Page 1 of 2

REVIEW OF FINANCIAL ACCOUNTING THEORY AND PRACTICE

SEGMENT AND INTERIM REPORTING
1. On October 1, 2005, when the carrying amount of the net assets of a business
segment was P50,000,000, Tarlac Company signed a legally binding contract to sell the
business segment. The sale is expected to be completed by March 31, 2006, at a
selling price of P45,000,000. In addition, prior to March 31, 2006, the sale contract
obliges Tarlac Company to terminate the employment of certain employees of the
business segment incurring an expected termination cost of P3,000,000 to be paid on
June 30, 2006.
The segments revenues and operating expenses for 2005,
respectively, were P30,000,000 and P38,000,000. Before income tax, how much will
be reported as loss from discontinued operations for 2005?
a. P16,000,000
b. P10,000,000
c. P12,000,000
d. P 700,000
2. Siasi Company is a diversified company with nationwide interests in commercial real
estate developments, banking, mining and food distribution. The food distribution
division was deemed to be inconsistent with the long-term direction of the company.
On October 1, 2005, the board of directors voted to approve the disposal of this
division. The sale is expected to occur in August 2006. The food distribution had the
following revenue and expenses in 2005: January 1 to September 30, revenue of
P35,000,000 and expenses of P27,000,000; October 1 to December 31, revenue of
P15,000,000 and expenses of P10,000,000. The carrying amount of the divisions
assets at December 31, 2005 was P56,000,000 and the recoverable amount was
estimated to be P59,000,000. The sale contract requires Siasi to terminate certain
employees incurring an expected termination cost of P4,000,000 to be paid by
December 15, 2006. The income tax rate is 32%. The income statement for the year
ended December 31, 2005 will report income from discontinued operation at
a. P12,000,000
b. P 8,160,000
c. P 9,000,000
d. P 6,120,000
3. Concepcion Company and its divisions are engaged solely in manufacturing
operations. The following data pertain to the industries in which operations were
conducted for the year ended December 31, 2005.
Segments
1
2
3
4
5
6

Total revenue
13,000,000
10,000,000
8,000,000
3,000,000
3,500,000
2,500,000
40,000,000

Operating profit
4,000,000
2,000,000
1,500,000
1,000,000
800,000
700,000
10,000,000

Identifiable assets
25,000,000
20,000,000
15,000,000
7,000,000
8,000,000
5,000,000
80,000,000

In its segment information for 2005, how many reportable segments does Concepcion
have?
a. Three
b. Four
c. Five
d. Six

Page 2 of 2

4. Panamao Company, a publicly owned corporation, is subject to the requirements for

segment reporting. In its income statement for the year ended December 31, 2005,
Panamao reported revenue of P150,000,000, operating expenses of P100,000,000 and
net income of P50,000,000. Operating expenses include payroll costs of P20,000,000.
Panamaos combined identifiable assets of all industry segments at December 31,
2005 were P80,000,000. The reported revenue includes P120,000,0000 of sales to
external customers. External revenue reported by operating segments must be at least
a. P112,500,000
b. P 90,000,000
c. P 37,500,000
d. P 60,000,000
5. Pura Company has three manufacturing divisions, each of which has been determined
to be a reportable segment. Common costs are appropriately allocated on the basis of
each divisions sales in relation to Puras aggregate sales. In 2005, Division I had sales
of P6,000,000, which was 20% of Puras total sales, and had traceable operating costs
of P3,800,000. In 2005, Pura incurred operating costs of P1,000,000 that were not
directly traceable to any of the divisions. In addition, Pura incurred interest expense of
P600,000 in 2005. In reporting segment information, what amount should be shown as
operating profit of Division I for 2005?
a. P2,000,000
b. P1,880,000
c. P1,400,000
d. P2,200,000
6. Camiling Company has estimated that total depreciation expense for the year ending
December 31, 2005 will amount to P2,000,000, and the 2005 year-end bonuses to
employees will total P4,000,000. Camiling paid P500,000 property taxes assessed for
the year 2005. On June 30, 2005, Camiling incurred a permanent inventory loss from
market decline of P800,000 and loss on sale of land of P200,000. In the interim
income statement for the six months ended June 30, 2005, what total amount of
expenses relating to these items should be reported?
a. P4,250,000
b. P3,750,000
c. P3,850,000
d. P3,450,000
7. Talipao Companys P10,000,000 net income for the quarter ended September 30,
2005, included the following after-tax items

A P1,200,000 gain realized on April 30, 2005 was allocated equally to the second,
third and fourth quarters of 2005.
A P3,000,000 cumulative loss resulting from a change in inventory valuation method
was recognized on August 2, 2005.

In addition, Talipao paid P600,000 on February 1, 2005, for 2005 calendar-year

property tax. Of this amount, P150,000 was allocated to the third quarter of 2005. For
the quarter ended September 30, 2005, Talipao should report net income of
a. P12,600,000
b. P11,800,000
c. P12,750,000
d. P 9,600,000
- end -