Segment Reporting

Question 1

How is segment operating profit calculated?

Answer 1

Segment sales
- Segment operating expenses
= Income before common costs
- Allocated common costs
= Operating profit

• Corporate expenses are not included *

Question 2

What are disclosure requirements for operations in different industries?

Answer 2

Test 1,2,3

Meet any of 3 tests, disclose all 3

Question 3

What are disclosure requirements for foreign operations?

Answer 3

Test 1 and 3

Meet any 1, disclose all 3

Question 4

What are disclosure requirements for major customers or export sales?

Answer 4

Test 1

Meet, disclose only 1

Question 5

What are the reportable segments tests?

Answer 5

1. Segment revenue >= 10% total revenue
2. Segment P/L >= 10% total P/L
3. Segment assets >= 10% total assets

75% Test - must be enough segments reported so that at least 75% of revenue to outsiders is shown

Question 6

What are the requirements to be considered a segment?

Answer 6

1. Earn revenues and incur expenses
2. Performance is evaluated regularly by management
3. Financial information must be available

Question 7

What are the disclosure requirements for reportable segments?

Answer 7

1. Revenues from external customers
2. Intersegment revenues
3. Interest revenue and expense (reported separately unless majority of segment’s revenues are from interest and management relies primarily on net interest revenue to assess performance)
4. Depreciation, depletion, and amortization expense
5. Unusual infrequently occurring items
6. Equity in the net income of investees accounted for by the equity method
7. Income tax expense or benefit
8. Significant noncash item

Question 8

When can segments be aggregated?

Answer 8

If the segments are similar in the following areas:

1. The nature of the products and services
2. The nature of the production processes
3. The type of customer for their products and services
4. The methods used to distribute their products or provide their services
5. The nature of the regulatory environment