Since 1977

FAR OCAMPO/OCAMPO
FAR.2947-Operating Segments

DISCUSSION PROBLEMS
1. Which statement is incorrect regarding reporting of 6. Company A is a listed diversified retail company. It
segment information in accordance with PFRS 8? has three main types of stores: general department
a. PFRS 8 requires that an entity should disclose stores, liquor stores and specialist toy stores. Each of
information to enable users of its financial these stores has different products, customer types
statements to evaluate the nature and financial and distribution processes. Company A has identified
effects of the types of business activities in which it three business segments: general department stores,
engages and the economic environments in which liquor stores and specialist toy stores.
it operates.
All three business units earn most of their revenue
b. PFRS 8 applies to the financial statements of an
from external customers. Total consolidated revenue
entity whose debt or equity instruments are traded
of Company A is P600 million.
in a public market.
c. If an entity that is not required to apply PFRS 8 General
chooses to disclose information about segments Dept. Liquor Toy All
that does not comply with PFRS 8, it shall not stores stores stores segments
describe the information as segment information. Revenue P400M P100M P50M P550M
d. None, all the statements are correct. Segment profit 15M 7M 4M 26M
Assets 900M 200M 100M 1,200M
2. The method used to determine what information to
In its segment information, how many reportable
report for operating segments is referred to as the
segments does the company have?
a. Segment approach c. Enterprise approach
a. Three c. One
b. Operating approach d. Management approach
b. Two d. None
3. Which statement is incorrect regarding the term ‘chief
7. Celine Corporation and its divisions are engaged solely
operating decision maker (CODM)’?
in manufacturing. The following data pertain to the
a. The term identifies a function, not necessarily a
industries in which operations were conducted for the
manager with a specific title.
current year:
b. The function of the CODM is to allocate resources
to and assess the performance of the operating Operating Profit (Loss)
segments of an entity. Division A P30,000,000
c. Often the CODM of an entity is its chief executive B 10,000,000
officer or chief operating officer but, for example, it C ( 8,000,000)
may be a group of executive directors or others. D ( 2,000,000)
d. CODM is synonymous to segment manager E 5,000,000
In its current year financial statements, Celine
4. An operating segment is a component of an entity: Corporation should disclose an operating segment if
a. That engages in business activities from which it operating profit or loss is at least
may earn revenues and incur expenses (including a. P1,000,000 c. P4,500,000
revenues and expenses relating to transactions b. P3,500,000 d. P5,500,000
with other components of the same entity).
b. Whose operating results are reviewed regularly by 8. Rainee Corporation's revenue for the current year were
the entity's chief operating decision maker to make as follows:
decisions about resources to be allocated to the Consolidated revenue per income
segment and assess its performance. statement P1,200,000
c. For which discrete financial information is Intersegment sales 180,000
available. Intersegment transfers 60,000
d. All of the above. Combined revenues of all operating
segments P1,440,000
5. An entity shall report separately information about an
operating segment that meets which of the following Rainee has a reportable segment if that operating
quantitative thresholds? segment's revenues is at least
a. Its reported revenue, including both sales to a. P144,000 c. P24,000
external customers and intersegment sales or b. P120,000 d. P 6,000
transfers, is 10 per cent or more of the combined
revenue, internal and external, of all operating 9. PFRS 8 defines
segments. a. Segment revenue c. Segment result
b. The absolute amount of its reported profit or loss is b. Segment expense d. None of these
10 per cent or more of the greater, in absolute
amount, of (i) the combined reported profit of all 10. The following information pertains to Nolte Corp. and
operating segments that did not report a loss and its divisions for the current year.
(ii) the combined reported loss of all operating Sales to unaffiliated customers P2,000,000
segments that reported a loss. Intersegment sales similar to those
c. Its assets are 10 per cent or more of the combined sold to unaffiliated customers 600,000
assets of all operating segments. Interest earned on loans to other
d. Any of these. operating segments 40,000

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EXCEL PROFESSIONAL SERVICES, INC.

Nolte and all of its divisions are engaged solely in 16. The equity of The Kaiaho Company is traded on a
manufacturing operations. Nolte has a reportable recognized stock exchange. Kaiaho regularly reports
segment if that segment's revenue is at least the financial results of five different business units to its
a. P264,000 c. P260,000 chief operating decision maker. The relevant revenues
b. P204,000 d. P200,000 for the current year for these five operations, as a
percentage of total external and internal revenue, were
Use the following information for the next four questions. as follows:
Grum Corp. a publicly owned corporation, is subject to the Business
requirements for segment reporting. In its income operation % internal % external % total
statement for the current year, Grum reported revenues of 1 3 35 38
P50,000,000, operating expenses of P47,000,000, and net 2 10 14 24
income of P3,000,000, Operating expenses include payroll 3 15 5 20
costs of P15,000.000. Grum's combined identifiable assets 4 0 9 9
of all industry segments at the end of the current year 5 0 9 9
were P40,000,000. Reported revenues include 28 72 100
P30,000,000 of sales to external customers. The reportable segments of Kaiaho are
a. 1 and 2 only c. 1,2,3 and 4 only
11. In its current year financial statements, Grum should b. 1,2 and 3 only d. 1,2,3,4 and 5
disclose major customer data if sales to any single
customer amount to at least 17. The following segments have been identified for a
a. P 300,000 c. P4,000,000 business, along with their sales. No segment qualifies
b. P3,000,000 d. P5,000,000 on any other criterion for determining reportable
segments except possibly for revenue. Sales for each
12. If revenues from transactions with a single external segment, and the total for the company follow:
customer amount to 10 per cent or more of an entity’s
revenues, the entity need not disclose Segment Sales
a. That fact. 1 P 500,000
b. The total amount of revenues from each such 2 200,000
customer. 3 100,000
c. The identity of the segment or segments reporting 4 800,000
the revenues. 5 150,000
d. The amount of revenues that each segment reports 6 200,000
from a major customer. 7 175,000
P2,125,000 (total company sales)
13. External revenue reported by operating segments must What is the minimum number of reportable segments
be at least for this company?
a. P22,500,000 c. P12,500,000 a. 5 c. 3
b. P15,000,000 d. P37,500,000 b. 4 d. 2

14. What should the entity do if the total external revenue 18. There may be a practical limit to the number of
reported by operating segments constitutes less than reportable segments that an entity separately discloses
75 per cent of the entity's revenue? beyond which segment information may become too
a. Additional operating segments must be identified detailed. What did the IASB decide was a reasonable
as reportable segments. upper limit for the number of segment that a company
b. Additional operating segments must be identified must disclose?
as reportable segments even if they do not meet a. Five c. Twelve
the quantitative thresholds. b. Ten d. Fifteen
c. Additional operating segments must be identified
as reportable segments until at least 75 per cent of 19. Taft Corp. discloses operating-segment information.
the entity's revenue is included in reportable The following information is available for the current
segments. year:
d. All of the above.
Operating Traceable
15. Two or more operating segments may be aggregated Segment Sales Operating Expenses
into a single operating segment if aggregation is A P1,000,000 P 600,000
consistent with the core principle of PFRS 8, the B 800,000 500,000
segments have similar economic characteristics, and C 600,000 350,000
the segments are similar in each of the following P2,400,000 P1,450,000
respects:
Additional current year expenses, not included above,
I. The nature of the products and services are as follows:
II. The nature of the production processes
III. The type or class of customer for their products Indirect operating expenses P360,000
and services General corporate expenses 240,000
IV. The methods used to distribute their products or In the measure of segment profit or loss reviewed by
provide their services the chief operating decision maker, appropriate
V. The nature of the regulatory environment, for common operating expenses are allocated to segments
example, banking, insurance or public utilities based on the ratio of a segment’s sales to total sales,
a. I, II, II, IV and V but general corporate expenses are not. Segment C’s
b. I, II, III, and IV only current year profit for external reporting purposes was
c. I, III and V only a. P100,000 c. P160,000
d. I and V only b. P130,000 d. P250,000

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20. Norte Company has three manufacturing divisions,
each of which has been determined to be a reportable
segment. Common costs are appropriately allocated
on the basis of each division’s sales in relation to
Norte’s aggregate sales. In the current year, Division I
had sales of P6,000,000, which was 20% of Norte’s
total sales, and had traceable operating costs of
P3,800,000. Norte incurred operating costs of
P1,000,000 that were not directly traceable to any of
the divisions. In addition, Norte incurred interest
expense of P600,000. In reporting segment
information, what amount should be shown as
operating profit of Division I for the current year?
a. P2,000,000 c. P1,880,000
b. P1,400,000 d. P2,200,000
21. In accordance with PFRS 8, an entity shall disclose
a. Factors used to identify the entity’s reportable
segments.
b. The judgments made by management in applying
the aggregation criteria.
c. Types of products and services from which each
reportable segment derives its revenues.
d. All of these.
22. In accordance with PFRS 8, entity-wide disclosures do
not include
a. Information about products and services
b. Information about geographical areas
c. Information about major customers
d. Information about profit or loss, assets and
liabilities

- now do the DIY drill -

DO-IT-YOURSELF (DIY) DRILL
1. Australia Company has three business segments with 4. The following segments have been identified for an
the following Information: entity, along with their sales. No segment qualifies on
any other criteria for determining reportable segments.
One Two Three
Sales for each segment and the total for the entity
Sales to outsiders P8,000,000 P4,000,000 P6,000,000
follow:
Intersegment
transfers 600,000 1,000,000 1,400,000 Seg- External Inter-segment
Interest income - ment Sales Sales Total
outsiders 400,000 500,000 600,000 1 P10,000,000 P 3,000,000 P13,000,000
Interest income - 2 2,000,000 1,500,000 3,500,000
intersegment loans 300,000 400,000 500,000 3 2,600,000 1,100,000 3,700,000
4 4,700,000 2,300,000 7,000,000
What is the minimum amount of revenue that each of 5 2,800,000 500,000 3,300,000
those segments must have to be considered 6 3,000,000 700,000 3,700,000
reportable? 7 4,400,000 1,400,000 5,800,000
a. P1,950,000 c. P2,250.000 P30,000,000 P10,000,000 P40,000,000
b. P2,100,000 d. P2,370,000
What is the minimum number of reportable segments
2. In preparing its segment-reporting schedule, the High for this entity?
Corporation has developed the following information a. 3 c. 5
for each of its 5 segments: b. 4 d. 6

Segment Revenue Expenses

1 P1,400,000 P 800,000 5. CDO Company, a publicly owned corporation, is
2 1,200,000 1,300,000 subject to the requirements for segment reporting. In
3 900,000 750,000 its income statement for the current year ended, CDO
4 1,500,000 1,900,000 reported revenue of P150,000,000, operating expenses
5 500,000 220,000 of P100,000,000 and net income of P50,000,000.
Total P5,500,000 P4,970,000 Operating expenses include payroll costs of
The reportable business segment(s) using the segment P20,000,000. CDO’s combined identifiable assets of all
result test is (are) industry segments at year end were P80,000,000. The
a. Segments 1, 2, 3, 4 & 5 reported revenue includes P120,000,0000 of sales to
b. Segment 1, 2, 3 & 4 external customers. External revenue reported by
c. Segments 1, 3, & 5 operating segments must be at least
d. Segments 1, 3, 4 & 5 a. P112,500,000 c. P 90,000,000
b. P 37,500,000 d. P 60,000,000
3. Fragment Corporation and its divisions are engaged
solely in manufacturing. The following data pertain to
the industries in which operations were conducted for 6. An entity should disclose information to enable users of
current year: its financial statements to evaluate the nature and
financial effects of the types of business activities in
Operating Profit (Loss) which it engages and the economic environments in
Segment 1 8,000,000 which it operates. To give effect to this principle, an
2 2,000,000 entity shall disclose
3 (1,300,000) a. General information
4 3,000,000 b. Information about profit or loss, assets and
5 (1,000,000) liabilities
In its segment information, which is(are) reportable c. Reconciliations
segment(s)? d. All of these
a. Segments 1, 2, 3, 4 & 5
b. Segments 1, 2, 3 & 4
c. Segments 1, 2, & 4
d. Segments 3 & 5 J - end of FAR.2947 - J

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