SAMONTE BSBA-2A QUESTIONS: 1. What is the core principle of segment reporting? An entity shall disclosure information to enable users of financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environments which it operates. The purpose of such disclosure is to enable investors and users make better assessment of each business activity leading to the understanding of the performance of the entity as a whole.
2. Explain briefly segment reporting.
In other words, segment reporting is the disclosure of certain financial information about the products and services an entity procedure and the geographical areas in which an entity operates.
3. What is the scope of PFRS 8?
PFRS 8 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.
However, if a financial report contains both the consolidated financial statements of
a parent and the parent’s separate financial statements, segment information is required only in the consolidated financial statements.
4. Define an operating segment.
An operating segment is a component of an entity: a. 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. For which discrete financial information is Available
5. Define a 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 ma 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.
6. What are the quantitative thresholds in identifying reportable segments?
An entity shall disclose 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 of transfers, is 10% or more of the combined revenue, internal and external, of all operating segments. 2. The absolute amount of profit or loss 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 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. 7. Explain the 75% threshold in identifying reportable segments. If the total external revenue of reportable operating segments constitutes less than 75% of the entity external revenue, additional operating segments shall be identified as reportable segments even if they do not meet the quantitative thresholds until at least 75% of the entity external revenue is included in reportable segments.
This “overall size test” is to ensure that all entities present a sufficient level of information regarding their business activities in order that users of financial statements can make informed economic decisions. 8. 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.
9. Explain the disclosure about general information.
An entity shall disclose the following general information about an operating segment: a. Factors used to identify the reportable segment b. Type of products and services from which each reportable segment derives revenue.
10. Explain the disclosure about profit or loss for each reportable segment. 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.
However, an entity shall disclose a measure of total assets and total liabilities for each reportable segment if such an amount is regularly provided to the chief operating decision maker.
11. What are entity-wide disclosure?
Entity-wide disclosure 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. Entity-wide disclosures include the following: a. Information about products and services b. Information about geographical areas c. Information about major customers
12. What is the entity-wide disclosure about products and services?
An entity shall disclose the revenue from external customers for each product and service. 13. What is the entity-wide disclosure about geographical areas? 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 c. The basis for attributing revenue from external customers to individual countries d. Noncurrent assets located in the entity’s country of domicile and in all foreign countries in total
14. What is 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 following shall be considered a single customer:
1. A group of entities under a common control 2. A government and entities under the control of such government
15. Explain the major customer disclosure.
The major customer disclosure means that an entity shall provide information about the extent of reliance on the major customers.
The entity shall disclose:
a. The fact of reliance on major customers. b. The total amount of revenue from major customers. c. The identity of the segment reporting the revenue.
