Advanced Accounting by Hoyle et al, 6th Edition

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Segment and Interim Reporting
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FASB Statement No. 14

• Financial Reporting for Segments of a
  Business Enterprise

Industry Segments
Domestic Foreign Ops
Major Customers
Export Sales
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FASB Statement No. 14Industry Segments
Disclosures

• For each reportable segment, a company is
  required to disclose
• Revenues.
• Operating profit or loss.
• Identifiable assets.
• Aggregate amount of depreciation, depletion, and
  amortization expense.
• Capital expenditures.
• Equity in the net income from an investment in
  the net assets of equity investees.

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FASB Statement No. 14Domestic Foreign Ops
Disclosures

• For domestic operations and operations in each
  significant foreign geographic area, disclose
• Revenues.
• Operating profit or loss.
• Identifiable assets.

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FASB Statement No. 14Other Disclosures

• For Export Sales, a company must disclose revenue
  derived from exporting products to unaffiliated
  customers in foreign countries.
• For Major Customers, a company is required to
  disclose revenue derived from sales to each major
  customer.

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FASB Statement No. 131
Disclosures about Segments of an Enterprise
and Related Information
Changes to required segment disclosures.
Changes how segments are determined.
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FASB Statement No. 131
Disclosures about Segments of an Enterprise
and Related Information

• Uses the Management Approach to determine
  segments.
• Reportable segments must be operating segments of
  the company.
• Look at the internal reporting system for
  guidance.

• Segment information must be reported for each
  operating segment that meets one of three tests.
• Similar operating segments may be combined.

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FASB Statement No. 131
Disclosures about Segments of an Enterprise
and Related Information

• Five similarites must exist before combining
  segments
• Nature of the products/services provided by each
  operating segment.
• Nature of the production process.
• Type or class of customer.
• Distribution methods.
• Nature of the regulatory environment.

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Operating Segment Tests

• There are three tests for identifying a
  Reportable Industry Segment.
• Revenue Test
• Operating Profit/Loss Test
• Identifiable Assets Test
• Only one test has to be satisfied for a segment
  to be reportable.

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Operating Segment TestsRevenue Test

• Does a segments total revenue equal or exceed
  10 of the combined revenue of all the industry
  segments of the company?
• Note Total revenue includes intersegment sales.

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Operating Segment TestsProfit or Loss Test

• Does the absolute amount of operating profit or
  loss for each segment equal or exceed 10 of the
  larger of . . .
• . . . the absolute value of the combined
  operating profit of all industry segments that
  did not incur an operating loss
• OR
• . . . the absolute value of the combined
  operating loss of all industry segments that
  incurred an operating loss?

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Operating Segment TestsIdentifiable Assets Test

• Does a subunits identifiable assets equal or
  exceed 10 of the combined identifiable assets of
  all operating segments of the company?

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Operating Segment TestsOther Guidelines

• The combined sales revenues of the disclosed
  segments must equal or exceed 75 of the total
  company sales.
• Intersegment sales are excluded from the total.
• Segments must be added until the 75 test is met,
  even if the additional segments do not meet the
  reportable segment criteria.
• Do not disclose more than 10 segments.

¾
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Operating Segment Tests

• Reportable Segment information is reported in the
  Notes to the Financial Statements.
• Required information includes
• Segment Revenue
• Segment Operating Income (or Loss)
• Identifiable Segment Assets
• Other related disclosures

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Operating SegmentsExample

• Examine the information for Rapid Send, Inc.
• Test each product line to determine whether it
  must be disclosed as a reportable segment.

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Operating SegmentsExample
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Operating SegmentsExample
Enter the revenue for each segment.
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Operating SegmentsExample
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Operating SegmentsExample
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Operating SegmentsExample
Enter the absolute value of the profit or loss
for each segment.
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Operating SegmentsExample
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Operating SegmentsExample
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Operating SegmentsExample
Enter total assets for each segment.
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Operating SegmentsExample
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Operating SegmentsExample
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Operating SegmentsExample
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Operating SegmentsExample
The Parts segment did not meet any of the three
tests and so it is not reportable.
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Operating SegmentsExample
In addition, the 75 test must be met. Total
revenues, excluding intersegment revenues, are
1,265,000. 75 of 1,265,000 is
948,750. Combined sales, excluding intersegment
sales, for the Clothing, Home, Car, and Food
segments is 1,195,000. 1,195,000 gt
948,750 Therefore, no other segments must be
reported.
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Enterprise Disclosures
The company must also disclose additional
information regarding . . .
Products Services
Geographic Areas
Major Customers
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Interim ReportingAPB Opinion 28

• APB Opinion 28 requires that interim periods be
  treated as integral parts of the fiscal period.
• Expenses, such as bonuses, must be predicted
  early in the year and allocated to each of the
  interim reporting periods.

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Interim ReportingRevenues
Revenues are recognized in the interim periods in
which they are earned.
Revenue from long-term contracts should be
recognized on the of completion basis.
Losses from long-term contracts should be
recognized fully in the interim period in which
they become apparent.
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Interim ReportingInventory and Cost of Goods Sold
LIFO Liquidations Interim period gross profit
should not reflect gains resulting from
temporary LIFO liquidations.
Standard Costing Variances that are expected to
be absorbed by year-end should not be recognized
in the interim period.
Lower -of-Cost-or-Market Inventory write-downs
should be reflected in interim period numbers is
the market value is not expected to recover by
year-end.
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Interim ReportingOther Issues
Extraordinary Items If material (when compared to
expected income for the year), disclose
separately.
Hey, pal! You getting this down?
Income Taxes Interim tax should be computed at an
estimated annual effective tax rate.
Cumulative Effect of an Accounting
Change Accounting changes occurring at any time
during the year should be retroactively reported
in the 1st interim period.
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Interim ReportingMinimum Disclosures
Disposal of a segment
EPS
Significant changes in estimates
Seasonal Revenues Expenses
Changes in accounting principles
Contingent items
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THE END