Chapter 1

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Chapter 8

Why require segment information?

provides information to help users of financial statements better understand company
performance, better see future cash flows, better make decisions.

Determine if a segment is reportable

is an operating segment, passes any of the three 10% significance tests, and the
comprehensive disclosure test.

Determine if a segement is an operating segment

engages in business activities that earns revenues and incurs expenses, CODM regularly
review for performance and resource allocation decisions, has discrete financial
information

combining operating segments

based on the nature of the product, production process, regulatory environments,
customer types, and distribution methods

the three 10% significance test

revenue test, profit or loss test, or asset test

revenue test
equal or more than 10% of combined revenues of all operating segments internal and
external(includes inter segment transfers)

profit or loss test

equal or more than 10% of the larger of all profit segments or all loss segments; every
segment that is more than 10% of this value is reportable even losses

asset test
equal or more than 10% of total assets of all operating segments

All other catergory

segments that do not pass any of the test and cannot be aggregated are combined and
disclosed in the all other category with disclosures of the source of revenues

Other guidelines
previously reportable segments that do not pass the test, should still be disclosed for
continuing significance

The comprehensive disclosure test

total external revenues of all separately reported segments must be at least 75% of total
consolidated sales to outsiders, and must identify additional operating segments as
reportable until meeting the 75%.(does not include inter segment revenues at all)

Disclosure of segment information

presented in separate schedule or in footnotes, based on same measures used by chief
operating decision maker when evaluating operating performance of the segments;

enterprise-wide disclosures
in addition to operating segments; information about product or service, geographic
areas, and major customers.

information about product or service

if operating segment are not based on product or service or only has one operating
segment, disclose revenues of external customers transactions

information about geographic areas

geographic information must be disclosed even if company only has one segment and
therefore no segment information needed

disclosure about major customers

customers worth 10% or more in external revenue are disclosed along with its related
segment, the identity of customer does not need to be disclosed, still required even if only
one segment(Ignores inter segment revenue)

IFRS segment reporting assets

requires disclosure of total asset and total liabilities by segment to CODM, while GAAP
only requires segment assets to CODM

IFRS segment reporting intangibles

disclose intangibles as long-lived assets by geographic area, while GAAP excludes
intangibles

IFRS segment reporting matrix form

IFRS allows product and services or geographic areas, while GAAP is only product or
service and not geographic areas

Rationale of interim information

provide investors with contemporary reports on operating progress of entity, therefore
SEC requires public companies to provide quarterly financial statements

two possible approaches to prepare interim statements

discrete way transactions are reported in full, integral way transactions does accrrals and
deferrals.

special rules of integral approach for interim statements

inventory and cost of goods sold, other costs and expenses, income taxes, and accounting
changes

LIFO liquidation
ending inventory is less than beginning inventory, if inventory costs are rising LIFO
creates higher gross profits

temporary LIFO liquidation

LIFO base-period inventory is charged to cost of goods sold at expected replacement cost

reason for temporary LIFO liquidation

inventory is expected to be replaced by end of fiscal year, interim income for the period
of the temporary liquidation would be overstated if cost of goods sold were charged with
the lower LIFO inventory cost in a time of rising prices.

CODM
Cheif Opearting Decision maker

Lower of cost or market value of inventory

permanent inventory loss due to decline in market prices are recognized, many
companies report this write-down as part of COGS; temporary declines in inventory
market value are not recognized

Recoveries of marketplace for inventory written down

recognized as gains in later interim period, but it may not be valued at an amount in
excess of cost recorded on prior year's annual B/S

IFRS and Interim Reporting

unlike GAAP, IAS 34 from the IFRS requires each interim period to be discrete in terms
of amounts recognized, resulting in meaning no accrual or deferrals