutes less than
75% of the entity’s external and internal 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 and internal revenue is included in reportable segments. False

7. The practical limit to the number of reportable operating segments is ten. True

8. Non-reportable segments are not disclosed in the notes to financial statements. False

9. An entity shall disclose a measure of profit or loss under all circumstances. True

10. An entity shall disclose a measure of total assets and total liabilities for each reportable segment if
such an amount is regularly provided to the chief operating decision maker. True

DISCLOSED OR NOT. Identify the item to be disclosed as part of segment reporting in the notes to
financial statement.

1. Revenue from external customers Disclosed

2 Intersegment sales Disclosed
3. Finance cost Disclosed
4. Finance revenue Disclosed
5. Depreciation and amortization Disclosed
6. Unusual items Disclosed
7. Income tax expense Disclosed
8. Profit or loss Disclosed
 9. Assets Disclosed
10. Liabilities Disclosed
11. Equity in net income (loss) of associate Disclosed
12. Equity in net income (loss) of joint venture Disclosed
13. Cost of goods sold –external Not
14. Cost of goods sold- internal Not
15. General corporate expenses Not

MULTIPLE CHOICE

1. Segment reporting shall apply to:

a. Separate FS of an entity only
b. Consolidated FS of a group only
c. Both the separate FS of an entity and the consolidated FS of a group
d. Neither the separate FS of an entity nor the consolidated FS of a group

2. If a financial report contains both the consolidated financial statements of a parent and the parent’s
separate financial statements, segment information is rquired in:
a. The separate financial statements
b. The consolidated financial statements
c. Both the separate and consolidated financial statements
d. Neither the separate nor the consolidated financial statements

3. Which quantitative threshold is a requirement in qualifying a reportable segment?

a. The external segment revenue is 10% of more of the combined external revenue of all operating
segments
b. The segment profit or loss is 10% or more of the lower between the combined profit of profitable
segments and combined loss of unprofitable segments.
c. The segment assets are 10% or more of the liabilities of all operating segments
d. None of the above

4. Which statement is true concerning the 75% overall size test for reportable segments?
a. The total external and internal revenue of all reportable segments is 75% or more of the entity’s
external revenue
b. The total external revenue of all reportable segments is 75% of more of the entity’s external and
internal revenue
c. The total external revenue of all reportable segments is 75% or more of the entity’s external
revenue
d. The total internal revenue of all reportable segments is 75% or more of the entity’s internal
revenue

5. The approach used in segment reporting is known as:

a. Segment approach
b. Revenue approach
c. Management approach
d. Enterprise approach

6. An entity shall disclose for each reportable segment all of the following specified amounts included in
the measure of profit or loss, except?
a. Depreciation and amortization
 b. Income tax expense
c. General corporate expenses
d. Revenue from external customers

7. 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. Unusual items
b. Income tax expense
c. Intersegment revenue
d. Cost of goods sold

8. 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
b. Allocated expense
c. Interest expense
d. Income tax expense

9. What are the disclosures required in relation to operating segments?

a. General information about the operating segments
b. Information about segment profit or loss, including specified revenue and expenses included in
profit or loss, segment assets, and segment liabilities
c. 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 statements
d. All of these are required to be disclosed

10. An entity shall disclose for each reportable segment which of the following specified amounts that are
included in the measure of segment total assets?
a. The amount of investment in associate and joint venture accounted by the equity method
b. Financial instrument
c. Deferred tax assets
d. Postemployment benefit assets

STRAIGHT PROBLEMS:

1. PAUL Company and its divisions are engaged solely in manufacturing business. The following data
pertain to the industries in which operations were conducted for the year ended December 31, 2019:

Segments Total Revenue Profit (Loss) Assets

A 6,600,000 8,000,000 14,000,000
B 5,940,000 6,000,000 21,000,000
C 5,280,000 1,800,000 12,600,000
D 8,580,000 (4,000,000) 28,000,000
E 19,800,000 (9,500,000) 16,800,000
F 19,800,000 (5,000,000) 47,600,000

Questions:
1.1 What is the minimum amount of revenue to qualify as reportable segment? P 6,600,000
1.2 What is the minimum amount of profit (loss) to qualify as reportable segment? P 1,850,000
 1.3 What is the minimum amount of asset to qualify as reportable segment? P 14,000,000
1.4 How many reportable segments does PAUL Company have? Five

2. LISA Company and its divisions provided the following information for the current year:

Operating Segment
Revenues Food Franchise Lease Elimination Total
Third party 800,000 540,000 105,000 - 1,445,000
Intersegment 105,000 150,000 50,000 (305,000) -
Total 905,000 690,000 155,000 (305,000) 1,445,000

Questions:
2.1 What is the minimum amount of revenue to qualify as reportable segment? P 175,000.00
2.2 How many nonreportable segments does LISA Company have? Only 1
2.3 What is the minimum amount of revenue required to disclose major customer data? 144,500

3. SEGUR Company discloses supplemental operating segment information. The following information
is available for the current year:

Segments Sales Traceable Operating Expenses

B 4,000,000 2,000,000
C 3,200,000 2,000,000
D 2,400,000 1,400,000
9,600,000 5,400,000

Additional expenses not included above are as follows:

Indirect operating expenses 1,440,000

General and administrative expenses 960,000

Appropriate common expenses are allocated to segments based on the ratio of segment sales to total
sales.

Question: What is Segment D’s profit for the current year? P 640,000.00

4. DIVERSITY Company has two reportable segments and has developed the following related
information:

Segment A Segment B Others

Sales 25,000,000 15,000,000 5,000,000
Segment expenses 18,000,000 9,000,000 4,000,000
Segment assets 35,000,000 18,000,000 7,000,000

The company has total assets of P65, 000,000 which include general corporate assets of P5, 000,000.
It has reported total expenses of P 36,800,000 which include general corporate expenses of P2,
 000,000 and income tax expense of P 3,800,000. The chief operating decision maker does not
allocate income tax as a measure of profit or loss. There are no intersegment sales.

Segment A Segment B Others

Sales 25,000,000 15,000,000 5,000,000
Segment expenses 18,000,000 9,000,000 4,000,000
Segment assets 35,000,000 18,000,000 7,000,000

The company has total assets of P65, 000,000 which include general corporate assets of P5, 000,000.
It has reported total expenses of P 36,800,000 which include general corporate expenses of P2,
000,000 and income tax expense of P 3,800,000. The chief operating decision maker does not
allocate income tax as a measure of profit or loss. There are no intersegment sales.

Questions:
4.1 What is the entity revenue shown in income statement? P 45,000,000.00
4.2 What is the entity net income shown in income statement? P 8,200,000.00
4.3 What is the entity total asset shown in statement of financial position? P 65,000,000.00

5. ROBINA Company and its divisions are engaged solely in manufacturing operations. The entity
reported the following segment profit (loss):

Robina Company
Segments Profit (Loss)
Branded Consumer Food (400,000)
Agro-Industrial (200,000)
Commodity Food (70,000)
Corporate Business (50,000)

Question: In the segment information for the current year, what are the reportable segments?
Branded Consumer Food & Agro-Industrial

COMPREHENSIVE PROBLEM

1. Easy Company provided the following statement of financial position at year-end and income
statement for the current year:

Current assets 130,000

Property, plant and equipment 500,000
Goodwill 100,000
Investment in associate 70,000
Total Assets 800,000

Current liabilities 90,000

Noncurrent liabilities 60,000
Share capital 400,000
Retained earnings 250,000
Total Liabilities & Equity 800,000
 Revenue 1,800,000
Cost of goods sold (1,200,000)
Gross Profit 600,000
Other income 60,000
Distribution cost (200,000)
Administrative expenses (100,000)
Other expenses (50,000)
Finance cost (60,000)
Share in profit of associate 10,000
Income before tax 260,000
Income tax expense (90,000)
Net Income 170,000

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

External Sales Intersegment Sales

Furniture 800,000 200,000
Stationery 500,000 150,000
Computer products 400,000 150,000
Other segments 100,000 -

 The cost of goods sold, distribution cost, administrative expenses and finance cost can be
allocated as 50% to furniture, 25% to stationary, 20% to computer products, and 5% to other
segments.
 The cost of sales related to intersegment sales amounted to P240, 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 Others

Products
Current Assets 80,000 40,000 5,000 2,000
PPE 300,000 100,000 85,000 3,000
Goodwill 60,000 30,000 10,000 -
Total Assets 440,000 170,000 100,000 5,000

Current Liabilities 45,000 30,000 8,000 1,000

Noncurrent Liabilities 30,000 20,000 7,000 2,000
Total Liabilities 75,000 50,000 15,000 3,000

The remaining 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.
Requirements:

1.1 Indicate the amounts to be disclosed in the notes to financial statements:

Furniture Stationery Computer Others Total

External sales 800,000 500,000 400,000 100,000 1,800,000
Intersegment sales 200,000 150,000 50,000 - 400,000
Profit or loss 100,000 164,000 114,000 22,000 400,000
Finance cost 30,000 15,000 12,000 3,000 60,000
Total assets 440,000 170,000 100,000 5,000 715,000
Total liabilities 75,000 50,000 15,000 3,000 143,000

1.2 Compute the following:

- The minimum amount of revenue to qualify as reportable segment P 220,000.00
- The minimum amount of profit (loss) to qualify as reportable segment P 40,000.00
- The minimum amount of asset to qualify as reportable segment P 71,500.00
- The minimum amount of revenue required to disclose major customer data P 180,000.00

2. Revlon Company provided the following data for the current year:

Segment Revenues Profit Assets

External Intersegment (Loss)
1 620,000 200,000 200,000 400,000
2 100,000 100,000 20,000 80,000
3 200,000 240,000 70,000 300,000
4 190,000 150,000 50,000 140,000
5 180,000 15,000 (25,000) 180,000
6 140,000 20,000 10,000 120,000
7 120,000 12,000 (20,000) 140,000
8 180,000 60,000 (35,000) 120,000
9 180,000 70,000 (25,000) 140,000

Additional information:
Aggregation Criteria Segment 2 & 6 Segment 7& 9
Products Similar Not
Production process Similar Similar
Class of customers Not Not
Marketing method Not Not
Nature of regulatory environment Similar Similar

Requirements:
2.1 Compute the following:
- The minimum amount of revenue to qualify as reportable segment P 277,700.00
- The minimum amount of profit (loss) to qualify as reportable segment P 35,000.00
- The minimum amount of asset to qualify as reportable segment P 162,000.00
- The minimum amount of revenue required to disclose major customer data P 191,000.00
2.2 Determine the following:
- The reportable segments without regard to aggregation criteria 1,3,4,5,8
- The reportable segments after considering all factors 1,3,4,5,8 and 2 & 6 (combined)