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Unformatted text preview: Ch. 14 SEGMENT REPORTING AND INTERIM REPORTING Segmental Reporting provides financial statement users with disaggregated data about the nature or timing of firms capital investments and investment outcomes, thereby reducing uncertainty. I. Segmental Reporting SFAS No. 131, which superseded SFAS 14 in 1997, governs the disclosure of accounting data by: A. Operating Segments C. Major Customers B. Geographic Areas D. Products and Services A. Operating Segment- SFAS 131 relies on a "management approach" to identify the disaggregated components of the business. The operating segments usually will be evident from the organizational structure and revolve around operating decisions. An operating segment is a component of the firm: i. That engages in business activities from which it earns revenues and incurs expenses. ii. Whose operating results are reviewed by the chief operating decision maker to review performance. iii. For which discrete financial information is available. Under SFAS No. 131, management should base identification of operating segments on the following criteria: i. nature of the product or service ii. nature of the production process iii. type and class of customer iv. marketing distribution channels v. the nature of the regulatory environment. An operating segment is a reportable segment if it meets any of the following three tests: (1) 10% Revenue test (2) 10% Operating Income Test (3) 10% Asset test 1. 10% Revenue Test- Industry segment is reportable if its revenues are > 10% of the combined revenues for all segments. Segment revenue includes : 1- sales to unaffiliated customers- intersegment sales (i.e., sales to affiliated customers) Segment revenue generally excludes : - income from unconsolidated equity investments - general corporate revenues P14-5 From Beams, Anthony, Clement, and Lowensohn, Advanced Acct. , 9th ed. 1. (a) 10% Revenue Test Segment Reportable Revenues Test Value ** Segment? Food $17,000 > $7,400 yes Tobacco 17,000 > 7,400 yes Lumber 7,000 < 7,400 no Textiles 26,000* > 7,400 yes Furniture 7,000 < 7,400 no Total $74,000 * 29,000 - 3,000 = 26,000 ** 74,000 x .10 = 7,400 2. 10% Profit or Loss Test- In general, an operating segment is a reportable segment if its segment profit is greater than 10% of the income of the combined operating segments. However, for applying the test, income of the combined operating segments excludes segment losses, and segment losses should be compared to combined segment profit at their absolute value. The definition of segment profit and which individual revenue and expense items to include in operating profit depends on the profit measure used for evaluation by the chief operating decision maker....
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This note was uploaded on 04/05/2008 for the course ACCT 401 taught by Professor Schoderbek during the Spring '08 term at Rutgers.
- Spring '08