Learning outcomes: 1. To know the core principle of segment reporting. 2. To define an operating segment. 3. To identify the criteria for the recognition of a reportable segment. 4. To identify the information required to be disclosed for a reportable segment.
Methodology: ▪ Courseware/Face-to-face
Lecture/Discussion: Scope PFRS 8 applies to the separate or individual financial statements of an entity (and to the consolidated financial statements of a group with a parent): ➔ whose debt or equity instruments are traded in a public market; or ➔ that files, or is in the process of filing, its (consolidated) financial statements with a securities commission or other regulatory organization for the purpose of issuing any class of instruments in a public market.
Operating segments - is a “component of an entity”: a. that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity) (profit center); b. whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance (reviewed internally by management for decision-making); and c. for which discrete financial information is available. (File its own separate FS) - It comprises “operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity.
Jollibee Food Corporation
Mang Inasal Greenwich Pizza
Chowking Red Ribbon
When to recognize operating segments as reportable segment:
a. is used by management in internal reporting or results from aggregating two or more segments (management approach); and b. qualifies under the quantitative thresholds (any of the following) i. Its revenue, including both external and intersegment sales, is 10% or more of the total revenue, external and internal, of all operating segments. (Revenue test) ii. Its profit or loss is 10% or more of the greater, in absolute amount, of the: (P/L test) a. Total profit of all operating segments that reported a profit; and b. Total loss of all operating segments that reported a loss. iii. Its assets are 10% or more of the total assets of all operating segments. (Asset test)
Limit on external revenue
- If the total external revenues of the identified reportable segments are less than 75% of the entity’s total external revenue, additional operating segments are included as reportable, even if they do not meet the quantitative threshold, until at least 75% of the entity’s external revenue is included in reportable segments.
Aggregation criteria – using management approach
- Two or more operating segments may be aggregated into a single operating segment if aggregation is consistent with the core principle of PFRS 8, the segments have similar economic characteristics, and the segments are similar in each of the following respects: a. Nature of the products and services; b. Nature of the production processes; c. Types or class of customer for their products and services; d. The methods used to distribute their products or provide their services; and e. Nature of the regulatory environment, if applicable, e.g., banking, insurance or public utilities.
Segment becoming reportable:
- If an operating segment is identified as a reportable segment in the current period in accordance with the 10% quantitative thresholds, segment data for a prior period presented for comparative purposes shall be restated to reflect the newly reportable segment even if the segment did not satisfy any of the quantitative thresholds in the prior period.
Reporting of non-reportable segments
- Non-reportable segments are combined and disclosed in an “all other segments” category. The sources of revenue are described in the notes.
Disclosures a. General information about the reporting segment; Factors used to identify the reportable segments Judgments made in aggregating similar operating segments Types of products and services from which reportable segment derives revenue b. Information about reported segment profit or loss, including specified revenues and expenses included in reported segment profit or loss, segment assets, segment liabilities and the basis of measurement; and c. Reconciliations of the totals of segment revenues, reported segment profit or loss, segment assets, segment liabilities and other material segment items to corresponding entity amounts. d. Disclosure of the following if used in operating decisions (external and intersegment revenues; interest revenue, interest expense, depreciation and amortization, material items of income and expense; interest in associates and joint venture including carrying amounts of investments; and income tax expense.
Entity-wide disclosures - Entity-wide disclosures apply to all entities subject to PFRS 8 including those entities that have a single reportable segment. - Entity-wide disclosures shall be provided only if it is not provided as part of the reportable segment information. The following are the entity-wide disclosures: a. Information about products and services b. Information about geographical areas c. Information about major customers o An entity discloses the extent of its reliance on its major customers. A major customer is a single external customer who has provided 10% or more of the entity’s revenues.
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