UKAF4034 Advanced Corporate Reporting

UNIVERSITI TUNKU ABDUL RAHMAN

FACULTY OF ACCOUNTANCY AND MANAGEMENT
BACHELOR OF ACCOUNTING (HONS)
YEAR 4
2019/20

TUTORIAL 3
(MFRS 8 Operating Segments)

Question 1 (ACR – April 2014 final test)

(a) Company X has three reportable segments, being A, B and C, that represents distinct
geographical areas. The Chief Operating Decision Maker (CODM) receives financial
information about the geographical areas. Segment A produces Product P and Product Q.
Segment B produces Product P only. Segment C produces Product Q and sells Service S.
The following financial information about each segment is reported to the CODM, being:
 Revenues from external customers
 Earnings before interest, depreciation and amortization and tax (EBITDA)
 Depreciation and amortization

Required:

State whether each of the following statements is TRUE or FALSE, by reference to the
relevant requirements of MFRS 8Operating Segments:

1. Company X must disclose EBITDA for each reportable segment

2. Company X must disclose total assets for each reportable segment
3. Company X must reconcile the total EBITDA of Segments A, B and C to its reported
profit before income tax and discontinued operation
4. Company X must disclose total liabilities for each reportable segment
5. Company X must disclose depreciation and amortization for each reportable segment
6. Company X must disclose revenue from external customers for each of Product P,
Product Q and Service S

Question 2 (ACR – September 2013 final test)

a) Segment disclosures are widely regarded as some of the most useful disclosures in financial
statements because of the extent to which they disaggregate financial information into
meaningful and often revealing groupings.

Discuss this assertion by reference to the objectives of financial reporting by segments.

b) Company A is a listed diversified retail company. Its stores are located mainly in Malaysia. It
has three main types of stores: general department stores, beverage stores and specialist toy
stores. Each of these stores has different products, customer types and distribution processes.

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Company A has three business units: general department stores, beverage stores and specialist
toy stores.

For the year ended 30 June 2015, each business unit reported the following financial
information to Company A’s chief operating decision maker (CODM):

General Beverage Specialist toy All

department stores store stores segments
RM million RM million RM million RM million
Revenue 800 200 100 1,100
Segment result
(profit) 30 14 8 52
Assets 1,800 400 200 2,400

All three business units earn their revenue from external customers. Total consolidated revenue of
Company A for the year ended 30 June 2015 was RM1,600 million. Included in general department
stores’ revenue was RM100 million of revenue from toy stores. As at the end of the reporting
period, toy stores owed general department stores RM90 million. This amount is included as part
of general department stores’ assets.

Within the general department stores business unit, there are five different legal entities, including
legal entities D and E. As at 30 June 2015, legal entity E owed RM46 million to legal entity D.
These amounts have not been eliminated in determining the assets of the general department stores
segment.

Inter-segment asset balances are reported to the CODM but are not used by the CODM as the basis
for determining reportable segments. Intra-segment assets are reported to the CODM and are
eliminated in determining reportable segments.

Required:

State whether the following are true or false. State the reason(s) for your answer.

(1) Company A has three reportable segments.

(2) The revenue figure that should be used by the general department stores segment for the
purposes of determining whether or not it is a reportable segment is RM700 million.

(3) Company A must disclose the toy stores segment liabilities after deducting RM90 million
that is owed to general department stores.

(4) The assets figure that should be used by the general department stores segment for the
purposes of determining whether or not it is a reportable segment is RM1,800 million

(5) The assets figure that should be used by the general department stores segment for the
purposes of determining whether or not it is a reportable segment is RM1,710 million.

(6) The assets figure that should be used by the general department stores segment for the
purposes of determining whether or not it is a reportable segment is RM1,754 million.

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(7) Company A must disclose a reconciliation of total segment assets to its consolidated assets
of RM2,264 million.

Question 3 (ACCA adapted, June 2015 Self-leaning)

Permai, a public limited company, is a pharmaceutical company and is seeking advice on several
financial reporting issues.

Permai produces and sells its range of drugs through three separate divisions. In addition, there are
two laboratories which carry out research and development activities.
In the first of these laboratories, the research and development activity is funded internally and
centrally for each of the three sales divisions. It does not carry out research and development
activities for other entities. Each of the three divisions is given a budget allocation which it uses
to purchase research and development activities from the laboratory. The laboratory is directly
accountable to the division heads for this expenditure.

The second laboratory performs contract investigation activities for other laboratories and
pharmaceutical companies. This laboratory earns 75% of its revenues from external customers and
these external revenues represent 18% of the organisation’s total revenues.
The performance of the second laboratory’s activities and of the three separate divisions is
regularly reviewed by the chief operating decision maker (CODM). In addition to the heads of
divisions, there is a head of the second laboratory. The head of the second laboratory is directly
accountable to the CODM and they discuss the operating activities, allocation of resources and
financial results of the laboratory.

Permai is uncertain as to whether the research and development laboratories should be reported as
two separate segments under IFRS 8 Operating Segments, and would like advice on this issue.

Require:
Advise Permai on how the above transactions should be dealt with in its financial statements
with reference to relevant MFRS 8.