Chapter 8

Notes (Part 2)

I. Related Party Disclosures

PROBLEM 1: TRUE OR FALSE

1. TRUE 6. TRUE
2. TRUE 7. TRUE
3. TRUE 8. FALSE
4. TRUE 9. TRUE
5. TRUE 10. FALSE

PROBLEM 2: FOR CLASSROOM DISCUSSION

1. C
2. D
3. B
4. C
5. C

PROBLEM 3: EXERCISE
1. Solution:

Requirement (a):
“Accounts receivable” is assumed to connote trade receivables. “Accounts
receivable” represents amounts owed by customers for goods sold and
services rendered as part of normal business operations. Inclusion of other
forms of receivables under the caption "accounts receivable" thus may be
confusing and misleading. Although, the three items listed above may be
aggregated with “accounts receivable” and presented under a single line item
described as “trade and other receivables,” the three items must not be
included in the “accounts receivable” account.

Requirement (b):
Related party disclosures:
a. Advances made to officers (key management personnel only) and
b. Advances to subsidiary company (in the separate financial
statements). This account is eliminated in the consolidated financial
statements.

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PROBLEM 4: MULTIPLE CHOICE – THEORY
1 6. D
A
.
2 7. D
B
.
3 8. D
C
.
4 9. B
D
.
5 10. D
B
.

II. Operating Segments

PROBLEM 5: TRUE OR FALSE

1. TRUE 6. TRUE
2. TRUE 7. TRUE
3. FALSE 8. FALSE
4. TRUE 9. FALSE
5. FALSE 10. FALSE

PROBLEM 6: FOR CLASSROOM DISCUSSION

1. D

2. D

3. B – “Management approach” – “The company is divided for internal

reporting purposes into 5 different divisions…….”

4. C

5. D – “Management approach” – “The entity reports to the board of

directors on the basis of each of the four regions.”

6. B – “Management approach” – an operating segment can be a reportable

segment even if it does not meet any of the quantitative thresholds if that
segment is treated as a reportable segment for internal reporting
purposes.

7. C – PFRS 8 uses a “management approach” in determining which

operating segments are reportable.

8. Solutions:

Requirement (a):
2
Operating Total Revenue Identifiable
Asset test
segments revenue test assets
A 1,200,000 24.39% 4,000,000 43.01%
B 420,000 8.54% 1,000,000 10.75%
C 350,000 7.11% 800,000 8.60%
D 600,000 12.20% 1,700,000 18.28%
E 1,100,000 22.36% 800,000 8.60%
F 1,250,000 25.41% 1,000,000 10.75%
Totals 4,920,000 100.00% 9,300,000 100.00%

Operating
Profit Loss P/L test
segments
A 240,000 64.86%
B (20,000) 5.41%
C (30,000) 8.11%
D 70,000 18.92%
E 50,000 13.51%
F (320,000) 86.49%
Totals 360,000 (370,000)
Higher

Answer: The reportable segments are segments A, B, D, E and F.

Requirement (b):

Answer: Yes.
Operating
External revenue
segments
A 1,000,000
B 420,000
C -
D 500,000
E 900,000
F 1,200,000
Totals 4,020,000
Divide by: 4,220,000
95.26%

Requirement (c):
Total external revenue 4,220,000 x 10% = 422,000

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4
PROBLEM 7: EXERCISES

1. Answer: The reportable segments are segments A, C, D and F.

2. Solution:
Operating Revenue
Profit test Asset test
segments test
A 29.41% 23.26% 43.01%
B 14.71% 13.95% 10.75%
C 8.82% 3.49% 8.60%
D 14.71% 5.81% 18.28%
E 5.88% 6.98% 8.60%
F 26.47% 46.51% 10.75%

Answer: The reportable segments are segments A, B, D, and F.

3. Solutions:

Requirement (a):

Operating Total Revenue Identifiable

Asset test
segments revenue test assets
A 1,400,000 29.72% 5,000,000 45.45%
B 1,000,000 21.23% 1,300,000 11.82%
C 1,050,000 22.29% 900,000 8.18%
D 760,000 16.14% 1,800,000 16.36%
E 300,000 6.37% 800,000 7.27%
F 200,000 4.25% 1,200,000 10.91%
Totals 4,710,000 100% 11,000,000 100%

Operating
Profit Loss P/L test
segments
A (300,000) 56.60%
B (180,000) 33.96%
C 220,000 41.51%
D 270,000 50.94%
E (20,000) 3.77%
F (30,000) 5.66%
Totals 490,000 (530,000)
Higher

Answer: The reportable segments are segments A, B, C, D and F.

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Requirement (b):

Answer: YES.

Operating
External revenue
segments
A 1,200,000
B 900,000
C 800,000
D 600,000
E
F 200,000
Totals 3,700,000
Divide by: 4,000,000
92.50%

Requirement (c):
Total external revenues 4,000,000 x 10% = 400,000

PROBLEM 8: MULTIPLE CHOICE – THEORY

1. D 6. C
2. C 7. B
3. D 8. D
4. C 9. B
5. C 10. A

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PROBLEM 9: MULTIPLE CHOICE – COMPUTATIONAL
1. C
Solution:
Revenue Profit Assets

Totals 32,750,000 5,800,000 67,500,000

10% Thresholds 3,275,000 580,000 6,750,000

Revenue
Operating test Profit test Assets test
segments qualifiers qualifiers qualifiers
A   
B   
C   
D x x 
E   
F x x x

2. B
Solution:
Sales to unaffiliated customers 2,000,000
Intersegment sales of products similar to those sold
to
unaffiliated customers 600,000
Total external and internal revenues excluding
interest 2,600,000
Multiply by: 10%
Revenue threshold 260,000

Interest revenue and interest expense are reported separately for

each reportable segment unless a majority of the segment’s revenues
are from interest (e.g., financial institution)

3. A (30,000,000 x 10%) = 3,000,000

4. A (30,000,000 x 75%) = 22,500,000

5. D 40,600 – including the intersegment profits but excluding the

common costs that are not allocated in internal reporting.