operating segment
TRANSCRIPT
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Problem 8-21
Easy Company provided the following statement of financial
position on December 31, 2011 and income statement for the
current year:Current assets 130,000
Property, plant and
equipment
500,000
Goodwill 100,000
Investment in
associate70,000
Total Assets 800,000
Current liabilities 90,000Noncurrent liabilities 60,000
Share capital 400,000
Retained earnings 250,000
Total liabilities and equity 800,000
Revenue 1,800,000
Cost of sales (1,200,000)
Gross profit 600,000
Other income 60,000
Distribution cost (200,000)
Administrative
expenses
(100,000)
Other expenses (50,000)
Finance cost (60,000)Share in profit of
associate
10,000
Income before tax 260,000
Income tax expense (90,000)
Net income 170,000
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The following data are relevant to the presentation of segmental
information:
1. The entity is organized for management purposes into three major
operating segments, namely furniture, stationery and computerproducts. There are other smaller operating segments.
2. The sales revenue for the operating segments is set out below.
3. The cost of sales, distribution cost, administrative expenses andfinance cost can be allocated as follows:
External sales Intersegment
sales
Furniture 800,000 200,000
Stationery 500,000 150,000
Computer
products
400,000 50,000
Other segments 100,000 -
Furniture 50%
Stationery 25%
Computer products 20%
Other segments 5%
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4. The cost of sales related to intersegment sales amounted to
P240,000 to be allocated as follows:
5. The segment assets and liabilities are as follows:
Furniture 50%
Stationery 40%
Computer 10%
Furniture Stationery Computer
products
Others
Current assets 80,000 40,000 5,000 2,000
Property, plant & equip. 300,000 100,000 85,000 3,000
Goodwill 60,000 30,000 10,000 -
Total assets 440,000 170,000 100,000 5,000
Current liabilities 45,000 30,000 8,000 1,000
Noncurrent liabilities 30,000 20,000 7,000 2,000
Total liabilities 75,000 50,000 15,000 3,000
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6. The other income and other expenses are not allocated to the
operating segments as a measure of profit or loss.
7. The chief operating decision maker does not allocate income tax
expense to reportable segments as a measure of profit or loss.
REQUIRED:
1. Determine the profit or loss for all of the operating segments.
2. Prepare the disclosures required under PFRS 8.3. Prepare the necessary reconciliations between the segment
information and amounts shown in the entitys financial
statements.
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Segment profit or lossFurniture Stationery Computerproducts
Other
Segments
TOTAL
External sales 800,000 500,000 400,000 100,000 1,800,000
Intersegment sales 200,00 150,000 50,000 - 400,000
Total sales 1,000,000 650,000 450,000 100,00 2,200,000Intersegment sales elim. (400,000)
Entity sales 1,800,000
Cos of sales- external (600,000) (300,000) (240,000) (60,000) (1,200,000)
Cost of sales- intersegment (120,000) (96,000) (24,000) - (240,000)
Total cost of sales (720,000) (396,000) (264,000) (60,000) (1,440,000)
Intersegment COS elim. (240,000)
Entity cost of sales 1,200,000
Gross profit 280,000 254,000 186,000 40,000 600,000
Share in profit of assoc. 10,000
Other income 60,000
Distribution cost (100,000) (50,000) (40,000) (10,000) (200,000)
Administrative expense (50,000) (25,000) (20,000) (5,000) (100,000)
Other expense (50,000)
Finance cost (30,000) (15,000) (12,000) (3,000) (60,000)
Segment profit or loss 100,000 164,000 114,000 22,000 260,000
Income tax expense (90,000)
Net income 170,000
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2. The minimum disclosures under PFRS 8 relating to the
reportable operating segment shall include the following:
Entitys share in profit of associate 60,000
Income tax expense 90,000
Furniture Stationery Computerproducts
External sales 800,000 500,000 400,000
Intersegment sales 200,000 150,000 50,000
Finance cost 30,000 15,000 12,000Segment profit or loss 100,000 164,000 114,000
Total assets 440,000 170,000 100,000
Total liabilities 75,000 50,000 15,000
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3. Reconciliations
Revenue
Revenue of reportable segments 2,100,000Revenue of nonreportable segments 100,000
Elimination-intersegment sales (400,000)
Entity revenue shown in income
statements
1,800,000
Profit of loss
Profit of reportable segment 378,000
Profit of nonreportable segment 22,000
Elimination- intersegment profit (160,000)
Unallocated amounts:Share in profit of asscociate 10,000
Other income 60,000
Other expenses (50,000)
Entity income before tax 260,000
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Total assets
Total assets of reportable segments 710,000
Total assets of nonreportable segments 5,000
Unallocated corporate assets 85,000
Total assets shown in statement of financial
position
800,000
Total liabilities
Total liabilities of reportable segments 140,000
Total liabilities of nonreportable segments 3,000
Unallocated corporate liabilities 7,000
Total liabilities shown in statement of financial
position
150,000
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Problem 8-22
Revlon Company has expanded rapidly and segment reporting is
now required under PFRS 8. The entity has no intersegment
sales. The following data are for the eyar ended on December 31,2011:
Operating
Segment
Segment
Revenue
Operating
profit (loss)
Identifiable
assets
1 620,000 200,000 400,000
2 100,000 20,000 80,000
3 340,000 70,000 300,000
4 190,000 (30,000) 140,000
5 180,000 (25,000) 180,000
6 70,000 10,000 120,000
7 120,0000 (20,000) 140,000
Others 380,000 (25,000) 140,000
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a. The others: category includes five operating segments, non of
which has revenue or assets greater than P80,000 and more with
an operating profit.
b. Operating Segments 1 and 2 produce very similar products and
use very similar production processes, but serve different
customer types and use quite different product distribution
system.These differences are due in part to the fact that Segment 2
operates in a regulated environment while Segment 1 does not.
c. Operating Segments 6 and 7 have very similar products,
production processes, product distribution systems, but are
organized as separate divisions since they serve substantially
different types of customers. Neither Segments 6 and 7 operate in
a regulated environment.
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REQUIRED:
1. Determine the reportable segments without regard to aggregation
criteria.
Operating
Segment
Segment
Revenue
Percentag
e
(%)
1 620,000 31
2 100,000 5
3 340,000 17
4 190,000 9.5
5 180,000 9
6 70,000 3.5
7 120,0000 6
Others 380,000 19
TOTAL 2,000,000 100
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Operating Segment Operating
profit
Operating
(loss)
Percentage
(%)1 200,000 reportable
2 20,000 7
3 70,000 reporatabl
e4 - (30,000) 10
5 - (25,000) 8
6 10,000 3
7 - (20,000) 7
Others (25,000) 8
TOTAL (absolute
amount)
300,000 100,000
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Thus, the reportable segments are Segments1, 3, 4 and 5 since they were able to meet atleast one of the three quantity thresholds.
Operating
Segment
Identifiable
assets
Percentage
(%)
1 400,000 reportable
2 80,000 6
3 300,000 reportable
4 140,000 reportable
5 180,000 12
6 120,000 8
7 140,000 9
Others 140,000 9
TOTAL 1,500,000 100
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2 and 3.Reportable
Segment
Percentage
(%)
1 620,000/2M 313 340,000/2M 17
4 190,000/2M 9.5
5 180,000/2M 9
TOTAL 66.5
Segment 6 &
7
(70,000+120,000)/2M 9.5
76
After considering the overall size test, the
reportable segments are now segments 1,
3, 4, 5 and 6 & 7.