CHAPTER 10: OPERATING SEGMENT

Problem 10 – 13
REQUIREMENTS:
1. Prepare the necessary disclosures for Diversity Company in relation to operating
segments

Disclosure of profit or loss and assets

Segment A Segment B Others Total
Sales 25,000,000 15,000,000 5,000,000 45,000,000
Profit or loss 7,000,000 6,000,000 1,000,000 14,000,000
Total assets 35,000,000 18,000,000 7,000,000 60,000,000

2. Prepare the reconciliation between segment information and amount shown in the entity’s
financial statements
Reconciliation
Revenue
Revenue of reportable segments P 40,000,000
Revenue of nonreportable segments 5,000,000
Entity revenue shown in income statement P 45,000,000

Profit and loss

Profit or loss of reportable segments P 13,000,000
Profit or loss of nonreportable segments 1,000,000
Corporate expenses (2,000,000)
Unallocated income tax expenses (3,800,000)
Entity net income shown in income statements P 8,200,000

Total Assets
Total assets of reportable segments P 53,000,000
Total assets of nonreportable segments 7,000,000
General corporate assets 2,000,000
Entity total assets shown in the statement of financial position P 62,000,000

Problem 10 – 14
REQUIREMENTS:
1. Prepare a schedule that reports the segment profit or loss
Segment X Segment Y Others Total
Sales P 24,000,000 P 27,000,000 P 9,000,000 P 60,000,000
Cost of goods sold (9,800,000) (14,000,000) (4,200,000) (28,000,000)
Gross Income 14,200,000 13,000,000 4,800,000 32,000,00
Segment expenses (4,800,000) (4,800,000) (2,400,000) (12,000,000)
Depreciation (1,200,000) (1,350,000) (450,000) (3,000,000)
Income tax expense (2,000,000) (1,600,000) (400,000) (4,000,000)
Segment profit or loss P 6,200,000 P 5,250,000 P 1,550,000 P 17,000,000
 2. Prepare the disclosures required for operating segments
Disclosure of profit of loss of segment
Segment X Segment Y Others Total
Sales P 24,000,000 P 27,000,000 P 9,000,000 P 60,000,000
Profit or loss 6,200,000 5,250,000 1,550,000 17,000,000
Depreciation 1, 200,000 1,350,000 450,000 3,000,000

3. Prepare the reconciliation between segment information and amounts shown in the
entity’s financial statements

Revenue
Revenue of reportable segments P 51,000,000
Revenue of nonreportable segments 9,000,000
Entity revenue shown in income statement P 60,000,000

Profit and loss

Profit or loss of reportable segments P 11,450,000
Profit or loss of nonreportable segments 1,550,000
Unallocated depreciation (1,000,000)
General corporate expenses (2,000,000)
Entity net income shown in income statements P 10,000,000

Problem 10 – 15
REQUIREMENTS:
1. Determine the profit or loss for all the operating segments
Segment profit or loss
Furniture Stationary Computer Others Total
External sales P 800,000 P 500,000 P 400,000 P 100,000 P 1,800,000
Intersegment sales 200,000 150,000 50,000 - 400,000
Total revenue 1,000,000 650,000 450,000 100,000 2,200,000
Cost of sales - external (600,000) (300,000) (240,000) (60,000) (1,200,000)
Cost of sales - internal (120,000) (96,000) (24,000) - (240,000)
Gross Profit 280,000 254,000 186,000 40,000 760,000
Distribution cost (100,000) (50,000) (40,000) (10,000) (200,000)
Administrative expense (50,000) (25,000) (20,000) (5,000) (100,000)
Finance cost (30,000) (15,000) (12,000) (3,000) (60,000)
Segment profit or loss P 100,000 P 164,000 P 114,000 P 22,000 P 400,000

2. Prepare the disclosures required for operating segments

Disclosures
Furniture Stationary Computer Others Total
External sales P 800,000 P 500,000 P 400,000 P 100,000 P 1,800,000
Intersegment sales 200,000 150,000 50,000 - 400,000
Profit or loss 100,000 164,000 114,000 22,000 400,000
Finance cost 30,000 15,000 12,000 3,000 60,000
Total assets 440,000 170,000 100,000 5,000 715,000
Total liabilities 75,000 50,000 15,000 3,000 143,000

3. Prepare the necessary reconciliation between segment information and amounts shown in
the entity’s financial statements
Revenue
Revenue of reportable segments P 2,100,000
Revenue of nonreportable segments 100,000
Elimination of the intersegment revenue (400,000)
Entity revenue shown in income statement P 1,800,000

Profit and loss

Profit or loss of reportable segments P 378,000
Profit or loss of nonreportable segments 22,000
Elimination of the intersegment profit (400,000 – 240,000) (160,000)
Share in profit of associate 10,000
Unallocated items
Other income 60,000
Other expenses (50,000)
Income tax expense (90,000)
Entity net income shown in income statements P 170,000

Total Assets
Total assets of reportable segments P 710,000
Total assets of nonreportable segments 5,000
Investment in associate 70,000
General corporate assets 15,000
Entity total assets P 800,000

Total Liabilities
Total liabilities of reportable segments P 140,000
Total liabilities of nonreportable segments 3,000
General corporate liabilities 7,000
Entity total Liabilities P 150,000

Problem 10 – 16
REQUIREMENTS
1. Determine the reportable segments without regard to aggregation criteria
Segment Revenue Profit or loss Assets
 1 P 620,000 P 200,000 P 400,000
2 100,000 20,000 80,000
3 340,000 70,000 300,000
4 190,000 (30,000) 140,000
5 180,000 (25,000) 180,000
6 70,000 10,000 120,000
7 120,000 (20,000) 140,000
Others 380,000 (25,000) 140,000
Total P 2,000,000 P 200,000 P 1,500,000

The information above shows that any operating segment with revenue equal to or greater
than P 200,000 (10% of P 2,000,000) is a reportable segment (Segment 1 and 3). Any
segments with identifiable assets greater than 150,000 (10% of P1,500,000) is a reportable
segment (segments 1, 3 and 5). The total profit of P 300,000 is greater than the loss of P
100,000, thus any segment with a profit or loss equal to or greater that P 30,000 (10% of
P30,000) is a reportable segment (segments 1,3 and 4). Thus segments 1, 3, 4, and 5 are
reportable segments.

2. If the 75%overall size test for reportable segments is not yet met, identify additional
reportable segments

Segments Revenue
1 P 620,000
3 340,000
4 190,000
5 180,000
Total revenue P 1,330,000

Percentage (1,330,000/2,000,000) = 65%

If the total external revenue of reportable operating segments constitutes less than 75% of
the entity’s external revenue, additional operating segments shall be identified as
reportable segments even if they do not meet the 10% quantitative thresholds until at least
75% of the entity’s external revenue is included in reportable segments.
Threshold segments that are below the 10% threshold can be aggregated as one segment
if they share majority of the five factors in identifying a business segment namely:
a. Nature of the product or service
b. Nature of the production process
c. Type or class of customers
d. Marketing method or the method used to distribute the product
e. The nature of the regulatory environment
Since segment 6 and 7 are similar in four of the five criteria they can be aggregated as on
reportable segment

Segment 6 Segment 7 Total

Revenue 70,000 120,000 190,000
Profit or (loss) 10,000 (20,000) (10,000)
Segment assets 120,000 140,000 260,000
 With segment 6 and 7 considered as one reportable segment, the total segment revenue
increases to P 1,520,000 or 76% of the total. The 75% requirement had been met
Revenue of reportable segments before aggregation P 1,330,000
Revenue of additional reportable segments 190,000
P 1,520,000

Percentage (1,520,000/2,000,000) 76%

3. What are the reportable segments after considering all factors?

The reporting segments are 1, 3, 4, 5, 6 and 7

Problem 10 – 17
REQUIREMENT:
1. Prepare the disclosures required for operating segments
Product A Product B Total
Revenue P 2,500,000 P6,000,000 P 8,500,000
Segment profit or 650,000 700,000 1,350,000
loss
Depreciation 350,000 1,300,000 1,650,000
Total assets 2,600,000 10,000,000 12,600,000
Total liabilities 1,300,000 6,000,000 7,300,000
Capital expenditures 600,000 1,300,000 1,900,000

2. Prepare the entity – wide disclosure about geographical areas to conform with the
requirement of segment reporting.
Philippines Japan Total
Revenue P 5,000,000 P3,500,000 P 8,500,000
Noncurrent assets - 3,000,000 2,100,000 5,100,000
PPE