IFRS 8 – Operating Segments

These flashcards review key definitions, quantitative thresholds, aggregation rules, disclosure requirements, and practical considerations under IFRS 8 Operating Segments.

What is the main purpose of IFRS 8 Operating Segments?

To require public entities to disclose segment information that helps users evaluate the nature and financial effects of the entity’s business activities and economic environments.

Which entities must apply IFRS 8?

Public entities reporting under IFRS. Private entities are exempt.

What three characteristics must a component possess to qualify as an operating segment?

(1) Engages in business activities that may earn revenues and incur expenses. (2) Operating results are regularly reviewed by the chief operating decision maker (CODM). (3) Discrete financial information is available for it.

Who is the CODM referred to in IFRS 8?

The individual or group responsible for strategic decision-making about resource allocation and performance assessment (e.g., board of directors or CEO).

What is a reportable segment?

An operating segment (or aggregation of segments) that meets specific quantitative thresholds requiring separate disclosure.

State the 10 % revenue test for reportable segments.

A segment is reportable if its external and intersegment revenue ≥ 10 % of the combined revenue of all operating segments.

State the 10 % profit or loss test for reportable segments.

A segment is reportable if the absolute amount of its profit or loss ≥ 10 % of the greater (in absolute terms) of: (i) total profit of profitable segments or (ii) total loss of loss-making segments.

State the 10 % asset test for reportable segments.

A segment is reportable if its assets ≥ 10 % of the combined assets of all operating segments.

What overall revenue threshold must reportable segments meet collectively?

Reportable segments’ external revenue must be ≥ 75 % of the entity’s total external revenue; otherwise, additional segments must be identified.

If a segment no longer meets a quantitative threshold in the current year, when can it still be disclosed separately?

When management believes the segment will meet the criteria again in the future.

What must an entity do when a segment meets a threshold for the first time?

Restate prior-year comparative figures for that segment.

List any three key items that must be disclosed for each reportable segment when regularly provided to the CODM.

Examples: profit or loss, assets, liabilities, revenue from external customers, intersegment revenue, interest income or expense, depreciation and amortization.

What reconciliations are required under IFRS 8?

Totals of reportable segments must be reconciled to the entity totals for revenues, profit or loss before tax, assets, liabilities (if disclosed), and any other material items.

Give two examples of geographical information that must be disclosed if available.

(1) External revenue attributed to the country of domicile and to foreign countries. (2) Non-current assets located in the country of domicile and in foreign countries.

Under IFRS 8, can start-up operations that have not yet earned revenue be operating segments?

Yes, they can qualify if they meet the other operating-segment criteria.

What are the five similarities required to aggregate operating segments?

Similarity in (1) products and services, (2) production processes, (3) type or class of customer, (4) distribution methods, and (5) regulatory environment (if applicable).

Why does IFRS 8 focus on internal information used by the CODM?

To provide external users with the same decision-useful data used internally, reducing information loss and lowering disclosure costs.

Name three limitations associated with highly aggregated financial data that segment reporting addresses.

(1) Inadequate assessment of risks by segment, (2) inability to gauge growth potential and profitability of different segments, (3) difficulty identifying where products and services are offered.

How does ASPE (Canadian private-company GAAP) treat segment reporting?

ASPE provides no guidance; segment reporting is only required for public companies, so private companies under ASPE are not required to disclose segments.

What happens if the combined external revenue of identified reportable segments is only 60 % of total external revenue?

The entity must designate additional operating segments as reportable until the 75 % threshold is met.

Which three broad categories of disclosure does IFRS 8 require in addition to segment financials?

(1) Information about products and services, (2) geographical areas, (3) major customers.

Is head-office activity generally considered an operating segment under IFRS 8?

No, because it does not engage in revenue-earning business activities even though financial information can be separated.

Can segments be reported separately even if they do not meet any quantitative threshold?

Yes, if management judges the information to be useful to users.

In the Mercury Motors example, why was the Engines segment reportable even though it met only one test?

Meeting any one of the three quantitative tests (in this case, the revenue test at 11.2 %) is sufficient for a segment to be reportable.

At a minimum, each reportable segment must have which of the following disclosed?

Net Earnings

Which of the following statements best describes a reportable segment?

An operating segment that exceeds certain quantitative thresholds

Ninja Frog Inc., a publicly traded company, has seven operating segments all producing different products with the following results (in ’000s):

 

Segments	Sales	Profit (loss)	Assets
Orange	$100	$50	$500
Yellow	15	(50)	60
Purple	200	25	100
Blue	125	10	10
Red	65	15	5
Pink	200	50	100
White	65	20	50
	$770	$120	$825

Based on the quantitative thresholds, how many reportable segments are there?

Answer is= 6

The greater of absolute profit or absolute loss is the greater of total profit ($170) or total loss ($50), so $170. These segments consist of 92% of sales, which meets the 75% test for external revenue.

 

Segments	Sales	Profit (loss)	Assets	Reportable?
Orange	100/770 = 13%	50/170 = 29%	500/825 = 61%	Y
Yellow	15/770 = 2%	(50)/170 = (29%)	60/825 = 7%	Y
Purple	200/770 = 26%	25/170 = 15%	100/825 = 12%	Y
Blue	125/770 = 17%	10/170 = 6%	10/825 = 1%	Y
Red	65/770 = 8%	15/170 = 9%	5/825 = 1%	N
Pink	200/770 = 26%	50/170 = 29%	100/825 = 12%	Y
White	65/770 = 8%	20/170 = 12%	50/825 = 6%	Y
	100%	N/A	100%

Which of the following is a characteristic of operating segments that may be aggregated for reporting purposes?

Methods used to distribute their products or provide their services are the same

Which of the following statements best describes the difference between IFRS and ASPE for segment reporting?

Only IFRS requires disclosure of operating segments

Which of the following best describes segment reporting?

Financial Statements information at a lower leverl provided to users to allow them to evalute and make decisions about the entity applicable only to public companies

Which of the following is one of the three criteria that can result in an operating segment being considered a reportable segment?

Revenue from customers is greater than or equal to 10% of the combined revenue of all operating segments

Which of the following is a characteristic of an operating segment?

Discrete financial information is available

Which of the following best describes the focus of the requirement for segment disclosures?

Providing financial statement users with the same information that is used internally for decision-making

Which of the following statements best describes why disaggregated information is needed from a company that already issues financial statements?

Information needed by users may be lost when data is accumulated and summarized for the financial statements

Which of the following is NOT a limitation of aggregated data?

Difficult to determine the performance of the entity as a whole

Paranormal Monitoring Corp. (PMC) has the following operating segments:

 

Segment	External sales	Internal sales	Total sales	Profit (loss)	Assets
Investigations	$20	0	$20	$(10)	$70
Security	60	0	60	25	90
Equipment sales	80	40	120	(15)	25
Licensing	20	0	20	5	15
Streaming	150	0	150	60	110
	$330	$40	$370	$65	$310

Which of the following is NOT a reportable operating segment for PMC?

The Licensing segment does not meet any of the three criteria (that is, greater than 10% of sales, the greater of profit or loss, and assets), so it is not a reportable segment.

 

Segment	Total sales	Profit (loss)	Assets	Reportable?
Licensing	$20	$5	$15
Total of all segments	$370	$90	$310
Segment % of total	5%	6%	5%	N

Magnum Dairy Industries Corp. (MDIC) has the following operating segments (in $'000s):

 

Segment	Sales	Profit (loss)	Assets
Dairy	250	5	100
Poultry	100	(8)	90
Bakery	200	15	30
Candy	500	50	180
	1,050	62	400

MDIC is a privately held company that has elected to prepare its financial statements in accordance with IFRS. MDIC's segments do not engage in any intercompany sales.

Based only on the revenue criterion, which of the above segments of MDIC are reportable operating segments per IFRS 8 Operating Segments?

No segments; 

MDIC is a privately held company and IFRS 8 only applies to public entities reporting under IFRS; therefore, private entities reporting under IFRS do not need to follow IFRS 8.

Jupiter Corp. has four operating segments, the details of which are shown below. All figures are in thousands of dollars.

		Sales
Segment	External	Internal	Total	Profits/(Loss)	Assets
North	$ 30	—	$ 30	$ (6)	$18
East	20	$40	60	2	80
South	28	2	30	10	80
West	180	20	200	(90)	20
Total	$258	$62	$320	$(84)	$198

Which of the following segments are reportable for Jupiter?

East and West have segment sales 10% or greater than combined segment sales. South and West have segment profit that is 10% or greater of absolute profit/loss. East, West and South have segment assets 10% or greater of combined assets.

Segment	Sales	Profit (loss)	Assets	Reportable?
East	$60	$2	$80
Total of all segments	$320	$(96)*	$198
Segment % of total	19%	2%	40%	Y
South	$30	$10	$80
Total of all segments	$320	$(96)*	$198
Segment % of total	9%	10%	40%	Y
West	$200	$(90)	$20
Total of all segments	$320	$(96)*	$198
Segment % of total	63%	94%	10%	Y

* Total profit of operating segments with a profit is $12 ($2 + $10), compared to a total loss of $96 ($6 + $90) for all segments reporting a loss; therefore, the loss total of $96 is used for the profit or loss criterion.

Canadian Equipment Ltd. (CEL), a publicly traded company, has five operating segments, all producing different products with the following results:

 

Segments	Sales	Profits	Assets
TC	$55	$3	$110
RL	60	4	95
QC	170	22	370
PD	310	29	530
DS	50	6	145
Total	$645	$64	$1,250

Based on the quantitative thresholds, is RL a reportable segment?

The RL operating segment does not meet any of the criteria to be considered a reportable segment, as noted, and calculated below:

A segment is reportable if it meets one or more of the following three criteria:

1. Its reported revenue from sales is greater than or equal to 10% of combined revenue.

2. The absolute amount of its reported profit or loss is greater than or equal to 10% of the greater, in absolute amount, of:

   1. the combined reported profit of all profitable segments

   2. the combined reported loss of all segments that reported a loss

3. Its assets are greater than or equal to 10% of the combined assets of all operating segments.

 

Segment	Sales	Profit (loss)	Assets	Reportable?
RL	$60	$4	$95
Total of all segments	$645	$64	$1,250
Segment % of total	9%	6%	8%	N

Xie Ltd. is a public company with the following results:

 

Segments	Sales	Profits	Assets
Toys	$60	$20	$1,000
Puzzles	10	3	55
Magazines	11	4	20
Books	55	35	900
Board games	5	2	60
Safety	10	5	65
Electronics	15	2	100
	$166	$71	$2,200

Based on the quantitative thresholds, how many segments are reportable?

Based on the three quantitative tests, only the toy and book segments meet the thresholds. However, this totals only 69% of external revenue (36% + 33%), and a minimum of 75% of external revenue must be included in the segmented reporting. Therefore, an additional segment must be selected, with the next largest being electronics based on external revenue.

 

Segments	Sales	Profits	Assets	Reportable?
Toys	60/166 = 36%	20/71 = 28%	1,000/2,200 = 45%	Y
Puzzles	10/166 = 6%	3/71 = 4%	55/2,200 = 3%	N
Magazines	11/166 = 7%	4/71 = 6%	20/2,200 = 1%	N
Books	55/166 = 33%	35/71 = 49%	900/2,200 = 41%	Y
Board games	5/166 = 3%	2/71 = 3%	60/2,200 = 3%	N
Safety	10 / 166 = 6%	5/71 = 7%	65/2,200 = 3%	N
Electronics	15/166 = 9%	2/71 = 3%	100/2,200 = 4% (rounded down)	Y (to hit 75% threshold)
	100%	100%	100%

Fox Company is a private company that reports under ASPE. The CFO generally uses divisional reporting to oversee and review the company’s results, although the board only reviews company-wide financial information.

Which statement describes Fox’s requirement to disclose segment information in its financial statements?

Fox is not required to disclose segment information because the compnay reports under ASPE

Apprentice Corp. has four segments, the details of which are shown below. All figures are in thousands of dollars.

 

		Sales
Segment	External	Internal	Total	Profits	Assets
ATVs	$ 35	$ 0	$ 35	$ (6)	$ 40
Boats	20	40	60	2	80
Jet skis	28	2	30	9	80
Snowmobiles	180	20	200	91	20

How many reportable segments does Apprentice have?

Back

Correct! All four segments meet the criteria to be considered reportable:

 

Segment	Sales	Profit (loss)	Assets	Reportable?
ATVs	$35	($6)	$40
Total of all segments	$325	$102	$220
Segment % of total	11%	6%	18%	Y
Boats	$60	$2	$80
Total of all segments	$325	$102	$220
Segment % of total	18%	2%	36%	Y
Jet skis	$30	$9	$80
Total of all segments	$325	$102	$220
Segment % of total	9%	9%	36%	Y
Snowmobiles	$200	$91	$20
Total of all segments	$325	$102	$220
Segment % of total	62%	89%	9%	Y

Sales are greater than or equal to 10% of combined sales for ATVs, boats, and snowmobiles. Only snowmobiles have profit or loss greater than or equal to 10% of absolute profit or loss (absolute profit is $2 + $9 +$91 = $102). Jet skis, ATVs, and boats have assets 10% or greater of combined assets.

Which of the following statements about reportable segments is true?

Information must be provided in the financial statement notes for each reportable segment

Which of the following statements best describes why disaggregated information is needed from a company that already issues financial statements?

Information needed by users may be lost when data is accumulated and summarized for the financial statements