REQUIRED: Should the research and development (R&D) laboratories be reported as two separate reportable segments under the MFRS 8 Operating Segments? Justify your answer.
TIFFANY Bhd, a public limited company, is a pharmaceutical company which manufactures and sells a range of healthcare products through four segments. There are two laboratories which carry out research and development (R&D) activities to develop breakthrough products to help meet the evolving health and lifestyle needs of modern consumers.
In the first laboratory, the R&D activity is funded internally and centrally for each of TIFFANY’s four segments. There is no external revenue reported by this laboratory. The laboratory is directly accountable to the division heads for this expenditure.
The second laboratory performs contract investigation activities for other pharmaceutical companies. The scientists conduct research and develop products for diagnosing and managing major health threatening diseases, such as infectious diseases, cancers, cardiovascular diseases, as well as endocrine and metabolic diseases. This laboratory earns 80% of its revenues from external customers and these external revenues represent 15% of the organisation’s total revenues.
The performance of the second laboratory’s activities and that of the four separate divisions are regularly reviewed by the chief operating decision-maker (CODM). The head of the second laboratory is directly accountable to the CODM and they discuss the operating activities, the allocation of resources and the financial results of the laboratory.
REQUIRED:
Should the research and development (R&D) laboratories be reported as two separate reportable segments under the MFRS 8 Operating Segments? Justify your answer.
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