Deck 7: Segment and Interim Reporting

Question 1

Faulk Ltd. has provided the following information: $$\begin{array} { | c | r | r | r | } \hline \text { Segment } & \text { Assets } & \text { Revenues } & \text { Profits } \\\hline \text { A } & \$ 60,000 & \$ 18,000 & \$ 9,000 \\\hline \text { B } & 120,000 & 90,000 & 3,000 \\\hline \text { C } & 120,000 & 52,500 & 15,000 \\\hline \text { D } & 30,000 & 300,000 & 120,000 \\\hline\end{array}$$

- Under the profit test only, which segments are reportable?

A)Segment A only
B)Segment C only
C)Segments A and C only
D)Segments C and D only

Answer 1

D

Question 2

An organization has identified the following segments: $$\begin{array} { | c | c | } \hline \text { Segment } & \text { Operating Profit (Loss) } \\\hline \text { A } & \$ ( 32,000 ) \\\hline \text { B } & 108,000 \\\hline \text { C } & 95,000 \\\hline \text { D } & ( 14,000 ) \\\hline \text { E } & \underline { 21,000 } \\\hline & \$ 178,000 \\\hline\end{array}$$ Which of the identifiable segments above are reportable?

A)Segments A, B, and C only
B)Segments B, C, and E only
C)Segments B and C only
D)Segments A, B, C, and E only

Answer 2

D

Question 3

Which of the following statements about interim financial statements for public companies is true?

A)Interim financial statements must be audited.
B)Interim financial statements should be in a format consistent with the year-end financial statements.
C)Interim financial statements must have the same level of detail as the annual financial statements.
D)Interim financial statements do not have to be in full compliance with IFRS.

Answer 3

B

Question 4

IFRS 8 requires the disclosure of certain key information such as an organization's major customers and geographic areas of operations. Why are these disclosures required?

A)To demonstrate that the chief operating decision-maker has made prudent decisions
B)To allow users to assess potential business risks
C)To provide sufficient information to creditors
D)To allow users to see that the poor performance of one segment is usually offset by the good performance of other segments

Question 5

At least 75% of an organization's consolidated external revenues are disclosed by separate operating segments. The remaining segments do not meet any of the reportable segment thresholds. Which of the following is true about the remaining segments?

A)They must still be reported as separate segments.
B)They can be combined only if they have similar economic characteristics.
C)They can be combined only if the segments are horizontally or vertically integrated.
D)They can be combined and classified as "other."

Question 6

Faulk Ltd. has provided the following information: $$\begin{array} { | c | r | r | r | } \hline \text { Segment } & \text { Assets } & \text { Revenues } & \text { Profits } \\\hline \text { A } & \$ 60,000 & \$ 18,000 & \$ 9,000 \\\hline \text { B } & 120,000 & 90,000 & 3,000 \\\hline \text { C } & 120,000 & 52,500 & 15,000 \\\hline \text { D } & 30,000 & 300,000 & 120,000 \\\hline\end{array}$$

-Under the asset test only, which segments are reportable?

A)Segments A, B, and C only
B)Segments A and D only
C)Segments B and C only
D)All the segments are reportable.

Question 7

The following information on sales and operating profit is available for the company's three operating segments (in 000s): $$\begin{array} { | l | r | r | r | r | } \hline & \text { Segment D } & \text { Segment E } & \text { Segment F } & \text { Total } \\\hline \text { Sales } & \$ 6,000 & \$ 1,000 & \$ 10,000 & \$ 17,000 \\\hline \text { Operating profit } & \$ 225 & \$ 20 & \$ 5 & \$ 235 \\\hline\end{array}$$ Which of the operating segments must be reported separately?

A)Only Segment E
B)Only Segments D and F
C)Only Segments E and F
D)Segments D, E, and F

Question 8

Which of the following is not a requirement in defining an operating segment?

A)The particular component must be generating revenue.
B)The particular component's operating results must be reviewed regularly by responsible company officers.
C)The particular component's financial information is routinely available through the organization's financial reporting system.
D)The particular component incurs expenses in its normal cost of activities.

Question 9

Which of the following segment information must be disclosed?

A) $$\begin{array} { | l | l | } \hline& \text { Sales to single customers that } \\ \text { Breakdown between domestic } &\text { had more than 10\% of } \\\text { and foreign non-current assets } & \text { company's revenues } \\\hline \text { Yes } & \text { Yes } \\\hline\end{array}$$
B) $$\begin{array} { | l | l | } \hline& \text { Sales to single customers that } \\ \text { Breakdown between domestic } &\text { had more than 10\% of } \\\text { and foreign non-current assets } & \text { company's revenues } \\\hline \text { Yes } & \text { No } \\\hline\end{array}$$
C) $$\begin{array} { | l | l | } \hline& \text { Sales to single customers that } \\ \text { Breakdown between domestic } &\text { had more than 10\% of } \\\text { and foreign non-current assets } & \text { company's revenues } \\\hline \text { No } & \text { Yes } \\\hline\end{array}$$
D) $$\begin{array} { | l | l | } \hline& \text { Sales to single customers that } \\ \text { Breakdown between domestic } &\text { had more than 10\% of } \\\text { and foreign non-current assets } & \text { company's revenues } \\\hline \text { No } & \text { No } \\\hline\end{array}$$

Question 10

Which of the following is not a threshold for identifying a reportable segment?

A)The segment contributes at least 10% of the organization's total revenues.
B)The segment contributes at least 10% of the organization's operating profits.
C)The segment contributes at least 10% of the organization's combined assets of all operating segments.
D)The segment contributes at least 10% of the organization's total expenses.

Question 11

Under IFRS 8, certain reconciliations, such as total reportable segment revenues to the entity's revenues, are required. Why are these reconciliations required?

A)To prove that the consolidated financial statements balance
B)To ensure that all reportable segments have been identified
C)To show the relative contribution of each segment to the total
D)To show how reportable segments were identified

Question 12

Faulk Ltd. has provided the following information: $$\begin{array} { | c | r | r | r | } \hline \text { Segment } & \text { Assets } & \text { Revenues } & \text { Profits } \\\hline \text { A } & \$ 60,000 & \$ 18,000 & \$ 9,000 \\\hline \text { B } & 120,000 & 90,000 & 3,000 \\\hline \text { C } & 120,000 & 52,500 & 15,000 \\\hline \text { D } & 30,000 & 300,000 & 120,000 \\\hline\end{array}$$

- Under the revenue test only, which segments are reportable?

A)Segments A and C only
B)Segments B and D only
C)Segments B, C, and D only
D)All the segments are reportable.

Question 13

Which organizations are required to issue interim financial statements?

A)Public companies
B)Private enterprises
C)Both public companies and private enterprises
D)No organizations are required to issue interim financial statements.

Question 14

Which of the following organizations does IFRS 8 not apply to?

A)Banks
B)Mutual life insurance companies
C)Private companies
D)Cooperative business enterprises

Question 15

What is the main objective in disclosing segmented information?

A)It provides a broader view of the entire economic entity controlled by the parent.
B)It provides information to assess the risk of different operating units.
C)It increases the income of different operating segments.
D)It reduces the cost of financial reporting.

Question 16

There is certain information that reportable segments are required to disclose only if that information is regularly reviewed by the chief operating decision-maker. Which of the following must be disclosed even if it is not regularly reviewed by the chief operating decision-maker?

A)Measure of profit/loss
B)Amortization and depreciation
C)Income tax expense/benefit
D)Interest revenue and expense

Question 17

Which of the following is not an aspect in identifying an operating segment?

A)The business component's operating results are reviewed regularly by the enterprise's chief operating decision maker.
B)It is a component of the enterprise that is expected to generate revenues and expenses.
C)Discreet financial information on the business component is regularly available through the company's financial reporting system.
D)Other companies in the same industry use similar operating segments.

Question 18

Faulk Ltd. has provided the following information: $$\begin{array} { | c | r | r | r | } \hline \text { Segment } & \text { Assets } & \text { Revenues } & \text { Profits } \\\hline \text { A } & \$ 60,000 & \$ 18,000 & \$ 9,000 \\\hline \text { B } & 120,000 & 90,000 & 3,000 \\\hline \text { C } & 120,000 & 52,500 & 15,000 \\\hline \text { D } & 30,000 & 300,000 & 120,000 \\\hline\end{array}$$

-Using all the applicable tests, which segments are reportable?

A)Segments B and C only
B)Segments B, C, and D only
C)Segment D only
D)All the segments are reportable.

Question 19

The following information on sales is available for the company's three operating segments: $$\begin{array} { | c | r | r | r | } \hline \text { Segment } & \text { International Sales } & \text { External Sales } & \text { Total Sales } \\\hline \mathrm { A } & \$ 60,000 & \$ 300,000 & \$ 360,000 \\\hline \mathrm { B } & 200,000 & 10,000 & 210,000 \\\hline \mathrm { C } & & \underline { 1,500,000 } & \underline { 1,500,000 } \\\hline & \$ 260,000 & \$ 1,810,000 & \$ 2,070,000 \\\hline\end{array}$$ Which of the operating segments must be reported separately?

A)Only Segment C
B)Only Segments B and C
C)Only Segments A and C
D)Segments A, B, and C

Question 20

The thresholds for segmental financial reporting exclude ________.

A)10% of total internal and external revenues
B)10% of total internal and external expenses
C)10% of total assets
D)10% of the absolute value of the larger of aggregate segment profits or aggregate segment losses

Question 21

Ravens Inc. sells office furniture, including desks, chairs, partitioning walls, and office supplies, in more than six countries. The company is publicly traded and files annual statements with the securities regulator. The following information was provided by the controller for the most recent year ended December 31, 20X9.
$$\begin{array} { | l | r | } \hline & \begin{array} { r } \text { Revenues } \\\text { (in millions) }\end{array} \\\hline \text { Desks } & \$ 75 \\\hline \text { Chairs } & 40\\\hline \text { Partitions } & 115 \\\hline \text { Office supplies } & \underline { 10 } \\\hline & \$ 240 \\\hline & \\\hline \text { Canada } & \$ 75\\\hline \text { United States } & 109 \\\hline \text { Australia } &30 \\\hline \text { Europe } &15\\\hline \text { Asia } & \underline { 11 } \\\hline &\$ 240 \\\hline\end{array}$$ Required:
Explain the nature of the disclosures that would be required by Ravens.

Question 22

Yang Ltd. will issue interim financial statements for its second quarter. Which statement(s)must report details of the second quarter as well as for the year to date?

A)Statement of comprehensive income only
B)Statement of changes in equity only
C)Statement of comprehensive income and statement of changes in equity only
D)Statement of comprehensive income, statement of changes in equity, and statement of cash flows only

Question 23

Blue Sky Inc. (BSI)is a public company that is required to file interim statements on a quarterly basis. BSI has a loss carryforward available of $150,000, which has not been recognized as a deferred tax asset. In the first interim period, the company earns $80,000, and it is expected that it will earn the following amounts in each of the next three quarters: $50,000 in quarter two, $170,000 in quarter three, and $200,000 in quarter four. The company pays a tax rate of 30%, excluding any loss carryforwards.
Required:
Calculate the tax expense for each interim period assuming that the company follows the requirements of IAS 34.

Question 24

With respect to interim financial statements, which of the following is not dictated by IFRS?

A)Content
B)Identification of recognition principles
C)Identification of measurement principles
D)Frequency of preparation

Question 25

Which of the following is not included among requirements for interim financial reports for public companies?

A)Statement of comprehensive income
B)Statement of financial position
C)Statement of cash flows
D)Summary of significant accounting policies

Question 26

The Alfred Company has operations in several international regions. These regions reported the following information:
$\begin{array}{clll}\text { Segment } & \text { Revenues } & \text { Profit } & \text { Assets } \\\text { A } & \$ 3,500 & \$ 600 & \$ 9,000 \\\text { B } & 4,000 & 300 & 6,000 \\\text { C } & 1,100 & (200) & 2,400 \\\text { D } & 2,800 & 300 & 10,400 \\\text { E } & 1,400 & 100 & 2,000\\&\$12,800&\$1,100&\$29,800\end{array}$ Which of these segments are reportable? Fully document all supporting calculations.

Question 27

Rules for interim reporting require that comparative information be presented. What comparative information should the current statement of financial position include?

A)The same quarter, last year
B)The immediate preceding quarter
C)The year end, last year
D)As budgeted for the period

Question 28

The recommendation for interim income tax expense requires the use of which of the following rates in the first quarter?

A)Estimated average
B)Marginal
C)Applicable progressive
D)Loss carryforward

Question 29

Under IAS 34, companies generally should use the discreet approach for interim reporting. However, IAS 34 outlines exceptions to this rule. Explain what these exceptions are and how they are treated in interim reports. What argument does IAS 34 provide for this treatment?

Question 30

HB Company is a private company with a significant amount of long-term debt. The company reports under IFRS. One of the conditions of the debt-financing indenture is that it must provide quarterly financial statements to the lender. HB pays tax at the rate of 20% on the first $200,000 of income and 40% on any income in excess of $200,000. During 20X5, the company earned $500,000 and paid tax at an average rate of 32%. Similar results were expected for 20X6.
HB realized the following actual results for the year ended December 31, 20X6 (in thousands):
$$\begin{array} { c l } \text { Quarter } & { \text { Income (loss) } } \\1 & \$ 100 \\2 & ( 150 ) \\3 & 200 \\4 & 400\end{array}$$ Required:
Calculate income tax expense (recovery)for each quarter in 20X6 and for the year in total under the:
a. discreet approach
b. integral approach

Question 31

Explain what an operating segment is. For each of the examples below, determine what operating segments the company has and why.
a. A beverage company sells beer, wine, and bottled water. The beer and wine are sold through liquor store outlets and directly to restaurants. The bottled water is sold to retailers.
b. A company sells leather apparel. The company designs, manufactures, and retails these goods through its own retail outlets. There are primarily three divisions: (1)designing and sourcing and purchasing various raw materials; (2)manufacturing; and (3)distribution and retail. The design and raw materials flow through to the manufacturing division. All output of the manufacturing division is transferred to the distribution and retail division. Only the distribution and retail division has external revenues. The other divisions have internal revenues only.
c. A drug company researches, manufactures, and distributes its drugs to pharmacies and hospitals in Canada, the United States, and Australia. It currently manufactures three drugs. Two of these drugs treat diabetes, and one drug is used to treat arthritic pain. The company has a fourth drug that is in phase three of the research process, awaiting final approval. This drug will also be used to treat pain, but mainly headache pain.

Question 32

In Canada and the United States, at a minimum, how often are interim financial statements required to be issued?

A)Monthly
B)Bi-monthly
C)Quarterly
D)Semi-annually

Question 33

Explain what entity-wide disclosures are required by a public company. Why is this disclosure required under IFRS 8, and how is this information useful?

Question 34

Sharst Link Company (SLC)is a public company and must file interim statements. SLC experienced the following events during the third quarter of 20X9:
1. A large marketing plan was rolled out for a new product costing $9,000,000. The plan is expected to drive sales for the next four quarters.
2. A lawsuit was settled and the company must pay $15 million within the next 90 days. There was no payment made by the end of the third quarter. In previous quarters, there was no provision made for this settlement since it was determined to be not probable.
3. Goodwill was tested for impairment and determined to have an impairment loss of $10 million.
4. In the previous interim period, due to a significant drop in the selling price of the inventory, the inventory was written down to its net realizable value of $9 million from a cost of $10 million. In this quarter, the inventory is still on hand and the circumstances have again changed, resulting in the net realizable value increasing to $12 million.
5. Customers earn volume rebates when annual sales volumes exceed $6 million. This is a contractual agreement that the company has made to pay rebates of 4% on total sales for the year once the amount of $6 million is achieved. Currently, there were sales of $2 million to one customer for the quarter. In each of the previous quarters, sales of $1.5 million had been made to this customer. It is expected that sales of $2 million will be made in quarter four to this customer also.
Required:
For each event, indicate the impact on the interim statement for the third quarter using the guidance required by IAS 34.

Question 35

What is the difference between the way taxes are treated under the discreet approach and under the integral approach?

A)Under the discreet approach, taxes are estimated by applying an average tax rate to pre-tax interim net income, but taxes are calculated separately for each interim period under the integral approach.
B)Under the integral approach, taxes are estimated by applying an average tax rate to pre-tax interim net income, but taxes are calculated separately for each interim period under the discreet approach.
C)Under the discreet approach, taxes are recognized as they are incurred and paid, but under the integral approach, taxes are estimated by applying an average tax rate to pre-tax interim net income.
D)Under the integral approach, taxes are recognized as they are incurred and paid, but under the discreet approach, taxes are estimated by applying an average tax rate to pre-tax interim net income.

Question 36

When can benefits of an income tax loss in an interim period not be recognized in that period?

A)If the loss will be offset by taxable income later in that year
B)If the loss can be used as a loss carryback
C)If it is more likely than not that a tax loss carryforward benefit will be realized
D)If the loss occurs in the first interim period

Question 37

The controller of Getaway Corporation has prepared and summarized the following information for her company (all in millions of $):
$$\begin{array} { | l | r | r | r | r | } \hline& \text { External sales } & \begin{array} { r } \text { Inter-segment } \\\text { sales }\end{array} & \begin{array} { r } \text { Operating } \\\text { profit (loss) }\end{array} & \text { Total assets } \\\hline \text { Hotels } & 975 & & 89 & 1,050 \\\hline \text { Car rentals } & 512 & & 65 & 642 \\\hline \text { Guided tours } & 205 & & ( 25 ) & 221 \\\hline \text { Bus tours } & 173 & 100 & 11 & 250 \\\hline \text { Cruises } & \underline { 98 } & \underline { 50 } & \underline { ( 15 ) } & \underline { 95 } \\\hline \text { Total } & \underline { 1,963 } & \underline { 150 } & \underline { 125 } & \underline { 2,258 } \\\hline\end{array}$$ Required:
Identify which segments are reportable. Also discuss any ethical issues related to reporting of segmented information.

Question 38

During the first quarter of the company's fiscal year, HA Inc. paid $100,000 to an arbitrator, who assisted in negotiating an end to a strike by factory workers, and $200,000 for annual property taxes. How much of these costs should be expensed in the first quarter under the discreet approach and under the integral approach?

A) $$\begin{array} { | l | l | } \hline \text { Discreet } & \text { Integral } \\\hline \$ 400,000 & \$ 100,000 \\\hline\end{array}$$
B) $$\begin{array} { | l | l | } \hline \text { Discreet } & \text { Integral } \\\hline \$ 150,000 & \$ 150,000 \\\hline\end{array}$$
C) $$\begin{array} { | l | l | } \hline \text { Discreet } & \text { Integral } \\\hline \$ 150,000 & \$ 100,000 \\\hline\end{array}$$
D) $$\begin{array} { | l | l | } \hline \text { Discreet } & \text { Integral } \\\hline \$ 100,000 & \$ 150,000 \\\hline\end{array}$$

Question 39

Under IAS 34, which of the following costs is not viewed as a constructive obligation?

A)Contingent lease payments in excess of a contractual base amount
B)Year-end bonuses
C)Quantity discounts or rebates
D)Maintenance costs

Question 40

In practice, most companies use the discreet approach in preparing their internal interim financial statements. Which of the following costs is usually not included in the financial statements?

A)Insurance
B)Income taxes
C)Maintenance
D)Bonuses to employees

Question 41

Sparky Limited (SPL)is a public company and must file interim statements. SPL experienced the following events during the second quarter of 20X11:
1. In the first quarter, an impairment loss on goodwill was recognized in the amount of $5 million. The circumstances leading to this loss have now changed, and the value of the goodwill is once again above its original cost.
2. During the second quarter, the company shut down its manufacturing plant for annual maintenance. The annual maintenance costs totalled $7.5 million in the quarter.
3. As per a lease agreement, the company must pay additional rent charged at 3% of sales if annual sales are greater than $12 million. The contingent rent is payable on the total annual sales. The company reported sales in the first quarter related to this leased location of $3 million, and in the second quarter sales totalled $4 million. It is expected that sales for the third and fourth quarters will be $5 million and $3 million, respectively.
4. The company made a large sale to a new customer for $6 million. This sale relates to a contract of services that will be provided over the next nine months, which commences in the first month of the second interim period.
Required:
For each event, indicate the impact on the interim statement for the second quarter using the guidance required by IAS 34.