Excerpt from ASC 280-10-50-12 Show A public entity shall report separately information about an operating segment that meets any of the following quantitative thresholds:
Operating segments that do not meet any of the quantitative thresholds may be considered reportable, and separately disclosed, if management believes that information about the segment would be useful to readers of the financial statements. The 10% tests are based on the reported measures of revenue, profit, and assets that are used by the CODM to assess performance and allocate resources. A reporting entity must separately report a segment if the operating segment (or aggregated operating segment) meets any of the 10% tests. Revenue The revenue test is based on the reported measure of segment revenue, which may include or be comprised entirely of intersegment revenues. If an operating segment’s reported revenue is 10% or more of the reporting entity’s combined revenue, the operating segment is a reportable segment. Combined revenue is the sum of all operating segment revenue, including intersegment revenue, which may be greater than the reporting entity’s consolidated revenues. Profit The profit test is based on the absolute amount of reported profit or loss for each operating segment. If an operating segment’s absolute amount of profit or loss is 10% or more of the greater of either (1) the combined loss of all operating segments that reported a loss, or (2) the combined profit of all operating segments that reported a profit, then the operating segment is a reportable segment. This test will usually yield different results than simply comparing the operating segment’s profit or loss to consolidated profit or loss. Figure FSP 25-3 details an example of the profit test. Figure FSP 25-3
Assets The asset test is based on segment assets reported to the CODM. If an operating segment’s reported assets are 10% or more of the combined assets of all operating segments, the operating segment is a reportable segment. This test may yield different results than simply comparing the operating segment’s total assets to consolidated assets. If a CODM does not review asset information, this test may not be applicable. If different measures are reported by different operating segments, a consistent measure should be utilized to perform the 10% tests. Example FSP 25-6 provides an illustration of how the 10% tests are applied when a reporting entity’s operating segments report different measures of segment profitability and assets. EXAMPLE FSP 25-6 FSP Corp has three operating segments, none of which can be combined under the aggregation criteria. The following is reported to the CODM:
All segments of the reporting entity are profitable. How should FSP Corp evaluate the operating segments using the 10% tests? Analysis If operating segments are evaluated based on different measures of profit or loss, the criterion of ASC 280-10-50-12(b) should be applied to a consistent measure of profit or loss that is determined for each segment even if that measure is not regularly provided to the CODM for all segments. In the above example, since operating income is available for all segments, it may be the most consistent measure for performing the 10% profit test. Accounts receivable would be the most consistent asset measure on which to perform the 10% tests, as it is the only asset measure reviewed by the CODM. See Example FSP 25-8 for a discussion of the 10% tests when no asset information is reviewed by the CODM. Question FSP 25-6 PwC response Generally, the composition of reportable segments does not change absent an internal reorganization; therefore, a reporting entity need not apply the quantitative thresholds in each interim period. However, if facts and circumstances suggest that the application of the quantitative thresholds would reveal additional reportable segments, those segments may need to be disclosed as new reportable segments. For example, an operating segment that was previously immaterial (i.e., did not meet the 10% tests) but now meets the 10% tests should be disclosed if management expects the segment will continue to be significant. A reporting entity may consider whether aggregation with other operating segments is appropriate. The reporting entity’s prior years’ interim segment information that is presented for comparative purposes must be revised to reflect the new reportable segment, unless impracticable. Question FSP 25-7 PwC response We believe the 10% tests for both segment profitability and assets are measured using the amounts that most closely correspond to the amounts reflected in the reporting entity’s consolidated financial statements. Generally, the 10% revenue test is not applicable since equity method investments are presented as a net amount on both the balance sheet and income statement. The 10% revenue test would require the reporting entity to gross up a proportionate share of the investee’s external revenues, which is not consistent with the measurements reflected in the reporting entity’s consolidated financial statements. As indicated in ASC 280-10-50-12, reporting entities are not precluded from voluntarily disclosing operating segments that, although not required to be reported based on the 10% tests, may contribute to a user’s understanding of the reporting entity. What term identifies an accounting system in which the operations of the business are broken down into?13.9 What term identifies an accounting system in which the operations of the business are broken down into reportable segments , and the control function of a factory foreman, sales manager, or supervisor is emphasized? a. responsibility accounting.
What is meant by the term decentralization Studocu?Decentralization means that a unit manager has the authority to make all decisions concerning that. specific unit.
Which of the following costs should be limited in internal reports prepared using the responsibility accounting approach?Internal reports prepared under the responsibility accounting system should be limited to only variable manufacturing costs.
What is marketUnder the market-based method, the transfer price is based on the observable market price for similar goods and services. Under the cost-based method, the transfer price is determined based on the production cost plus a markup if the upstream division wishes to earn a profit on internal sales.
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