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Unformatted text preview: CHAPTER 14 ANSWERS TO QUESTIONS 1. Segmented financial reports would have the most significance for a highly diversified company because the industries in which the company operates may have widely different rates of profitability, degrees of risk, and opportunities for growth. Thus, investors need information about these operating segments in order to make informed decisions. 2. Financial statement users need information about segments of a firm to aid in evaluating prospective investments. Different industries may have different rates of profitability, opportunities for growth, and types of risk. Segmented financial data aid the investor in determining the uncertainties surrounding the timing and amount of expected future cash flows and, therefore, aid in assessing the related risk of an investment. 3. Operating segment. A component of an enterprise that may earn revenues and incur expenses, about which separate financial information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Reportable segment. A segment considered to be significant to an enterprise’s operations; specifically, one that has passed one of three 10% tests or has been identified as being reportable through other criteria (aggregation, for example). 4. A segment is an operating segment if it possesses the following characteristics. It engages in business activities that may earn revenues and incur expenses (including transactions with other components of the entity). The entity’s chief operating decision maker (may be one individual or a group of executives) regularly reviews the component’s operating results to assess its performance and make decisions about resources to be allocated to it. Discrete financial information is available. An operating segment is a significant segment if it meets one or more of the following tests: a) Its combined external and internal revenue is 10% or more of the combined external and internal revenue of all reportable segments. b)The absolute amount of its reported profit or loss is 10% or more of the greater absolute amount of:- the combined reported profit of all operating segments not reporting a loss.- the combined reported loss of all operating segments that reported a loss. c) Its assets are 10% or more of the combined assets of all operating segments. 5. (a) Product or service disclosures : revenues from external customers for each product or service or group of products or services, on the same basis as the general-purpose financial statements. This disclosure is not required if the reportable segments are structured around products or services....
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- Spring '08