Reporting, Prescribes The Requirements For Reporting Financial Information by Segment
Reporting, Prescribes The Requirements For Reporting Financial Information by Segment
Reporting, Prescribes The Requirements For Reporting Financial Information by Segment
If a whole financial year could be broken up into interim periods, the reporting
enterprise could also be divided into smaller units called segment. Segment reporting
refers to the reporting of the activities of an entity in terms of certain parts, or segments
of operations. This is also known as disaggregated reporting. PAS 14, Segment
Reporting, prescribes the requirements for reporting financial information by segment.
The purpose of segment information is to inform users about the different types
of products and services an enterprise produces and the different geographical areas in
which it operates to help users of financial statements better understand the enterprise’s
past performance; better assess the enterprise’s risks and returns and make more
informed judgments about the enterprise as a whole.
Segment reporting is required for enterprises whose equity or debt securities are
publicly traded and for enterprises that are in the process of issuing equity and debt
securities in public securities market. Some enterprises may choose to disclose
segment information and when they do so, they shall comply with all the requirements
of PAS 14.
An entity which reports segment information decides as how the enterprise will
be divided into segments. The predominant sources and nature of risks and returns
may result from the entity’s locations or from the nature of products or services. If the
enterprise’s risks and rates of return are affected predominantly by differences in
products and services it produces, its primary reporting format for reporting segment
information should be business segments. Similarly, if the enterprise’s risks and rates
of return are affected predominantly by location of operation (location of production
facilities or location of markets), its primary reporting format for segment information
should be geographical segments.
proximity of operations
SEGMENT REVENUE
SEGMENT EXPENSE
SEGMENT RESULT
SEGMENT ASSETS
Segment assets are those operating assets that are employed by a segment in
its operating activities and that either are directly attributable to the segment or can be
allocated to the segment on a reasonable basis.
Current assets that are used in the operating activities of the segment
Property, plant and equipment that are the subject of finance leases and
intangible assets. (If a particular item of depreciation or amortization is
included in segment expense, the related asset is also included in
segment assets.)
Investments accounted for under the equity method, if the income or loss
from such investments is included in segment revenue
Segment liabilities are those operating liabilities that result from the operating
activities of a segment and that either are directly attributable to the segment or can be
allocated to the segment on a reasonable basis.
interest bearing liabilities (if the segment’s segment result includes related
interest expense)
REPORTABLE SEGMENT
Its assets are 10% or more of the total assets of all segments.
o The segment may be combined with one or more similar segments not
meeting any of the 10% thresholds to form a separately reportable
segment. Similar means the segment/s should share a majority of the
factors that influence their risks and rates of return.
Blue Bay operates in different geographic areas since 2023. The following information
pertains to Blue Bay’s operation for the year 2027.
Revenues
Geographi Identifiabl Profit
cal e Assets Extern Internal Total (Loss)
Segment al
A P10M P25M P5M P30M P8M
B 4M 8M 2M 10M (3M)
C 4M 6M 1M 7M 1M
D 20M 5M 8M 13M (4M)
E 11M 22M 4M 26M 11M
Solution:
In case the aggregate external revenues of A, B and E were less than 75% of
consolidated revenues of the enterprise, even C would be taken in as reportable even if
it did not meet any one of the 10% thresholds.
REQUIRED DISCLOSURES
For each reportable segment, the following shall be disclosed as part of segment
information:
(d) The total cost incurred, on an accrual basis, during the period to
acquire segment assets that are expected to be used during more than
one period for each reportable segment;
(g) The aggregate of the entity’s share of the profit or loss of associates,
joint ventures, or other investments accounted for under the equity method
if substantially all of those associates’ operations are within that single
segment;
(h) The aggregate investments in associates and joint ventures from which
the segment’s share in profit or loss is part of segment revenues.
Enterprises that trade their securities in the public securities market or are in the
process of trading their securities in public securities market are required to
present segment information.
The predominant sources of risks and rates of return of an entity shall be the
determining factors in determining whether the entity will adopt, as its primary
reporting format, business segment or geographical segment.
A segment that is not reportable based on the 10% test may be reported
separately, or may be combined with other segments not meeting the 10% tests,
or may be presented as a reconciling item.
1. Blue Bay operates in different geographic areas since 2003. The following
information pertains to Blue Bay’s operation for the year 2007.
2. The Red Company and its divisions are engaged solely in manufacturing
operations. The following data (consistent with prior years’ data) pertain to the
industries in which operations were conducted for the year ended December 31,
2007:
Operating Identifiable
Industry Total Profit Assets at 12/31/07
Revenue
A P10,000,000 P1,750,000 P20,000,000
B 8,000,000 1,400,000 17,500,000
C 6,000,000 1,200,000 12,500,000
D 3,000,000 550,000 7,500,000
E 4,250,000 675,000 7,500,000
F 1,500,000 225,000 3,000,000
3. The following information pertains to Blue Company and its divisions for the year
ended December 31, 2007:
Sales to unaffiliated customers P1,000,000
Intersegment sales of products similar to
those sold to unaffiliated customers 300,000
Interest earned on loans to other industry segments 20,000
Blue and all of its divisions are engaged solely in manufacturing operations.
a. P100,000 c. P130,000
b. P102,000 d. P132,000
How much should be reported as Segment No. 4’s operating income for 2007?
a. P 500,000 c. P1,220,000
b. P1,100,000 d. P1,400,000
6. Yellow Company has five business divisions. The following data with regard to
its operating segments for the year ended December 31, 2007 are as follows:
a. P2,500,000 c. P1,300,000
b. P1,900,000 d. P 570,000
7. Ebony Company has three lines of business, each of which was determined to
be a reportable segment. Ebony Company sales aggregate P10,000,000 in
2007, of which Segment No. 1 contributed 40%. Traceable costs were
P2,200,000 for Segment No. 1 out of the total of P7,000,000 for the company as
a whole. For internal reporting, Ebony Company allocates common costs of
P1,200,000 based on the ratio of a segment’s income before common costs to
the total income before common costs.
In its 2007 financial statements, how much should Ebony Company report as
operating profit for Segment No. 1?
a. P1,000,000 c. P1,200,000
b. P1,080,000 d. P1,800,000