Chapter # 24

Operating Segments

TRUE OR FALSE

1. Generally, a board of directors that consist of both executive and non-executive directors cannot be
seen as the chief operating decision maker as the executive directors are not involved in the day-to-
day operations, except at a very high level. True
2. For purposes of PFRS 8, an entity's post-employment benefit plans are considered operating
segments. False
3. If an operating segment is identified as a reportable segment in the current period, segment data for
the prior period is not necessary to be presented for comparative purposes. False
4. PFRS 8 clarifies that when both the parent's separate (stand-alone) financial statements and its
consolidated financial statements are presented in the same financial report; segment information as
required by PFRS 8 needs to be presented only for the consolidated financial statements. True
5. According to the "core principle" of PFRS 8, an entity should disclose information to enable users of
its financial statements to evaluate the nature and financial effects of the types of business activities
in which it engages and the economic environments in which it operates. True
6. The chief operating decision maker (CODM) could be the chief executive officer (CEO), the chief
operating officer (COO), or the Board of Directors (Board), depending on who within the
organization is responsible for the allocation of resources and assessing the performance of the
entity's operating segments. True

MULTIPLE CHOICE – THEORIES

1. Which of the following types of entities are required to report operating business segments?
A. Joint ventures.
B. Not-for-profit enterprises.
C. Nonpublic business enterprises.
D. Publicly-traded enterprises.

2. Under PFRS 8, the management approach of identifying reporting operating segments means that
operating segments are identified on the basis of financial reports about the components of an entity
that arc regularly reviewed by the
A. chief accountant.
B. chief audit executive.
C. chief operating decision maker.
D. respective head of each operating segment.

3. The term chief operating decision maker

A. refers to a function.
B. refers to a manager with a specific title.
C. must be disclosed by title in the financial reporting for segments.
D. must be described in the disclosures for the financial reporting for segments.

4. Commander Eesha Inc. is a company listed on an international stock exchange. It has four major lines
of business, namely, manufacturing, retail, real estate, and telecommunications. Each major line of
business has a chief operating officer" ("COO") who is' responsible for the business component's
profitability. The company has a chief executive officer ("CEO") who is overall in charge of the entire
business of the entity and reports to the Board of Directors ("Board") on the results of operations of
Commander Eesha Inc. The CEO has the authority from the Board to decide on the performance
bonus of each COO, for which the CEO has set key performance indicators (KPls) against which they
are evaluated each year by the CEO. Discrete financial information for each of the major lines of
business of Commander Eesha Inc. is available. The CEO has been entrusted by the Board to allocate

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 funds for the day-to-day operations of the four lines of business, which he does based on criteria such
as their comparative profitability, size of business generated, and cash flows from operations.

Based on the previously mentioned details about the functioning of Commander Eesha Inc. and other
relevant information provided, who is the CODM for the purposes of PFRS 8?

A. CEO
B. CFO
C. COO of any line of business
D. The Board of Directors

5. Lieutenant Kirtar Inc, is a publicly listed computer hardware dealership company. Based on the
decision of the Board of Directors, the entity is managed and controlled through three divisions,
namely, the "spare parts division," the "workshop division," and thc "sales division." Both the sales
division and the workshop division deal with external customers and handle orders of both walk-in
customers as well as long-term customers who have purchased computers through earlier sales
through this dealership. The entity's spare parts division, however, only supplies spare parts to its
workshop division and does not cater to the demands of any outside customers. In other words, if
outside customers desire to purchase spare parts directly from the spare parts division of Lieutenant
Kirtar Inc. they cannot do so unless their computers are serviced by the workshop division of
Lieutenant Kirtar Inc. and the workshop division (of Lieutenant Kirtar Inc.) purchases spare parts
from its spare parts division for the purposes of undertaking repairs of computers they have been
contracted to undertake repair work for.

For the purposes of PFRS 8, how many operating segments should Lieutenant Kirtar Inc. report
segmental disclosures for?
A. One division
B. Two divisions
C. Three divisions
D. None

6. Which of the following qualifies as an operating segment?

A. Corporate headquarters
B. North American segment whose assets are 12% of the combined assets of all segments and
management reports to the chief operating officer.
C. Eastern Europe segment which reports its results directly to the manager of the European division,
and has 20% of the entity's assets, 12% of revenue and 11% of the profit
D. South American segment whose results of operations are reported directly to the chief operating
officer, and has 5% of the entity's assets, 9% of revenue and 8% of the profit

7. An entity is in the entertainment industry and organizes outdoor concerts in four different areas of
the world: Europe, North America, Australia and Japan. The entity reports to the board of directors
on the basis of each of the four regions. The management accounts show the profitability for each of
the four regions, with allocations for that expenditure which is difficult to directly charge to a region.
The concerts are of two types: popular and classical music. What is the appropriate basis for segment
reporting in this entity?
A. Segment should be reported for each of the four different regions.
B. The segments should be reported by region, so Australia and Japan would be combined.
C. The segment information should be reported as North America and the rest of the world.
D. The segment should be reported by class of business, that is, popular and classical music.

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8. What is the approach prescribed by PFRS 8 in identifying an operating segment?
A. Business Segment approach
B. Management approach
C. Geographical segment approach
D. Matrix presentation approach

9. Operating segments that do not meet any of the quantitative thresholds

A. cannot be considered reportable.
B. may be considered reportable if the information is for internal use only.
C. may be considered reportable and separately disclosed if this is the practice within the economic
environment in which the entity operates.
D. may be considered reportable and separately disclosed if management believes that information
about the segment would be useful to the users of the financial statements.

10. Not all operating segments would automatically qualify as reportable segments. 10.
PFRS 8 prescribes criteria for an operating segment to qualify as a reportable segment; these are
alternative quantitative thresholds. One of the quantitative thresholds listed below is not a
requirement of PFRS 8. Which one is it?
A. Its assets are 10% or more of the combined assets of all operating segments.
B. Its assets are 20% or more of the combined assets of all operating segments.
C. Its reported revenue, from both external customers and intersegment sales or transfers, is 10% or
more of the combined revenue, internal and external, of all operating segments.
D. The absolute measure of its reported profit or loss is 10% or more of the greater, in absolute
amount, of (1) the combined reported profit of all operating segments that did not report a loss and
(2) the combined reported loss of all operating segments that reported a loss.

11. Which of the following statements is true concerning the 75% overall size test for operating
segments?

A. The total internal revenue of all reportable segments is 75% or more of the entity's internal
revenue.
B. The total external revenue of all reportable segments is 75% or more of the entity's external
revenue.
C. The total external and internal revenue of all reportable segments is 75% or more of the entity's e
xternal revenue.
D. The total external revenue of all reportable segments is 75% or more of the entity's total external
and internal revenue.

12. A significant operating segment for reporting purposes is one which meets any of the three criteria to
revenues, earnings and identifiable assets. Which of the following is the percentage used to measure
each of these criteria?
A. 10% or more
B. more than 10%
C. 20% or more
D. more than 20%

13. For segment reporting purposes, which tests must be applied to determine if a unit or component is a
reportable operating segment?
A. revenue test and asset test
B. revenue test, asset test and expense test.
C. revenue test, asset test and cash flow test.
D. revenue test, asset test and profit or loss test

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14. A segment of a business is to be reported separately when the revenue of the segment exceeds ten
percent of the
A. total export and foreign sales.
B. total revenue of all entitys industry segments.
C. combined net income of all segments reporting profit.
D. total combined revenue of all segments reporting profit.

15. In determining whether a particular operating segment is of significant size (i.e., 10%) to warrant
disclosure,
A. five tests are usually applied and all tests must be met.
B. five tests are usually applied but only one must be met.
C. three tests are usually applied and all tests must be met.
D. three tests are usually applied but only one must be met.

16. Which one of the following disclosures is not required under PFRS 8?
A. The identity (say, the name) of a major customer that accounts for 20% of the entity's revenues.
B. The total amount of revenues from a major external customer (with revenues from that external
customer exceeding 50% of the entity's revenues).
C. Revenue from external customers attributed to the entity's country of domicile and attributed to
all foreign countries in total from which the entity derives revenues (assuming that necessary
information is available and the cost to develop it is not excessive).
D. Revenues from external customers for each product and service, or each group of similar products
and services, unless the necessary information is not available and the cost to develop it would be
excessive.

17. PFRS 8 requires that an entity should provide reconciliations of segment information to the entity's
financial information. One of the following reconciliations is not required by PFRS 8. Which one is it?
A. The total of the reportable segments' assets to the entity's assets.
B. The total of the reporting segments' revenues to the entity's revenues.
C. The total number of major customers of all segments to the total number of major customers of the
entity.
D. The total of the reportable segments' measures of profit or loss to the entity's profit or loss before
tax expense (tax income) and discontinued operations, and if the entity allocates to reportable
segments items such as tax expense (tax income), the entity may reconcile the total of the segments'
measures of profit or loss to the entity's profit or loss after those items.

18. Which one of the following statements is not true in the context of PFRS 8?

A. The present IASB standard on segmental reporting requires entities to report segmental
information using a "risks and rewards" approach.

B. The present IASB standard on segmental' reporting requires entities to report segmental
information using a "management approach" that allows the financial statement user to review
segmental information from the "eyes of the management."

C. If an entity that is not required to apply PFRS 8 (such as an entity whose equity or debt is not
traded in a public market) but still chooses to disclose information about segments in its financial
statements, it shall not describe the information as segment information.

D. The "core principle" of PFRS 8 requires that an entity should disclose information to enable users
of its financial statements to evaluate the nature and financial effects of the types of business
activities in which it engages and the economic environments in which it operates.

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 19. PFRS requires that an entity should report all of the following, except
A. Liquidity ratios
B. Major customers
C. Segment assets and liabilities
D. Segment profit or loss and related information
20. Which of the following need not be disclosed for reportable segments?
A. Profit or loss
B. Seasonal revenues
C. Interest revenue and expense
D. Capital expenditures for long-lived assets

MULTIPLE CHOICE - PROBLEMS

A. Maureen Enterprise has five operating segments: electronics, restaurants recreational clubs, travel
agencies, car rental. Their revenues, both from external and internal sources, are as follows:

(in millions of P)
Segments External Internal Total
Electronics 100 50 150
Restaurants 20 10 30
Recreational clubs 40 10 50
Travel agencies 75 25 100
Car rentals 60 40 100
Combined 295 135 430
Reconciling items and (100) (50) (150)
eliminations
Total 195 85 280
(1) Based in the “revenue test”, how many segments would qualify as “reportable segments”?
A. Two (2)
B. Three (3)
C. Four (4)
D. Five (5)

B. The equity of The Arvin Dave Company is traded on a recognized stock exchange. Arvin Dave
regularly reports the financial reports of five different business units to its chief operating decision
maker. The relevant revenues for the year ended 31 December 2021 for these five operations, as a
percentage of total external and internal revenue, were as follows:

% internal % external Total

1 3 35 38
2 10 14 24
3 15 5 20
4 0 9 9
5 0 9 9
28 72 100

(2) In accordance with PFRS 8 Operating Segments, the reportable segments of Arvin Dave are
A. 1 and 2 only
B. 1, 2 and 3 only
C. 1, 2, 3 and 4 only
D. 1, 2, 3, 4, 5

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 C. Marie and Ernane Corporation has six dealerships of softdrinks in Alabang, Muntinlupa City named
Dabees, Alabang Hills, Ilaya, Wawa, Sitio Rizal and Sitio Masagana. Marie & Ernane reported the
following segment profit (loss) for 2021:

Dabees P 20,000,000
Alabang Hills (4,500,000)
Ilaya 8,000 000
Wawa 3,500,000
Sitio Rizal (300,000)
Sitio Masagana (550,000)
Net profit P 26,150,000

(3) In the segment information for the current year, what are the reportable segments?
A. Dabees, Ilaya, Wawa
B. Dabees, Alabang Hills, Ilaya, Wawa
C. Dabees, Alabang Hills, Ilaya, Wawa, Sitio Masagana
D. Dabees, Alabang Hills, Ilaya, Wawa, SItio Masagana, Sitio Rizal

D. Rubylyn Fruit International Group has six divisions that operate in Malibay. The financial statements
of Rubylyn for 2021 shows the following:

Statement of Financial Position Income Statement

Assets Liabilities Equity Revenue Net Profit
Orange 15,000,000 10,000,000 5,000,000 20,000,000 1,000,000
Banana 4,500,000 1,500,000 3,000,000 15,000,000 2,200,000
Pear 8,000,000 3,000,000 5,000,000 8,000,000 4,000,000
Apple 3,500,000 2,500,000 1,000,000 3,500,000 1,000,000
Grapes 1.300,000 300,000 1,000,000 3,000,000 2,300,000
Coconut 5,500,000 500,000 5,000,000 2,500,000 500,000
37,800,000 17,800,000 20,000,000 52,000,000 11,000,000
(4) Which among the segments are reportable?
A. Orange, Banana, Pear
B. Orange, Banana, Pear, Apple, Coconut
C. Orange, Banana, Pear, Grapes, Coconut
D. Orange, Banana, Pear, Apple, Grapes, Coconut

E. Melituna Vegetable Corporation reported the following data for the following segments for the year
2021:

Assets Revenue Net Profit

Sitaw P 800,000 P 1,000,000 P 300,000
Kalabasa 300,000 1,500,000 500,000
Baguio Beans 600,000 800,000 100,000
Patatas 200,000 700,000 400,000
Kamatis 400,000 1,300,000 700,000
Bawang 300,000 1,200,000 300,000
Sibuyas-Tagalog 100,000 700,000 100,000
Sibuyas – Pula 150,000 600,000 200,000
Other segments 450,000 2,200,000 500,000
P 3,300,000 10,000,000 3,100,000

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 A segment is named on the basis of products it distributes to the market. No intersegment sales
occurred during 2021. The financial operations of the “Other segments” are not reviewed by the chief
operating decision maker of Melituna.

(5) What are the reportable segments for the year 20x1?

A. Sitaw, Kalabasa. Kamatis, Bawang

B. Sitaw, Baguio Beans, Kamatis, Bawang
C. Sitaw, Kalabasa, Baguio Beans, Patatas, Kamatis, Bawang
D. Sitaw, Kalabasa, Baguio Beans. Patatas, Kamatis, Bawang, Sibuyas segments combined as one

F. Afnin and all of its divisons are engaged solely in trading business. The 2021 income statement of Afnin,
Inc. shows the following:

Sales to unaffiliated customers 20,000,000

Intersegment sales 3,000,000
Gain on sale of machinery 1,500,000
Expenses (15,000,000)
Net Income P 9,500,000

(6) What is the minimum amount of segment revenue in order that a division can be considered a reportable
segment?

A. P2,000,000
B. P2,150,000
C. P2,300,000
D. P2,450,000

(7) In its 2021 financial statements, Afnin should disclose major customer data is sales to any single customer
amount to at least

A. P2,000,000
B. P2.150,000
C. P2,300,000
D. P2,450,000

(8) What is the minimum amount of external revenue that should be disclosed by reportable segments?

A. P2,000,000
B. P15,000,000
C. P17,250,000
D. P23,000,000

G. Cedric John Albert Corporation discloses supplementary operating segment information for its two
reportable segments. Data for 2021 are as follows:

Segment Wis Segment Ali

Sales P 750,000 P 250,000
Traceable operating expenses 325,000 130,000
Indirect operating expenses 120,000 120,000

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 (9) Appropriately selected common indirect operating expenses are allocated to segments based on the ratio
of each segment’s sales to total sales. The 2021 operating profit for Segment Wis was

A. P260,000
B. P335,000
C. P395,000
D. P425,000

H. Jackie Company has three lines of business, each of which is a significant industry segment. Company
sales aggregated P1,800,000 in 2021, of which Segment Acelle contributed 60 percent. Traceable costs were
P600,000 for Segment Acelle from a total of P1,200,000 for the company as a whole. In addition, P350,000 of
common costs are allocated in the ratio of segment’s income before common costs to the total income before
common costs.

(10) For Segment Acelle, Jackie should report a 2021 segment profit of

A. P200,000
B. P270,000
C. P280,000
D. P480,000

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