Operating Segment Students

Intermediate Accounting 3 part 1
Operating Segment
An operating segment is a component of an entity:

• That engages in business activities from which it may earn revenues and incur expenses
(including revenues and expenses related to transactions with other components of the
same entity)
• Whose operating result 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
• 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.
Not every part of an entity is necessary an operating segment or part of an operating segment.
For example, a corporate headquarter or some functional department ay not earn revenues or
may Ern revenues that are only incidental to the activities of the entity and would not be
operating segments. Post-employment benefit plan are not operating segments.
Chief operating decision maker identifies a function, not necessarily a manager with specific
title. That function is to allocate resources to and assess the performance of the operating
segments of an entity. Often the chief operating decision maker of an entity is its chief
executive officer or chief operating officer but for example, it may be a group of executive
directors or officers.
An entity shall report separately information about each operating segment that:
• Has been identified in accordance with criteria of reporting
• Exceeds the quantitative threshold
An entity shall report separately information about an operating segment that meets any of the
following quantitative thresholds:
• Its revenue, including both sales to external customers and inter-segment, of all
operating segments sales or transfers, is 10% or more of the combined revenues,
internal and external, of all operating segments
• The absolute amount of its reported profit or loss is 10% or more of the greater, in
absolute amount, of combined operating profit of all operating segments that did not
report a loss and the combined reported loss of all operating segments that reported loss
• Its assets are 10% or more of the combined assets of all operating segments
Operating segments that do not meet any of the quantitative threshold may be considered
reportable and separately disclosed, if management believes that information about segment
would be useful to users of the financial statements.
PROBLEMS
Problem 3-1: Identifying Reportable Operating Segment

Tail Company and its divisions are engaged solely in manufacturing operations. The following
data pertain to the industries in which operations were conducted for the year ended December
31,2014
Segments Total Revenue Operating Profit Identifiable asset

A 20,000,000.00 3,600,000.00 40,000,000.00
B 16,000,000.00 2,800,000.00 36,000,000.00
C 12,000,000.00 2,400,000.00 28,000,000.00
D 6,000,000.00 1,200,000.00 16,000,000.00
E 9,000,000.00 1,400,000.00 14,000,000.00
F 3,000,000.00 600,000.00 6,000,000.00
66,000,000.00 12,000,000.00 140,000,000.00
In its segment information for 2014, how many reportable segments does Tail Company have?
Problem 3-2:Identifying Reportable Operating Segment

Buddy Company and its divisions are engaged solely in manufacturing operations. The
Following data pertain to the industries in which operations were conducted for the year ended
December 31, 2014
Segments Revenue from Outsiders Revenue from within Operating Profit Identifiable asset
A 18,000,000 2,000,000 3,600,000 40,000,000

B 13,000,000 3,000,000 2,800,000 36,000,000
C 5,000,000 7,000,000 2,400,000 28,000,000
D 4,500,000 1,500,000 1,200,000 16,000,000
E 5,400,000 3,600,000 1,400,000 14,000,000
F 3,000,000 -----0------ 600,000 6,000,000
48,900,000 17,100,000 12,000,000 140,000,000
In its segment information for 2014, how many reportable segments does Tail Company have?

Operating profit and loss figures for the seven segments of Helium Company are as follows
Segments Amount
K P13,000,000
L 1,200,000
M 7,800,000
N (2,400,000)
O (600,000)
P 600,000
Q 1,800,000
P17,800,000
Problem 3-4: Segment Revenue

The following information pertains to the White Company and its divisions for the year ended
December 31,2014
Sales to unaffiliated customers P10,000,000

Inter-segment sales of products similar to those sold to
unaffiliated customers 2,000,000
White Company and all of its divisions are engaged solely in manufacturing operations.

Horn Company discloses supplemental industry segment information. The following information
is available for year 2014:
Segment Sales Traceable Operating Expenses

B P4,000,000 P2,000,000
C P3,200,000 P2,000,000
D P2,400,000 P1,400,000
P9,600,000 P5,400,000
Additional Expenses not included above are as follows:
Indirect operating expense 1,440,000
General & administrative expenses 960,000
Appropriate common expenses are allocated to segments based on the ratio of sales to total
sales. How much segment D’s operating profit?
Problem 3-6: Segment’s Operating Profit

Bumper Company has three lines of buiness, each of which was determined to be reportable
segment. Bumper Company Sales aggregated P15,000,000 in 2014 of which segment #1
contributed 40%. Traceable cost were P3,500,000 for September to November out of
P10,000,000 for the company as a whole. For internal reporting Bumper allocates common cost
of P3,000,000 based on the ratio of a segment's income before common cost. In its 2014
financial statements, how much should Bumper report as operating profit for segment no.1?
Problem 3-7: Operating Segment

Holy Company has three divisions each of which has been determined to be reportable
segment. Common costs are appropriately allocated on the basis of each division's sales in
relation to Holy's aggregate sales in 2014, Segment 1 had sales of P6,000,000 which was 25%
of Holy's total sales and had traceable operating cost of P3,800,000. In 2014 Holy incurred
operating cost of P1,000,000 that were not directly traceable to any of the segments. In
reporting segment information what amount should be shown as Segment1's operating profit for
2014?

Mugs Corporation, a publicly owned corporation is subject to the requirements for segment
reporting. In its income statement for the year ended December 31, 2014. Mugs reported
revenue of P 50,000,000 operating expenses of P47,000,000 and net income of P3,000,000.
Operating expenses include payroll cost of P15,000,000. Mug's combined identifiable assets of
all industry segments at December 31,2014 were P40,000,000. In its 2014 financial statements,
Mugs should disclose major customer data if sales to any single customer amount to at least?
A major customer disclosure is required if a company derives 10% or more of its revenue from a
single customer or group of entities under common control (P 50,000,000 x 10%)

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Intermediate Accounting 3 part 1

An operating segment is a component of an entity:

Problem 3-1: Identifying Reportable Operating Segment

Segments Total Revenue Operating Profit Identifiable asset

Problem 3-2:Identifying Reportable Operating Segment

A 18,000,000 2,000,000 3,600,000 40,000,000

Problem 3-3:Identifying Reportable Operating Segment

Problem 3-4: Segment Revenue

Sales to unaffiliated customers P10,000,000

Problem 3-5:Identifying Reportable Operating Segment

Segment Sales Traceable Operating Expenses

Problem 3-6: Segment’s Operating Profit

Problem 3-7: Operating Segment

Problem 3-8:Identifying Reportable Operating Segment

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