Question

Vingz, Inc., was formed in early 2005 initially as a regional airlines carrier. Its operations consisted of transporting passengers and goods within Quebec and Ontario. Its CEO, Mr. Tuff Flapps, was a retired air force pilot. Soon after, the company acquired WorldVind Airlines, an international airlines, and this established Vingz as one of the leading operators in the travel industry. Thereafter within the span of five short years, Vingz followed up by acquiring several other firms. It bought ShipAfloat, Inc., a Swedish shipping company which owned and ran 15 large ocean liners offering cruises for tourists. Then followed the acquisition of HaulAway, Inc., a large road transport company; Tax-Sees, Inc., which owned and operated large fleets of taxis in major metropolitan cities; StayInns, Inc., which operated over a hundred hotels in North America; and finally, Eat-Em, Inc., a popular player in the fast food industry. Last week, Mr. Flapps calls you for help. With a trace of panic in his voice, he informed you, “Last week we ran into a bit of bad luck. Our accountant insisted upon joining our crew on a test flight of our newly acquired supersonic plane. Unfortunately, the cockpit shield above the plane came loose and our accountant disappeared into the valley below. But the real tragic part was that we have not yet been able to locate his brief case which contained important documents of our total operations. So kindly help us to resolve a few accounting issues starting with this Segment Reporting task. This paper is the only document I have on it.” With that brief explanation, Mr. Flapps hands you over the document You have been approached to reconstruct the data, determine several missing key numbers, marked N, -N and provide suitably clear explanations to the questions listed below. Figures in '000 Operations/Divisions Airlines Shipping Taxis Hotels Fast Food Total Revenues-External $N, $N2 N3 $N $NG| $NG Revenues Inter-segment 0 0 5,000 5,000 110,000 120,000 Total Revenues ? ? $N, Cost of Goods Sold% (55%) (60%) (70%) (78%) (48%) (?) Operating expenses (270,000)|(145,000) (26,000)| (45,000) (73,000) (559,000) Operating Profit/(Loss) ? (8,000) ? Assets $N ? 80,000 ? $N10 Liabilities ? $N, ? 1,188,000 ? ?

Answer 1

Operations/Divisions	Airlines	Shipping	Taxis	Hotels	Fast food	Total
Revenues external	870000	750000	55000	95000	200000	1970000
Revenues Inter-segment	0	0	5000	5000	110000	120000
Total Revenues	870000	750000	60000	100000	310000	2090000
COGS %	55%	60%	70%	78%	48%	57.29%
Gross Profit (Revenue - COGS%)	391500	300000	18000	22000	161200	892700
Operating expenses	270000	145000	26000	45000	73000	559000
Operating Profit/(Loss) = GP - Operating expenses	121500	155000	-8000	-23000	88200	333700
Assets	500000	675000	80000	90000	140000	1485000
Liabilities	400000	540000	64000	72000	112000	1188000

Working notes :

1.Gross Profit for taxis = Net operating loss + Operating expenses= 26,000 - 8,000. Therefore, Gross Profit for taxis = 18,000.

2. Since COGS for taxis = 70% OF revenues, Gross profit = Revenues - 0.7 * revenues = 18000

0.3 * revenues= 18000, therefore, revenues for taxis = 18000 / 0.3 = 60000.

3. Revenues external for taxis = total rev. taxis - rev. internal = 60000 - 5000 = $ 55000.

3.Total revenues = 38 * revenue external for taxis . = 38*55000 = $ 2090000

4. Total revenues = 22 * external rev. for hotels, therefore, external rev. for hotels = 2090000 / 22 = 95000

5. Total rev hotels = 95000 + 5000 = 100000

6. Gross profit hotels = 100000 - (100000 * 78% ) = 22000

7. Operating loss hotels = 22000 - 45000 = -23000

8. Threshold for segment reporting is that a segment is to be reported if it has at least 10% of the revenues, 10 % of the profit/ loss, and 10% of the combined assets of the entity.

9. Revenue threshold for reporting = 10% * 2090000 = 209000. Revenues for shipping exceed threshold by 541000, therefore, revenues for shipping = 209000 + 541000 = 750000. Since, internal revenue for shipping is 0, therefore, external revenue = total revenue = 750000. Gross Profit = 750000 - 60% of 750000 = 300000. Operating profit = 300000 - 145000 = 155000.

10. Similarly, total revenues for fast food exceeds threshold by 101000. Therefore, total rev, for fast food = 209000 + 101000 = 310000. Revenues external = 310000 - 110000 (rev. internal) = 200000. Gross Profit = 310000 - 48% of 310000 = 161200. Operating profit = 161200 - 73000 = 88200

11. Total revenues of airlines = Total revenues of combined entity - (rev. of other segments)

= 2090000 - (750000+60000+100000+310000) = 870000.

Revenues external of airlines = 870000, since internal revenues = 0

12. Assets taxis = 80000, liabilities taxis = 80% of 80000 = 64000

13. Total liab. of Co. = 1188000. Total assets = 1188000 * 100 / 80 = 1485000

14. Assets for airlines exceed threshold by 351500 and threshold given is 148500. So, assets for airlines = 351500+148500 =500000. Liab for airlines = 500000 * 80% = 400000 (since liab. for all segments are 80% of their respective assets).

15. Total liab for shipping is a bond issued for which coupon interest is paid $ 5400 semi-annually with 2% p.a. coupon rate. Therefore, semi-annual rate = 1% . Coupon interest = Bond amount * Coupon rate/ 100 , So, 5400 = Amount * 1/100, So, Amount = 5400 * 100 = 540000. Therefore, liab. shipping = 540000 , assets = 540000 * 100 /80 = 675000.

16. Liab. hotels = total liab. - liab. of all other segments = 1188000 - (400000+540000+64000+112000) = 72000. Similarly, assets hotels = 90000.

Answer 2.

As per 3 conditions listed in point no. 8 above,

A. Revenue of segment more than 10% of total revenues of co. So, Airlines, Shipping and Fast Food are eligible as per this.

B. Net profit/loss more than 10% of total net profit loss. So, airlines, shipping and fast food qualify.

C.Assets are more than 10% of combined assets of entity. So, airlines and shipping qualify.

Since, Airlines and Shipping segments qualify all three conditions, these two out of the total five segments to be reported as per IFRS.

Answer 3. Reporting as per IFRS in the table below,

Notes : Total expenses in table below are calculated as Cost of Goods Sold + Operating expenses.

Items/Divisions	Airlines	Shipping	Others	Total
External Revenues	870000	750000	350000	1970000
Inter-segment revenues	0	0	120000	120000
Total Revenues	870000	750000	470000	2090000
Cost of Goods Sold	478500	450000	268800	1197300
Operating expenses	270000	145000	144000	559000
Total expenses	748500	595000	412800	1756300
Operating Profit (Loss)	121500	155000	57200	333700
Identifiable Assets	500000	675000	310000	1485000
Liabilities	400000	540000	248000	1188000