beams11 ppt15 Modified 1

Topics: Generally Accepted Accounting Principles, Income statement, Balance sheet Pages: 28 (1521 words) Published: April 18, 2015
Chapter 15
Segment Reporting

to accompany
Advanced Accounting, 11th edition
by Beams, Anthony, Bettinghaus, and Smith
Copyright ©2012 Pearson Education,
Inc. Publishing as Prentice Hall

15-1

Segment Reporting
Segment reporting under GAAP applies to public
companies, i.e., those listed companies that file
with the SEC or are presenting financial
statements prior to listing in a public market.
Information must be reported for the major units
(segments) in which management structured the
company for internal decision making and
performance evaluation purposes.

Copyright ©2012 Pearson Education,
Inc. Publishing as Prentice Hall

15-2

Segment Reporting: Objectives
1. Understand how the management approach
is used to identify potentially reportable
operating segments.
2. Apply the threshold tests to identify
reportable operating segments: the revenue
test, the asset test, and the operating profit
test.
3. Apply the 75% external revenue test to
determine whether additional segments
must be reported

Copyright ©2012 Pearson Education,
Inc. Publishing as Prentice Hall

11-3

Segment Reporting: Objectives (cont.)

4. Understand the types of information that may be
disclosed for segments and the reasons that the
levels of disclosure may vary across companies.
5. Understand what segment disclosures are
reconciled to the consolidated amounts.
6. Know the types of enterprise-wide disclosures
related to products and services, geographic
areas of operation, and major customers that are
required to be disclosed.
Copyright ©2012 Pearson Education,
Inc. Publishing as Prentice Hall

15-4

Segment Financial Reporting

1: REPORTABLE OPERATING
SEGMENTS
ASC 280-10-05 TO 55

Copyright ©2012 Pearson Education,
Inc. Publishing as Prentice Hall

15-5

Operating Segments
According to GAAP, companies that have publicly
traded debt or equity instruments must report on
their business segments.
Reporting is based on the structure used by
management to make decisions or evaluate
performance. For example,
 if the company’s internal reporting and
evaluation system is geographically based, the
segment reporting is geographically based.
 if the internal reporting and evaluation system
is product-line based, the segment reporting is
product-line based.
Copyright ©2012 Pearson Education,
15-6
Inc. Publishing as Prentice Hall

Operating Segment (def.)
A component of a business enterprise
1. Engages in business activities
 Revenues and expenses tracked
 Intercompany amounts included
2. Operating results are reviewed by chief
operating decision maker
3. Discrete financial information is available
Excludes pension and post-retirement
plans, and general corporate
headquarters
Copyright ©2012 Pearson Education,
Inc. Publishing as Prentice Hall

15-7

Combining Segments
Segments with similar economic
characteristics may be combined.
 Products and services
 Production processes
 Classes of customers
 Distribution systems
 Regulatory environment, if applicable

Copyright ©2012 Pearson Education,
Inc. Publishing as Prentice Hall

15-8

Segment Financial Reporting

2: THRESHOLD TESTS
ASC 280-10-50-12

Copyright ©2012 Pearson Education,
Inc. Publishing as Prentice Hall

15-9

Reportable Segments
Operating segments are reportable and
material if any one of the three threshold tests
are met
1. 10% Revenue test
2. 10% Asset test
3. 10% Profit or loss test
Segments not meeting any of the three tests
are combined into one "all other" category.
One additional test to see if a sufficient number
of segments have been identified
4. 75% ExternalCopyright
revenue
testEducation,
©2012 Pearson
15-10
Inc. Publishing as Prentice Hall

10% Revenue Test
Segment reported revenue, including
intersegment revenues, is 10% or more of the
combined revenue of all operating segments.
 Combined includes "all other" category
...
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