Operating Segment.

7/23/2019 Operating Segment.

1/14

Problem 8-21

Easy Company provided the following statement of financial

position on December 31, 2011 and income statement for the

current year:Current assets 130,000

Property, plant and

equipment

500,000

Goodwill 100,000

Investment in

associate70,000

Total Assets 800,000

Current liabilities 90,000Noncurrent liabilities 60,000

Share capital 400,000

Retained earnings 250,000

Total liabilities and equity 800,000

Revenue 1,800,000

Cost of sales (1,200,000)

Gross profit 600,000

Other income 60,000

Distribution cost (200,000)

Administrative

expenses

(100,000)

Other expenses (50,000)

Finance cost (60,000)Share in profit of

associate

10,000

Income before tax 260,000

Income tax expense (90,000)

Net income 170,000


2/14

The following data are relevant to the presentation of segmental

information:

1. The entity is organized for management purposes into three major

operating segments, namely furniture, stationery and computerproducts. There are other smaller operating segments.

2. The sales revenue for the operating segments is set out below.

3. The cost of sales, distribution cost, administrative expenses andfinance cost can be allocated as follows:

External sales Intersegment

sales

Furniture 800,000 200,000

Stationery 500,000 150,000

Computer

products

400,000 50,000

Other segments 100,000 -

Furniture 50%

Stationery 25%

Computer products 20%

Other segments 5%


3/14

4. The cost of sales related to intersegment sales amounted to

P240,000 to be allocated as follows:

5. The segment assets and liabilities are as follows:

Furniture 50%

Stationery 40%

Computer 10%

Furniture Stationery Computer

products

Others

Current assets 80,000 40,000 5,000 2,000

Property, plant & equip. 300,000 100,000 85,000 3,000

Goodwill 60,000 30,000 10,000 -

Total assets 440,000 170,000 100,000 5,000

Current liabilities 45,000 30,000 8,000 1,000

Noncurrent liabilities 30,000 20,000 7,000 2,000

Total liabilities 75,000 50,000 15,000 3,000


4/14

6. The other income and other expenses are not allocated to the

operating segments as a measure of profit or loss.

7. The chief operating decision maker does not allocate income tax

expense to reportable segments as a measure of profit or loss.

REQUIRED:

1. Determine the profit or loss for all of the operating segments.

2. Prepare the disclosures required under PFRS 8.3. Prepare the necessary reconciliations between the segment

information and amounts shown in the entitys financial

statements.


5/14

Segment profit or lossFurniture Stationery Computerproducts

Other

Segments

TOTAL

External sales 800,000 500,000 400,000 100,000 1,800,000

Intersegment sales 200,00 150,000 50,000 - 400,000

Total sales 1,000,000 650,000 450,000 100,00 2,200,000Intersegment sales elim. (400,000)

Entity sales 1,800,000

Cos of sales- external (600,000) (300,000) (240,000) (60,000) (1,200,000)

Cost of sales- intersegment (120,000) (96,000) (24,000) - (240,000)

Total cost of sales (720,000) (396,000) (264,000) (60,000) (1,440,000)

Intersegment COS elim. (240,000)

Entity cost of sales 1,200,000

Gross profit 280,000 254,000 186,000 40,000 600,000

Share in profit of assoc. 10,000

Other income 60,000

Distribution cost (100,000) (50,000) (40,000) (10,000) (200,000)

Administrative expense (50,000) (25,000) (20,000) (5,000) (100,000)

Other expense (50,000)

Finance cost (30,000) (15,000) (12,000) (3,000) (60,000)

Segment profit or loss 100,000 164,000 114,000 22,000 260,000

Income tax expense (90,000)

Net income 170,000


6/14

2. The minimum disclosures under PFRS 8 relating to the

reportable operating segment shall include the following:

Entitys share in profit of associate 60,000

Income tax expense 90,000

Furniture Stationery Computerproducts

External sales 800,000 500,000 400,000

Intersegment sales 200,000 150,000 50,000

Finance cost 30,000 15,000 12,000Segment profit or loss 100,000 164,000 114,000

Total assets 440,000 170,000 100,000

Total liabilities 75,000 50,000 15,000


7/14

3. Reconciliations

Revenue

Revenue of reportable segments 2,100,000Revenue of nonreportable segments 100,000

Elimination-intersegment sales (400,000)

Entity revenue shown in income

statements

1,800,000

Profit of loss

Profit of reportable segment 378,000

Profit of nonreportable segment 22,000

Elimination- intersegment profit (160,000)

Unallocated amounts:Share in profit of asscociate 10,000

Other income 60,000

Other expenses (50,000)

Entity income before tax 260,000


8/14

Total assets

Total assets of reportable segments 710,000

Total assets of nonreportable segments 5,000

Unallocated corporate assets 85,000

Total assets shown in statement of financial

position

800,000

Total liabilities

Total liabilities of reportable segments 140,000

Total liabilities of nonreportable segments 3,000

Unallocated corporate liabilities 7,000

Total liabilities shown in statement of financial

position

150,000


9/14

Problem 8-22

Revlon Company has expanded rapidly and segment reporting is

now required under PFRS 8. The entity has no intersegment

sales. The following data are for the eyar ended on December 31,2011:

Operating

Segment

Segment

Revenue

Operating

profit (loss)

Identifiable

assets

1 620,000 200,000 400,000

2 100,000 20,000 80,000

3 340,000 70,000 300,000

4 190,000 (30,000) 140,000

5 180,000 (25,000) 180,000

6 70,000 10,000 120,000

7 120,0000 (20,000) 140,000

Others 380,000 (25,000) 140,000


10/14

a. The others: category includes five operating segments, non of

which has revenue or assets greater than P80,000 and more with

an operating profit.

b. Operating Segments 1 and 2 produce very similar products and

use very similar production processes, but serve different

customer types and use quite different product distribution

system.These differences are due in part to the fact that Segment 2

operates in a regulated environment while Segment 1 does not.

c. Operating Segments 6 and 7 have very similar products,

production processes, product distribution systems, but are

organized as separate divisions since they serve substantially

different types of customers. Neither Segments 6 and 7 operate in

a regulated environment.


11/14

REQUIRED:

1. Determine the reportable segments without regard to aggregation

criteria.

Operating

Segment

Segment

Revenue

Percentag

e

(%)

1 620,000 31

2 100,000 5

3 340,000 17

4 190,000 9.5

5 180,000 9

6 70,000 3.5

7 120,0000 6

Others 380,000 19

TOTAL 2,000,000 100


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Operating Segment Operating

profit

Operating

(loss)

Percentage

(%)1 200,000 reportable

2 20,000 7

3 70,000 reporatabl

e4 - (30,000) 10

5 - (25,000) 8

6 10,000 3

7 - (20,000) 7

Others (25,000) 8

TOTAL (absolute

amount)

300,000 100,000


13/14

Thus, the reportable segments are Segments1, 3, 4 and 5 since they were able to meet atleast one of the three quantity thresholds.

Operating

Segment

Identifiable

assets

Percentage

(%)

1 400,000 reportable

2 80,000 6



5 180,000 12

6 120,000 8

7 140,000 9

Others 140,000 9

TOTAL 1,500,000 100


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2 and 3.Reportable

Segment

Percentage

(%)

1 620,000/2M 313 340,000/2M 17

4 190,000/2M 9.5

5 180,000/2M 9

TOTAL 66.5

Segment 6 &

7

(70,000+120,000)/2M 9.5

76

After considering the overall size test, the

reportable segments are now segments 1,

3, 4, 5 and 6 & 7.

Operating Segment.

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Transcript of Operating Segment.