Question 1

You are the CODM of Sgt. Pepper's Pizzeria, a publicly traded pizza entity in Liverpool, England. You currently have two subsidiaries that qualify as separate segments - Penny Lane Pizzas (A) and Lovely Rita's Pizzas (B). Due to inefficient distribution of assets, you determine that an organizational overhaul is needed. You decide to add another separate segment - Paul's Famous Pizza Pies (C), and combine A and B into a single reportable segment - Dear Prudence Pizzas (D). The changes take effect this year. How will these new segments be presented in this year's financial statements?
A) Only A and B (old basis) will be shown
B) Only A and B (old basis) will be shown with restated comparative information for earlier periods
C) Only C and D (new basis) will be shown
D) Only C and D (new basis) will be shown with restated comparative information for earlier periods

Accepted Answer

When a company reorganizes its segments, it must present the segment information under the new structure. To ensure comparability, it also needs to restate comparative information for earlier periods according to the new segmentation.

Question 2

Refer to question 1. Assume that presenting updated comparative information for earlier periods is infeasible due to the cost and the unavailability of information. How will the new segments be presented in this year's financial statements?
A) Only A and B (old basis) will be shown
B) Only C and D (new basis) will be shown
C) Only A, B, and C will be shown
D) A, B, C, D will be shown

Accepted Answer

When it is not feasible to present updated comparative information for earlier periods, the new segments should be presented in this year's financial statements as if the new segments had always been presented.

Question 3

Refer to questions 5 and 6. Which enhancing qualitative characteristic from the conceptual framework (chapter 2) are you trying to preserve in this situation?
A) Comparability
B) Verifiability
C) Timeliness
D) Understanding

Accepted Answer

Comparability is an enhancing qualitative characteristic that allows users to identify and understand similarities in and differences among items. Without information being comparable, users are less able to make informed decisions.

Question 4

Orange Entity designs and manufactures high-tech consumer goods. They have determined that two subsidiaries - the Orange Operating Systems (OOS) segment and the Clandestine Clementine Computers (CCC) segment both meet the criteria in IFRS 8 for being separately reportable. An additional two segments - Marmalade Mice Manufacturing (MMM) and Sun Kissed Solar Energy (SKS) did not meet the criteria for being separately reportable. Total external revenue for Orange Entity for the year was €100 million. Of that amount, OOS generated €30 million , CCC generated €40 million, MMM generated €26 million, and SKS generated €4 million. In addition to OOS and CCC, What operating segments are separately reportable?
A) SKS
B) MMM
C) SKS and MMM
D) Neither SKS nor MMM

Accepted Answer

MMM meets the quantitative thresholds for separate reporting under IFRS 8, given its revenue contribution is significant relative to the total external revenue of the entity.

Question 5

Refer to question 4. Assuming the same facts, management decides that reporting SKS separately would be useful to financial statement users. In addition to OOS and CCC, What operating segments are separately reportable?
A) SKS
B) MMM
C) SKS and MMM
D) Neither SKS nor MMM

Accepted Answer

SKS becomes separately reportable because management decided its separate reporting would be useful to financial statement users, indicating its significance despite previous criteria. MMM remains not separately reportable as there's no indication its status changed.

Question 6

Which of the following is not a key step in applying IFRS 8?
A) Identifying operating segments
B) Identifying the CODM of the segments
C) Aggregating operating segments
D) Determining reportable operating segments

Accepted Answer

Identifying the Chief Operating Decision Maker (CODM) is not a step in applying IFRS 8 itself but rather a part of the process to understand how operating segments are identified and how the CODM reviews information. IFRS 8 requires entities to disclose information about their operating segments, based on internal reports that are regularly reviewed by the entity's CODM to make decisions about resources to be allocated to the segment and assess its performance. However, the identification of the CODM is a prerequisite to understanding how segments are identified and managed, rather than a distinct step in applying IFRS 8.

Question 7

Which of the following would identified as an operating segment?
A) Human Resources
B) Accounting
C) Treasury operations
D) information technology

Accepted Answer

Treasury operations would be identified as an operating segment because it directly involves in the company's cash management and financial activities, which can significantly affect the company's financial performance and position. Human Resources, Accounting, and Information Technology, while crucial to the operation of a company, typically do not generate revenues directly or are not considered a business segment whose performance is regularly reviewed by the entity's chief operating decision maker for decision-making purposes.

Question 8

The chief operating decision maker (CODM) regularly reviews non-IFRS information that is subsequently used in allocating resources to reportable segments and assessing performance. Consequently, the information is not permitted in the financial statements under IFRS.

Accepted Answer

IFRS allows the inclusion of non-IFRS measures in financial statements if they are used by the CODM for making operational decisions, as long as these measures are reconciled to the nearest IFRS measure.

Question 9

Comparability of segments among entities in an industry may be reduced as a result of the management approach outlined in IFRS 8.

Accepted Answer

IFRS 8 allows entities to define reportable segments based on internal reports and management's perspective, which can vary significantly between entities, leading to reduced comparability.

Question 10

The CODM regularly reviews measures of segment profit or loss. However, the measures do not correspond consistently with allocation of assets to reportable segments. Consequently, the information is not permitted in financial statements under IFRS.

Accepted Answer

Under IFRS 8 Operating Segments, the CODM (Chief Operating Decision Maker) reviews segment performance to make decisions about resources to be allocated to the segment and assess its performance. The standard does not require that the profit or loss measures correspond directly with the allocation of assets to reportable segments. The focus is on the information regularly reviewed by the CODM, even if it does not correspond to the measures used in the entity's financial statements.

Question 11

You are the CODM of Yellow Submarine Marine Manufacturing, a publicly traded entity in Southampton, England. Your entity has 2 segments - the submarine segment and the yacht segment. You don't have to reconcile these reportable segments' revenues to Yellow Submarine's total revenue on your financial statements.

Accepted Answer

IFRS 8 Operating Segments requires an entity to reconcile the total of the reportable segments' revenues to the entity's total revenue. This ensures transparency and provides a clear understanding of how segment revenues contribute to the total revenue of the entity.

Question 12

You are reviewing the financial statements of Carrie's Climbing and Canyoneering (CCC), a publicly traded entity that reports financial information using IFRS. CCC has two plants. One is located in Düsseldorf and manufactures canyoneering GPS systems. CCC also has a plant located about 50 kilometers away in Cologne that casts climbing karabiners and weaves nylon rope. You correctly suspect that these are separate operating segments.

Accepted Answer

Under IFRS 8, operating segments are components of an entity about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Given the distinct nature of the products (GPS systems vs. climbing gear) and potentially different production processes and markets, it's reasonable to consider the plants in Düsseldorf and Cologne as separate operating segments.

Question 13

Identifying the entity's CODM is a critical step in meeting the requirements for segment disclosures.

Accepted Answer

Identifying the Chief Operating Decision Maker (CODM) is crucial because it helps determine how an entity will report its operating segments for financial disclosures, in accordance with accounting standards like IFRS 8 or ASC 280.

Question 14

An entity may aggregate certain operating segments that have similar economic characteristics and comply with specific aggregation criteria.

Accepted Answer

Entities can aggregate operating segments if they exhibit similar economic characteristics and if the segments meet the aggregation criteria outlined in financial reporting standards, such as IFRS 8 Operating Segments.

Question 15

Reportable segments are determined based on qualitative thresholds of revenue, profit or loss, and assets.

Accepted Answer

Reportable segments are determined based on quantitative thresholds, not qualitative, as per accounting standards like IFRS 8 and ASC 280.

Question 16

The amounts disclosed for each reportable segment is the measure reported to the CODM which can be different from the measures used in the primary financial statements.

Accepted Answer

The amounts disclosed for each reportable segment are indeed the measures reported to the Chief Operating Decision Maker (CODM), and these can differ from the measures used in the entity's primary financial statements, as segment reporting aims to present the financial performance and position from the perspective of the organization's internal management structure.

Question 17

Any changes in the composition of an entity's reportable segments result in the restatement of comparative information for earlier periods.

Accepted Answer

Changes in the composition of an entity's reportable segments require the restatement of comparative information for earlier periods to ensure consistency and comparability in financial reporting.

Question 18

Define operating segment.

Accepted Answer

The answer of Define operating segment....

Question 19

What are some ways operating segments are identified?

Accepted Answer

The answer of What are some ways operating segments are...

Question 20

Giant Entity (GE) has four business components A, B, C and D. Two of these business components A and B are manufacturing plants located in the Netherlands. Each plant manufactures and sells a different product to customers located in the Netherlands. The CEO of each plant (the CODM) makes decisions about allocating resources and assessing performance. Two other components, C and D are manufacturing plants located in Zimbabwe, that are organized to mirror the Netherlands operations but each manufactures and sells products to customers in Zimbabwe. GE's vice-president for foreign operations in Zimbabwe is responsible for assessing performance and making resource allocation decisions for the Zimbabwe operation as a whole. How many operating segments does GE have?

Accepted Answer

The answer of Giant Entity (GE) has four business components...

Quiz 10: Operating Segments

Refer to question 1. Assume that presenting updated comparative information for earlier periods is infeasible due to the cost and the unavailability of information. How will the new segments be presented in this year's financial statements?

Refer to questions 5 and 6. Which enhancing qualitative characteristic from the conceptual framework (chapter 2) are you trying to preserve in this situation?

Refer to question 4. Assuming the same facts, management decides that reporting SKS separately would be useful to financial statement users. In addition to OOS and CCC, What operating segments are separately reportable?

Which of the following is not a key step in applying IFRS 8?

Which of the following would identified as an operating segment?