Question

Presented below are four segments that have been identified by Haley Productions: Operating Segments Total Profit (Loss) Identifiable Revenue Assets A $255,000 $30,000 $900,000 B 600,000 (55,000) 800,000 C 225,000 6,000 450,000 90,000 4,000 225,000 For which of the segments would information have to be disclosed in accordance with professional pronouncements? a) Segments A, B, C, and B Ob) Segments A, B, and C OC) Segments A and B Ud) Segments A and D

Answer 1

Ans. : Provision :   A business segment or geographical segment should be identified as a reportable segment if:
(a) its revenue from sales to external customers and from transactions with other segments is 10 per cent or more of the total revenue, external and internal, of all segments; or
(b) its segment result, whether profit or loss, is 10 per cent or more of –
(i) the combined result of all segments in profit, or
(ii) the combined result of all segments in loss, whichever is greater in absolute amount; or
(c) its segment assets are 10 per cent or more of the total assets of all segments.

* Identifiable assets of all segments = 9,00,000+8,00,000+4,50,000+2,25,000= dollar 23,75,000

10% of 23,75,000 = dollar 2,37,500.

Since, identifiable assets of segments A, B and C is more than dollar 2,37,500 therefore these all three segments have to be disclosed.

* Total profit of all segments is = 30,000+6,000+4,000

= 40,000 dollar

Total loss = 55,000 dollar

Higher of two is 55,000 dollar and 10% of 55,000 is dollar 5500 but since segment D profit is only 4000 dollars that is less than 10% of total segment profit/loss. Therefore, segment D is not a reportable segment.

* Correct answer is option B that is segments A, B and C.