Chapter 45

Operating Segments

PROBLEM 45-1: TRUE OR FALSE

1. TRUE 6. TRUE
2. TRUE 7. TRUE
3. FALSE 8. FALSE
4. TRUE 9. FALSE
5. FALSE 10. FALSE

PROBLEM 45-2: MULTIPLE CHOICE – THEORY

1. D 6. C
2. C 7. B
3. D 8. D
4. C 9. B
5. C 10. A

PROBLEM 45-3: THEORY & COMPUTATIONAL

1. D

2. D

3. B – “Management approach” – “The company is divided for internal

reporting purposes into 5 different divisions…….”

4. C

5. D – “Management approach” – “The entity reports to the board of

directors on the basis of each of the four regions.”

6. B – “Management approach” – an operating segment can be a

reportable segment even if it does not meet any of the quantitative
thresholds if that segment is treated as a reportable segment for internal
reporting purposes.

7. C – PFRS 8 uses a “management approach” in determining which

operating segments are reportable.

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8. Solutions:

Requirement (a):
Operating Revenue Identifiable
Total revenue Asset test
segments test assets
A 1,200,000 24.39% 4,000,000 43.01%
B 420,000 8.54% 1,000,000 10.75%
C 350,000 7.11% 800,000 8.60%
D 600,000 12.20% 1,700,000 18.28%
E 1,100,000 22.36% 800,000 8.60%
F 1,250,000 25.41% 1,000,000 10.75%
Totals 4,920,000 100.00% 9,300,000 100.00%

Operating
Profit Loss P/L test
segments
A 240,000 64.86%
B (20,000) 5.41%
C (30,000) 8.11%
D 70,000 18.92%
E 50,000 13.51%
F (320,000) 86.49%
Totals 360,000 (370,000)
Higher

Answer: The reportable segments are segments A, B, D, E and F.

Requirement (b):

Answer: Yes.
Operating segments External revenue

A 1,000,000
B 420,000
C -
D 500,000
E 900,000
F 1,200,000
Totals 4,020,000
Divide by: 4,220,000
95.26%

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Requirement (c):
Total external revenue 4,220,000 x 10% = 422,000

PROBLEM 45-4: MULTIPLE CHOICE – COMPUTATIONAL

1. C
Solution:
Revenue Profit Assets
Totals 32,750,000 5,800,000 67,500,000
10% Thresholds 3,275,000 580,000 6,750,000

Revenue
Operating test Profit test Assets test
segments qualifiers qualifiers qualifiers
A   
B   
C   
D x x 
E   
F x x x

2. B
Solution:
Sales to unaffiliated customers 2,000,000
Intersegment sales of products similar to those sold to
unaffiliated customers 600,000
Total external and internal revenues excluding
interest 2,600,000
Multiply by: 10%
Revenue threshold 260,000

Interest revenue and interest expense are reported separately for

each reportable segment unless a majority of the segment’s revenues
are from interest (e.g., financial institution)

3. A (30,000,000 x 10%) = 3,000,000

4. A (30,000,000 x 75%) = 22,500,000

5. D 40,600 – including the intersegment profits but excluding the

common costs that are not allocated in internal reporting.

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PROBLEM 45-5: EXERCISES – COMPUTATIONAL

1. Answer: The reportable segments are segments A, C, D and F.

2. Solution:
Operating Revenue
Profit test Asset test
segments test
A 29.41% 23.26% 43.01%
B 14.71% 13.95% 10.75%
C 8.82% 3.49% 8.60%
D 14.71% 5.81% 18.28%
E 5.88% 6.98% 8.60%
F 26.47% 46.51% 10.75%

Answer: The reportable segments are segments A, B, D, and F.

3. Solutions:

Requirement (a):

Operating Revenue Identifiable

Total revenue Asset test
segments test assets
A 1,400,000 29.72% 5,000,000 45.45%
B 1,000,000 21.23% 1,300,000 11.82%
C 1,050,000 22.29% 900,000 8.18%
D 760,000 16.14% 1,800,000 16.36%
E 300,000 6.37% 800,000 7.27%
F 200,000 4.25% 1,200,000 10.91%
Totals 4,710,000 100% 11,000,000 100%

Operating
Profit Loss P/L test
segments
A (300,000) 56.60%
B (180,000) 33.96%
C 220,000 41.51%
D 270,000 50.94%
E (20,000) 3.77%
F (30,000) 5.66%
Totals 490,000 (530,000)
Higher

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Answer: The reportable segments are segments A, B, C, D and F.

Requirement (b):

Answer: YES.

Operating segments External revenue

A 1,200,000
B 900,000
C 800,000
D 600,000
E
F 200,000
Totals 3,700,000
Divide by: 4,000,000
92.50%

Requirement (c):
Total external revenues 4,000,000 x 10% = 400,000