Segment Disclosures [CMA Adapted]
Chemax Inc. manufactures a wide variety of pharmaceuticals, medical instruments, and other medical supplies. Eighteen months ago the company developed and began to market a new product line of antihistamine drugs under various trade names. Sales and profitability of this product line during the current fiscal year greatly exceeded management’s expectations. The new product line will account for 10 percent of the company’s total sales and 12 percent of the company’s operating income for the fiscal year ending June 30, 20X0. Management believes sales and profits will be significant for several years.
Chemax is concerned that its market share and competitive position could suffer if it discloses the volume and profitability of its new product line in its annual financial statements. Management is not sure how ASC 280 applies in this case.
Required
a. What is the purpose of requiring segment information in financial statements?
b. Identify and explain the factors that should be considered when attempting to decide how products should be grouped to determine a single business segment.
c. What options, if any, does Chemax Inc. have with the disclosure of its new antihistamine product line? Explain your answer.
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