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Since 1977

FAR OCAMPO/OCAMPO
FAR.3042-Operating Segments MAY 2021

DISCUSSION PROBLEMS
1. Which statement is incorrect regarding reporting of 6. Company A is a listed diversified retail company. It
segment information in accordance with PFRS 8? has three main types of stores: general department
a. PFRS 8 requires that an entity should disclose stores, liquor stores and specialist toy stores. Each of
information to enable users of its financial these stores has different products, customer types
statements to evaluate the nature and financial and distribution processes. Company A has identified
effects of the types of business activities in which it three business segments: general department stores,
engages and the economic environments in which liquor stores and specialist toy stores.
it operates.
All three business units earn most of their revenue
b. PFRS 8 applies to the financial statements of an
from external customers. Total consolidated revenue
entity whose debt or equity instruments are traded
of Company A is P600 million.
in a public market.
c. If an entity that is not required to apply PFRS 8 General
chooses to disclose information about segments Dept. Liquor Toy All
that does not comply with PFRS 8, it shall not stores stores stores segments
describe the information as segment information. Revenue P400M P100M P50M P550M
d. None, all the statements are correct. Segment profit 15M 7M 4M 26M
Assets 900M 200M 100M 1,200M
2. The method used to determine what information to
In its segment information, how many reportable
report for operating segments is referred to as the
segments does the company have?
a. Segment approach c. Enterprise approach
a. Three c. One
b. Operating approach d. Management approach
b. Two d. None
3. Which statement is incorrect regarding the term ‘chief
7. Celine Corporation and its divisions are engaged solely
operating decision maker (CODM)’?
in manufacturing. The following data pertain to the
a. The term identifies a function, not necessarily a
industries in which operations were conducted for the
manager with a specific title.
current year:
b. The function of the CODM is to allocate resources
to and assess the performance of the operating Operating Profit (Loss)
segments of an entity. Division A P30,000,000
c. Often the CODM of an entity is its chief executive B 10,000,000
officer or chief operating officer but, for example, it C ( 8,000,000)
may be a group of executive directors or others. D ( 2,000,000)
d. CODM is synonymous to segment manager E 5,000,000
In its current year financial statements, Celine
4. An operating segment is a component of an entity: Corporation should disclose an operating segment if
a. That engages in business activities from which it operating profit or loss is at least
may earn revenues and incur expenses (including a. P1,000,000 c. P4,500,000
revenues and expenses relating to transactions b. P3,500,000 d. P5,500,000
with other components of the same entity).
b. Whose operating results are reviewed regularly by 8. Rainee Corporation's revenue for the current year were
the entity's chief operating decision maker to make as follows:
decisions about resources to be allocated to the Consolidated revenue per income
segment and assess its performance. statement P1,200,000
c. For which discrete financial information is Intersegment sales 180,000
available. Intersegment transfers 60,000
d. All of the above. Combined revenues of all operating
segments P1,440,000
5. An entity shall report separately information about an
operating segment that meets which of the following Rainee has a reportable segment if that operating
quantitative thresholds? segment's revenues is at least
a. Its reported revenue, including both sales to a. P144,000 c. P24,000
external customers and intersegment sales or b. P120,000 d. P 6,000
transfers, is 10 per cent or more of the combined
revenue, internal and external, of all operating 9. PFRS 8 defines
segments. a. Segment revenue c. Segment result
b. The absolute amount of its reported profit or loss is b. Segment expense d. None of these
10 per cent or more of the greater, in absolute
amount, of (i) the combined reported profit of all
operating segments that did not report a loss and
(ii) the combined reported loss of all operating
segments that reported a loss.
c. Its assets are 10 per cent or more of the combined
assets of all operating segments.
d. Any of these.

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EXCEL PROFESSIONAL SERVICES, INC.

10. The following information pertains to Nolte Corp. and 15. Two or more operating segments may be aggregated
its divisions for the current year. into a single operating segment if aggregation is
Sales to unaffiliated customers P2,000,000 consistent with the core principle of PFRS 8, the
Intersegment sales similar to those segments have similar economic characteristics, and
sold to unaffiliated customers 600,000 the segments are similar in each of the following
Interest earned on loans to other respects:
operating segments 40,000 I. The nature of the products and services
Nolte and all of its divisions are engaged solely in II. The nature of the production processes
manufacturing operations. Nolte has a reportable III. The type or class of customer for their products
segment if that segment's revenue is at least and services
a. P264,000 c. P260,000 IV. The methods used to distribute their products or
b. P204,000 d. P200,000 provide their services
V. The nature of the regulatory environment, for
example, banking, insurance or public utilities
Use the following information for the next four questions. a. I, II, II, IV and V
Grum Corp. a publicly owned corporation, is subject to the b. I, II, III, and IV only
requirements for segment reporting. In its income c. I, III and V only
statement for the current year, Grum reported revenues of d. I and V only
P50,000,000, operating expenses of P47,000,000, and net
income of P3,000,000, Operating expenses include payroll 16. The equity of The Kaiaho Company is traded on a
costs of P15,000.000. Grum's combined identifiable assets recognized stock exchange. Kaiaho regularly reports
of all industry segments at the end of the current year the financial results of five different business units to its
were P40,000,000. Reported revenues include chief operating decision maker. The relevant revenues
P30,000,000 of sales to external customers. for the current year for these five operations, as a
percentage of total external and internal revenue, were
11. In its current year financial statements, Grum should as follows:
disclose major customer data if sales to any single Business
customer amount to at least operation % internal % external % total
a. P 300,000 c. P4,000,000 1 3 35 38
b. P3,000,000 d. P5,000,000 2 10 14 24
3 15 5 20
12. If revenues from transactions with a single external 4 0 9 9
customer amount to 10 per cent or more of an entity’s 5 0 9 9
revenues, the entity need not disclose 28 72 100
a. That fact.
The reportable segments of Kaiaho are
b. The total amount of revenues from each such
a. 1 and 2 only c. 1,2,3 and 4 only
customer.
b. 1,2 and 3 only d. 1,2,3,4 and 5
c. The identity of the segment or segments reporting
the revenues.
17. The following segments have been identified for a
d. The amount of revenues that each segment reports
business, along with their sales. No segment qualifies
from a major customer.
on any other criterion for determining reportable
segments except possibly for revenue. Sales for each
13. External revenue reported by operating segments must
segment, and the total for the company follow:
be at least
a. P22,500,000 c. P12,500,000 Segment Sales
b. P15,000,000 d. P37,500,000 1 P 500,000
2 200,000
14. What should the entity do if the total external revenue 3 100,000
reported by operating segments constitutes less than 4 800,000
75 per cent of the entity's revenue? 5 150,000
a. Additional operating segments must be identified 6 200,000
as reportable segments. 7 175,000
b. Additional operating segments must be identified P2,125,000 (total company sales)
as reportable segments even if they do not meet
What is the minimum number of reportable segments
the quantitative thresholds.
for this company?
c. Additional operating segments must be identified
a. 5 c. 3
as reportable segments until at least 75 per cent of
b. 4 d. 2
the entity's revenue is included in reportable
segments.
18. There may be a practical limit to the number of
d. All of the above.
reportable segments that an entity separately discloses
beyond which segment information may become too
detailed. What did the IASB decide was a reasonable
upper limit for the number of segment that a company
must disclose?
a. Five c. Twelve
b. Ten d. Fifteen

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EXCEL PROFESSIONAL SERVICES, INC.

19. Taft Corp. discloses operating-segment information. 21. In accordance with PFRS 8, an entity shall disclose
The following information is available for the current a. Factors used to identify the entity’s reportable
year: segments.
b. The judgments made by management in applying
Operating Traceable
the aggregation criteria.
Segment Sales Operating Expenses
c. Types of products and services from which each
A P1,000,000 P 600,000
reportable segment derives its revenues.
B 800,000 500,000
d. All of these.
C 600,000 350,000
P2,400,000 P1,450,000
22. In accordance with PFRS 8, entity-wide disclosures do
Additional current year expenses, not included above, not include
are as follows: a. Information about products and services
b. Information about geographical areas
Indirect operating expenses P360,000
c. Information about major customers
General corporate expenses 240,000
d. Information about profit or loss, assets and
In the measure of segment profit or loss reviewed by liabilities
the chief operating decision maker, appropriate
common operating expenses are allocated to segments
based on the ratio of a segment’s sales to total sales,
but general corporate expenses are not. Segment C’s
current year profit for external reporting purposes was
a. P100,000 c. P160,000
b. P130,000 d. P250,000

20. Norte Company has three manufacturing divisions,

each of which has been determined to be a reportable
segment. Common costs are appropriately allocated
on the basis of each division’s sales in relation to
Norte’s aggregate sales. In the current year, Division I
had sales of P6,000,000, which was 20% of Norte’s
total sales, and had traceable operating costs of
P3,800,000. Norte incurred operating costs of
P1,000,000 that were not directly traceable to any of
the divisions. In addition, Norte incurred interest
expense of P600,000. In reporting segment
information, what amount should be shown as
operating profit of Division I for the current year?
a. P2,000,000 c. P1,880,000
b. P1,400,000 d. P2,200,000 J - end of FAR.3042 - J

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