SAN PABLO COLLEGES

San Pablo City, Laguna

PFRS 8: OPERATING SEGMENTS

SCOPE: PFRS 8 applies to the separate or individual financial statements of an entity and to the consolidated
financial statements of a group with a parent:
A) Whose debt or equity instruments are traded in a public market
B) That files, or is in the process of filing, its (consolidated) financial statements with a securities
commission or other regulatory organization for the purpose of issuing any class of instruments in a
public market.

However, when both separate and consolidated financial statements for the parent are presented in a single financial
report, segment information need be presented only on the basis of the consolidated financial statements.

OPERATING SEGMENTS
An operating segment must be a component of an entity, meaning, its operations and cash flows that can be clearly
distinguished, operationally and for financial reporting purposes, from the rest of the entity. An operating segment is
a component of an entity:
A. That engages in business activities from which it may earn revenues and incur expenses (including revenues
and expenses relating to transactions with other components of the same entity)
B. Whose operating results are regularly reviewed by the entity’s chief operating decision maker to make
decisions about resources to be allocated to the segment and assess its performance
C. For which discrete financial information is available.

An operating segment may engage in business activities for which it has yet to earn revenues, for example, start-up
operations may be operating segments before earning revenues.

The term ‘chief operating decision maker’ identifies a function, not necessarily a manager with a specific title. That
function is to allocate resources to and assess the performance of the operating segments of an entity. (PFRS 8,
par.7)

REPORTABLE SEGMENTS
An operating Segment for which segment information is required to be disclosed and meets any of the following:

QUANTITATIVE THRESHOLDS
An entity shall report separately information about an operating segment that meets any or at least one
of the following quantitative thresholds:
a) Its reported revenue, including both sales to external customers and intersegment sales or transfers,
is 10% or more of the combined revenue, internal and external, of all operating segments.
b) The absolute amount of its reported profit or loss is 10% or more of the greater, in absolute amount,
of (1) the combined reported profit of all operating segments that did not report a loss and (2) the
combined reported loss of all operating segments that reported a loss.
c) Its assets are 10% or more of the combined assets of all operating segments.

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 users of
the financial statements.

OVERALL SIZE TEST

➢ If total external revenue attributable to reportable segments identified using the 10% quantitative
thresholds is less than 75% of the total consolidated or enterprise revenue (external revenue),
additional segments should be identified as reportable segments, even if they do not meet the 10 %
requirement. Until at least 75% of total consolidated or enterprise revenue is included in reportable
segments.
➢ In other words, the quantitative thresholds will not be necessary in determining additional reportable
segments in order to meet the 75% requirement.

PFRS 8 adopts MANAGEMENT APPROACH to identify reportable segments. Under the management approach,
operating segments are identified on the basis of internal reports that are regularly reviewed by the entity’s chief
operating decision maker in order to allocate resources to the segment and assess its performance.
 SAN PABLO COLLEGES
San Pablo City, Laguna

AGGREGATION OF OPERATING SEGMENTS

➢ Two or more operating segments may be aggregated into a single operating segment if the segments have
similar economic characteristics and similar in each of the following respects:
A) The nature of the products and services
B) The nature of the production processes
C) The type or class of customer for their products and services
D) The methods used to distribute their products or provide their services
E) If applicable, the nature of regulatory environment (i.e., banking, insurance, or public utilities)

DISCLOSURES REQUIRED FOR REPORTABLE SEGMENTS

An entity shall disclose information to enable users of its financial statements to evaluate the nature and financial
effects of the business activities in which it engages and the economic environments in which it operates.
Disclosures will include

1. General information
a. Factors used to identify the entity’s reportable segments, including the basis of organization (i.e.,
whether management has chosen to organize the entity around differences in products and services,
geographical areas, regulatory environment, or a combination of factors, and whether operating
segments have been aggregated);
b. Judgments made by management in applying the aggregation criteria including brief description of
the operating segments that have been aggregated and the economic indicators that have been
assessed in determining that the aggregated operating segments share similar economic
characteristics; and
c. Types of products and services from which each reportable segment derives its revenues.

2. Information about reported segment profit or loss (including specified revenues and expenses included in
reported segment profit or loss), segment assets, segment liabilities, and the basis of measurement; and
a. Revenues from external customers
b. Revenues from transactions with other operating segments of the same entity
c. Interest revenue and interest expense
d. Depreciation and amortization
e. Material items of income and expenses and material noncash items other than depreciation and
amortization
f. Interest in profit or loss of associates and joint venture accounted for by equity method
g. Income tax expense

3. Reconciliations of the totals of segment revenues, reported segment profit or loss, segment assets, segment
liabilities and other material segment items to corresponding entity amounts

ENTITY WIDE DISCLOSURES: Entity-wide disclosures are additional information that is required to be disclosed by all
entities if such information is not provided as part of reportable segment information. An entity shall report
information about:
1. Products and services
2. Geographical areas
3. Major customers - If revenues from transactions with a single external customer amount to 10% or more
of an entity’s revenues, the entity shall disclose that fact and disclose the following:
a. The total amount of revenues from each major customer
b. The identity of the segment or segments reporting the revenues.

Note: The entity NEED NOT disclose the identity of a major customer or the amount that each segment
reports from that customer.
 SAN PABLO COLLEGES
San Pablo City, Laguna

PAS 34: INTERIM REPORTING

PAS 34 recognizes that “timely and reliable interim financial reporting improves the ability of investors,
creditors, and others to understand an entity’s capacity to generate earnings and cash flows and its
financial condition and liquidity.

Entities Covered by PAS 34

1. Certain entities required by Securities and Exchange Commission (SEC) and the Philippine Stock
Exchange (PSE) to publish interim reports
❖ Under the reportorial requirements of the Revised Securities Act of the Philippines, certain
entities are required by SEC and PSE to provide quarterly financial reports within 45 days
after the end of each of the first three quarters. Similarly, entities covered under Rules of
Commercial Papers and Financing Act are required by the SEC to file quarterly financial
reports within 45 days after each quarter-end.
2. Certain entities that elect to publish an interim financial report

Interim Reporting – Pertains to preparation and presentation of interim financial report for an interim
period

Interim Period – Is a financial reporting period shorter than a full financial year.

Interim financial report – A financial report containing either

(1) a complete set of financial statements, or
(2) a set of condensed financial statements for an interim period.

Minimum Components of an Interim Financial Report

a. Condensed statement of financial position
b. Condensed statement of profit or loss and other comprehensive income, presented either;
1. A condensed single statement
2. A condensed separate income statement and a condensed statement of comprehensive
income
c. Condensed statement of changes in equity
d. Condensed statement of cash flows
e. Selected explanatory notes

The term ‘condensed’ means an entity needs only to provide the minimum information required under
PAS 34.

Required information in Condensed Statements

a. Headings and subtotals included in most recent annual financial statements
b. Selected minimum explanatory notes - explaining events and transactions significant to an
understanding of the changes in financial position/performance since last annual reporting date
c. Selected line items or notes if their omission would make the condensed financial statements
misleading
d. Basic and diluted earnings per share (if applicable) on the face of statement of comprehensive
income, complete or condensed, for an interim period.

Selected Explanatory Notes

As a minimum, an entity shall include the following information in its notes to interim financial statements,
if material and if not disclosed elsewhere in the interim financial report:
1. A statement that the same accounting policies and methods of computation are followed in the
interim FS as compared with most recent annual FS or, if those policies or methods have been
changes, a description of the nature and effect of the change
2. Explanatory comments about the seasonality or cyclicality of interim operations
 SAN PABLO COLLEGES
San Pablo City, Laguna

3. The nature and amount of items affecting assets , liabilities, equity, net income, or cash flows that
are unusual because of their nature, size, or incidence
4. The nature and amount of material changes in estimates of amounts reported in prior interim
periods of the current financial year or changes in estimates of amounts reported in prior financial
years
5. Issuances, repurchases, and repayments of debt and equity securities
6. Dividends paid (aggregate per share) separately for ordinary shares and other shares
7. Segment information when the entity is required under PFRS 8 Operating Segments to disclose
segment information in its annual financial statements
8. Material events subsequent to the end of the interim period that have not been reflected in the
FS for the interim period
9. The effect of changes in the composition of the entity during the interim period, including
business combinations, obtaining or losing control of subsidiaries and long-term investments,
restructurings, and discontinued operations
10. Changes in contingent liabilities or contingent assets since the end of the last annual reporting
period

Examples of the kinds of disclosures as required by PAS 34, par 17 are as follows:
a. Write-down of inventories to net realizable value and the reversal of such a write-down
b. Recognition of a loss from the impairment of PPE and Intangibles and the reversal of such an
impairment loss
c. Reversal of any provision for the cost of restructuring
d. Acquisitions and disposals of items of PPE
e. Commitments for the purchase of PPE
f. Litigation settlements
g. Corrections of fundamental errors in previously reported financial data
h. Any debt default or breach of a debt covenant that has not been corrected subsequently
i. Related party transactions

General Guidelines of Interim Financial Reporting

a. Revenues from products sold or services rendered are generally recognized for interim reports on
the same basis as for the annual period.
b. Expenses associated directly with revenue are matched against revenue in those interim periods
in which the related revenue is recognized.
c. Expenses not associated with revenue are recognized in the interim periods as incurred or
allocated over the interim periods benefited.
d. Inventories are measured for interim financial reporting by the same principles as at financial year-
end (LCNRV). However full inventory taking may not be required at interim dates although it must
be done at financial year-end. It may be sufficient to make estimates at interim dates based on
sales margin.
e. Inventory losses from permanent market declines are recognized in the interim period in which
the decline occurs. Recoveries of such losses on the same inventory in later interim period should
be recognized as gains in later interim periods.
f. Temporary market declines on inventories and recoveries at a later interim period are now
recognized for interim purposes.
g. Interim period income tax expense should reflect the same general principles of income tax
accounting applicable to annual reporting.
h. Gains or losses from, disposal of property, gains or losses from sale of discontinued operations and
other gains and losses should not be allocated over the interim periods.

Periods to be presented
1. Statement of financial position as at the end of the current interim period (e.g. 30 Sept. 2016) and
as of the end of the immediate preceding financial year (e.g. 31 December 2015)
 SAN PABLO COLLEGES
San Pablo City, Laguna

2. Statements of comprehensive income for the current interim period (e.g. July – Sept. 2016) and
cumulatively for the current financial year (Jan. – Sept. 2016) (which will be the same for half year
ends), with comparatives for the interim period of the preceding financial year (Jan. – Sept. 2015)
3. Statements of changes in equity for the current financial year to date, with comparatives for the
year to date of the immediately preceding financial year
4. Statements of cash flows for the current financial year to date, with comparatives for the year to
date of the immediately preceding financial year.

TWO VIEWS ON INTEIM REPORTING

1. Integral View – the interim period is considered as an integral part of the annual accounting period,
thus, annual operating expenses are estimated then allocated to interim periods benefitted.
2. Discrete View – the interim period is considered as a discrete (‘stand-alone’) accounting period,
thus annual operating expenses are recognized in the interim period incurred regardless of whether
subsequent interim periods are benefitted.

Other Guidelines

ACCOUNTING POLICIES
➢ Principles for recognizing assets, liabilities, income and expenses are same as in the most recent
annual financial statements, unless there is a change in an accounting policy that is to be reflected
in the next annual financial statements.
➢ Tax recognised based on weighted average annual income tax rate expected for the full year
➢ Tax rate changes during the year are adjusted in the subsequent interim period during the year.

USE OF ESTIMATES - Interim reports require a greater use of estimates than annual reports.

COSTS INCURRED UNEVENLY - Anticipated or deferred only if it would be possible to defer or anticipate at
yearend.

SEASONAL, CYCLICAL OR OCCASIONAL REVENUE

➢ Revenue received during the year should not be anticipated or deferred where anticipation would
not be appropriate at year end
➢ Recognized as it occurs.