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The reportable operating segments are the Car, Bike and Truck divisions as each of them has revenue of more than $23,500 (10% of the total revenue of $235,000).
These three divisions between them have external revenue of $145,000. This is less than 75% of the total external revenue (75% × $206,000 = $154,500) so the Tractor division is also a reportable segment. This brings external revenue generated by reportable segments to $168,000, so neither of the two remaining segments need to be reported on.
4.1.3 Decision tree to help identify reportable segments
The following decision tree will assist in identifying reportable segments.Identify operating segments based on management reporting system
Do some operating segments meet all aggregation criteria?
Do some operating segments meet the quantitative thresholds?
Do some remaining operating segments meet a majority of
aggregation criteria?
Do identified reportable segments account for 75 per cent of the
revenue?
Report additional segment if external revenue of all segments is less than 75 per cent of the entity's
Aggregate remaining segments into 'all other segments' category These are reportable
segments to be disclosed No Yes No No No Yes Yes Yes Aggregate segment if desired Aggregate segment if desired
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5: Reporting financial performance PART B SINGLE COMPANY FINANCIAL ACCOUNTS4.1.4 Disclosures
IFRS 8 requires disclosure of:(a) Factors used to identify the entity's reportable segments
(b) Types of products and services from which each reportable segment derives its revenues
(c) Reportable segment revenues, profit or loss, total assets, total liabilities and other material items
Reporting of a measure of profit or loss by segment is compulsory. Other items are disclosed if included in the figures reviewed by or regularly provided to the chief operating decision maker.
The amount reported for each segment should be the amounts reported to the chief operating decision maker for the purpose of allocating resources to the segment and assessing its performance. The entity should explain how segment profit or loss and assets and liabilities are measured. Geographical
disclosures, including external revenue and non-current assets are required on a country by country basis if material.
Section summary
IFRS 8 is a disclosure standard, which is applicable to listed companies. Segment reporting is necessary for a better understanding and assessment of: Past performance
Risks and returns
Informed judgements
IFRS 8 adopts the managerial approach to identifying segments.
IFRS 8 gives guidance on how segments should be identified and what information should be disclosed for each reportable segment.
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Revenue recognition is straightforward in most business transactions but some situations are more complicated. It is necessary to determine the substance of each transaction rather than the legal form.
IAS 18 Revenue is concerned with the recognition of revenues arising from: the sale of goods the rendering of services
the use by others of equity assets yielding interest, royalties and dividends
IAS 18 gives conditions which must be met for revenue to be recognised. IFRS 5 Non-current assets held for sale and discontinued operations requires assets 'held for sale' to be presented separately in the statement of financial position.
The results of discontinued operations should be presented separately in the statement of profit or loss and other comprehensive income.
IAS 8 deals with the treatment of changes in accounting estimates, changes in accounting policies and errors.
Accounting policies must comply with accounting standards and be applied consistently.
Changes in accounting policy are applied retrospectively.
Changes in accounting estimates are not applied retrospectively.
Prior period errors will require retrospective correction if they are material.
IFRS 8 is a disclosure standard, which is applicable to listed companies.
Segment reporting is necessary for a better understanding and assessment of: Past performance
Risks and returns
Informed judgements
IFRS 8 adopts the managerial approach to identifying segments.
IFRS 8 gives guidance on how segments should be identified and what information should be disclosed for each reportable segment.
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5: Reporting financial performance PART B SINGLE COMPANY FINANCIAL ACCOUNTS1 How should a prior period error be corrected under IAS 8?
2 Give three circumstances when a change in accounting policy might be required. 3 IFRS 8 adopts the ……….. ………. to identifying segments
4 A non-current asset is classified as held for sale if its carrying amount will be recovered principally through continuing use rather than through a sale transaction
True False
5 Which of the following is not an accounting estimate? A Prepaid rent
B Useful lives of depreciable assets C A doubtful debt provision D Restructuring provision
6 Prior period errors must be corrected prospectively. True
False
7 What five conditions must be satisfied before revenue from the sale of goods can be recognised?
1 By adjusting the opening balance of retained earnings. 2 (a) A new statutory requirement
(b) A new accounting standard
(c) If the change will result in a more appropriate presentation of events or transactions in the financial statements of the entity
3 Managerial approach 4 False
5 A 6 False
7 The entity has transferred the significant risks and rewards of ownership of the goods to the buyer The entity retains neither continuing managerial involvement to the degree usually associated with
ownership, nor effective control over the goods sold The amount of revenue can be measured reliably
It is probable that the economic benefits associated with the transaction will flow to the entity The costs incurred or to be incurred in respect of the transaction can be measured reliably