OPERATING SEGMENTS

SEGMENT REPORTING -An entity shall disclose information to enable users of financial
business activities statements to evaluate the nature and financial effects of the business
activities in which it engages and the economic environments in which it operates.

➢ 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.

➢ The purpose of such disclosure is to enable investors and users to make better
assessments of each business activity leading to the understanding of the performance
of the entity as a whole.

Operating segments shall apply 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 the consolidated financial statements with a securities
commission or other regulatory organization for the purpose of issuing any class of instruments
in a public market.

Operating segment
An operating segment is a component of an entity:
a. That engages in business activities from which it may earn revenue and incur
expenses, including revenue 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. And for which discrete financial information is available.

An operating segment can generally be thought of as a distinguishable component of an

entity that is engaged in business activities which generate revenue and incur expenses.
Moreover, to be classified as an operating segment, separate financial information must
be available about the segment and its operating results shall be regularly reviewed by a
chief operating decision maker.
Chief operating decision maker
● The term chief operating decision maker identifies a function and not necessarily
a manager with a specific title.

● This function is to allocate resources to the segments and assess their

performance.

● The chief operating decision maker may be the entity's chief executive officer,
chief operating officer or a group of executive directors depending on who within
the organization is responsible for the allocation of resources and assessing the
performance of operating segments.

Identifying operating segments.

● The management approach is used in identifying operating segments.
● The management approach means that the operating segments are identified on
the basis of internal reports about components of an entity that are regularly
reviewed by the chief operating decision maker in order to allocate resources to
the segment and to assess its performance.

The idea is that the reporting of segment information is seen through the "eyes of
management" and users would wish to see the business as the chief operating decision
maker sees it.

Reportable operating segments

An entity shall report information about an operating segment that meets any of the
following quantitative thresholds:
1. The segment revenue, including both sales to external customers and
intersegment sales or transfers, is 10% or more of the combined revenue,
internal and external, of to all operating segments.

2. . The absolute amount of profit or loss of the segment is 10% or more of

the greater in absolute amount of:
a. Combined profit of all operating segments that reported a profit.
b. Combined loss of all operating segments that reported a loss.

3. The assets of the segment 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 on a voluntary basis if management
believes that information about the segment would be useful to the users of the financial
statements.
 Aggregation of segments
Two or more operating segments may be aggregated into a "single operating
segment" if the segments have similar economic characteristics and the
segments share a majority of the following five aggregation criteria:

a. Nature of product or service

b. Nature of production process
c. Type or class of customers
d. Marketing method or the method used to distribute the product
e. The nature of the regulatory environment, for example, banking, insurance or
public utility

Information to be disclosed for each segment

An entity shall disclose the following for each reportable operating segment:

1. General information about the operating segment

2. Information about profit or loss, including specified revenue and expenses included in
the measure of profit or loss

3. Information about segment assets and segment liabilities and the basis of
measurement.

4. Reconciliations of the totals of segment revenue, segment profit or loss, segment

assets, segment liabilities and other material segment items to corresponding items in
the entity's financial statements.

Disclosure about general information

An entity shall disclose the following general information about an operating segment:
a. Factors used to identify the reportable segments
b. Type of products and services from which each reportable segment derives revenue.

Disclosure of profit or loss, assets and liabilities

➢ An entity shall disclose for each reportable segment a measure of profit or loss,
total assets and total liabilities.
➢ An entity shall disclose a measure of profit or loss under all circumstances.

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 the reportable segment information.
● An entity shall disclose information about the following:
a. Information about products and services
 b. Information about geographical areas
c. Information about major customers

Revenue from products and services

An entity shall disclose the revenue from external customers for each product and
service.
Revenue and assets from geographical areas
An entity shall disclose the following geographical information:
a. Revenue from external customers in the entity's country of domicile, and in all foreign
operations in total.

b. Separate disclosure of material revenue from external customers in an individual

foreign country:

Disclosure about major customer

A major customer is defined as a single external customer providing revenue which
amounts to 10% or more of an entity's external revenue.
● The entity shall disclose the fact of reliance on major customers, the total amount
of revenue from major customers and the identity of the segment or segments
reporting the revenue.
● The entity is not required to disclose the identity of the major customer or the
amount of revenue that each segment reports from that customer.