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INTRODUCTION
FRS 114 begin 1 Jan 2002 onwards
Cover the presentation of financial information by business and geographical segments Applies to enterprises - whose equity or debt securities are public traded - that are in the process of issuing equity or debt securities in public markets
Nature of the production processes Type or class of customer for products and services
Proximity of operation
Location of enterprises product or service facilities and other assets (origin sales)
REPORTABLE SEGMENTS
Q: What made a business/geographical segment reportable??? A: Majority of its revenue is derived from sales to external customers AND satisfies one of these three tests : Revenue test: revenue from sale to external and inter segment sales is 10% or more as compared to the combined revenues. Profit/Loss test: the profit/loss is 10% or more as compared to combined results of segments
Asset test: the segments assets are 10% more of the total asset
Q: What about other segments which does not satisfy the 10% test??? A: Well, they could be : treated as a reportable segment nevertheless despite its size combined with other similar segments for the purpose of meeting the 10% threshold
REPORTABLE SEGMENTS
Materiality test: reportable segment must be substantial portion of the operations. Hence, additional segments (<10%) should be identified as reportable segment so that combined revenues at least 75% of total revenues. Emphasis on comparability (between current & previous year) :
Segment reported in the previous year. Q: Is it still considered as a reportable segment in the current year?? A: Yes. Segment is reportable in the current period. Q: What about prior period data??? A: It should be presented for comparative purposes. It should also need to be restated to reflect the newly reportable segment as a separate segment, unless it is not practical to do so.
Earlier, we learned that there are two types of reportable segments:a) Business segment b) Geographical segment Now, we will learn how to identify which segment is to adopt the primary format or the secondary format. Q: A: How do we determine whether they are primary segment or secondary segment??? A primary segment is the dominant source and nature of an enterprises risks and return. The basis to identify these risks and return is by examining the internal organizational and management structure as well as the internal financial reporting system.
When the primary format is business segment and the secondary segment is the geographical segment:i. Where risks and return are affected predominantly by differences in products and services ii. Where risks and return are affected by BOTH products/services differences and differences in geographical operating area. When the primary format is geographical segment and the secondary segment is the business segment:i. Where risks and return are affected predominantly by differences in the operating countries/geographic areas.
Q: A:
What if differences in products/services or geographical areas are NOT the basis for the internal organizational and management structure as well as the internal reporting system? Management and directors will then determine which of these are the dominant source in identifying primary and secondary segment.
Segment revenue from external customer sales Segment revenue from inter-segment transfers Segment results Segment assets Segment liabilities Capital expenditure Depreciation and amortization expenses Other significant non-cash expenses Share of profit/loss of associate, joint ventures and other equity accounted-for investments* The related aggregate investments, if item * is disclosed
Secondary Segments
1) Primary format-business segments and 2nd-geography Segment from external customer revenues Segment assets Capital expenditure 2) Primary-geographical segments based on location of assets and 2nd-business segments Segment from external customer revenues Segment assets Capital expenditure Also, report revenue for each customer-based geographical segment whose revenue is at least 10%
Continued
3) Primary-geographical segments based on location of customers and 2nd-business segments Segment from external customer revenues Segment assets Capital expenditure Also, disclosure for each asset-based geographical segment whose segment assets are at least 10% of the total assets of the enterprise or group Segment assets Capital expenditure
Description of the business and geographical segments. Basis of pricing of inter-segment transfers, and any change therein. Revenue-(business or geographical segment) whose total
3.
All the primary segments disclosure for each of its reportable secondary segment.
ii.
The nature and amount of any items of segment revenue and segment expense (i.e.-size, nature, or incidence) relevant to performance of each
reportable segment.
Segment Revenue
Segment Expense
Segment Result
Segment Assets
Determined based on the net book values in BS and do not include income tax assets. Cost incurred to acquired the asset during the accounting period that are expected to be used for more than one period is referred to as capital additions or capital expenditure.
Segment Liabilities
Operating liabilities that result from the operating activities of the segment that are:
If segment result include interest-segment liabilities include the related interest-bearing cost If segment result includes dividend income-segment assets must include investment related. If segment asset include goodwill- segment expenses should include the amortization of goodwill.
SUMMARY
Segment Reporting
Identification of Business Segment Products or Service facilities (origin of sales) Location of markets or Customers (destination of sales)
Business
Geographical
Identification of Primary and Secondary Segments Dominant Source and nature of risks and returns
Primary
Ext
Revenue Int Results Assets Liabilities Capital Expenditure Depreciation/Amortization other non-cash expenses
Information to be disclosed
Secondary
Revenue ext Assets Capital expenditures