Chapter 13, Problem 13.17P

a

To determine

Reportable segments: It is the process of deciding which operating segment is separately reportable and separate supplemental disclosures must be made. It is based on management’s classifications of each operating segment for internal evaluation of the financial position and operating performance of the enterprise.

The FASB specified three 10 percent significance rules to determine which of the operating segments shall have separately reported information. The separate disclosures are required for segments meeting at least one of the following tests:

1. The segment revenue, including both external sales and intersegment sales, is 10 percent or more.
2. The absolute value of segment’s profit or loss is 10 percent or more
3. The segment’s assets are 10 percent or more of the total assets of all operating segments.

The profit or loss for each given geographical segments

Answer to Problem 13.17P

Operating profit:

• U.S $680.
• New Zealand $17.2
• Australia $85.2

Operating loss:

• Singapore $(2.4)

Explanation of Solution

Determination of reportable segment using 10 percent revenue test:

	U.S.	New Zealand	Singapore	Australia
Sales to unaffiliated	$2,500	$320	$60	$120
Inter area sales	100		10
Total revenue	$2,600	$320	$70	$120
Less: Operating expenses	1,820	290	70	30
Allocated costs	100	12.8	2.4	4.8
Operating profit (loss)	$680	17.2	(2.4)	85.2

Determination of allocated costs

  $\text{Allocated cost}\text{=}\frac{\text{Sales}\text{to}\text{unaffiliates}}{\text{total}\text{sales}}\text{×}\text{common}\text{cost to be allocated}$

  $\begin{array}{c}\text{U}\text{.S}\text{.}=\frac{\$2,500}{\$3,000}\times \$120\\ =\$100\end{array}$

  $\begin{array}{c}\text{New Zealand}=\frac{\$320}{\$3,000}\times \$120\\ =\$12.8\end{array}$

  $\begin{array}{c}\text{Singapore}=\frac{\$60}{\$3,000}\times \$120\\ =\$2.4\end{array}$

  $\begin{array}{c}\text{Australia}=\frac{\$120}{\$3,000}\times \$120\\ =\$4.8\end{array}$

b

To determine

Reportable segments: It is the process of deciding which operating segment is separately reportable and separate supplemental disclosures must be made. It is based on management’s classifications of each operating segment for internal evaluation of the financial position and operating performance of the enterprise.

The FASB specified three 10 percent significance rules to determine which of the operating segments shall have separately reported information. The separate disclosures are required for segments meeting at least one of the following tests:

1. The segment revenue, including both external sales and intersegment sales, is 10 percent or more.
2. The absolute value of segment’s profit or loss is 10 percent or more.
3. The segment’s assets are 10 percent or more of the total assets of all operating segments.

The general reporting requirements related to the company’s geographical areas

Answer to Problem 13.17P

Revenue from external customers from Home County or Foreign Country shall be reported and long-lived assets in the home country and all the assets held in foreign countries must be reported.

Explanation of Solution

Revenue from external customers from the home country and from all customers of foreign countries is to be reported. If revenue from an external customer is material then it must be shown with separate disclosure.

Long-lived assets located in the home country and the total assets located in all foreign countries is to be reported. If the assets in any location are more than or equal to 10 percent of total assets then the amounts of assets held in that country shall be disclosed separately.

c

To determine

Reportable segments: It is the process of deciding which operating segment is separately reportable and separate supplemental disclosures must be made. It is based on management’s classifications of each operating segment for internal evaluation of the financial position and operating performance of the enterprise.

The FASB specified three 10 percent significance rules to determine which of the operating segments shall have separately reported information. The separate disclosures are required for segments meeting at least one of the following tests:

1. The segment revenue, including both external sales and intersegment sales, is 10 percent or more.
2. The absolute value of segment’s profit or loss is 10 percent or more.
3. The segment’s assets are 10 percent or more of the total assets of all operating segments.

The separate reportable segments of the given geographical segments

Answer to Problem 13.17P

Domestic segment and New Zealand is separately reportable

Explanation of Solution

Determination of reportable segment using 10 percent revenue test:

Geographical area	Sales to unaffiliated customers	Percentage of consolidated revenue	Separately reportable
Domestic	$2,500	83,3%	Yes
New Zealand	320	10.7%	Yes
Singapore	60	2%	No
Australia	120	4%	No
Total	3,000	100%

Determination of reportable segment using 10 percent long lived assets test:

Geographical area	Sales to unaffiliated customers	Percentage of consolidated revenue	Separately reportable
Domestic	$2,200	81.4%	Yes
New Zealand	280	10.4%	Yes
Singapore	140	5.2%	No
Australia	80	3%	No
Total	2,700	100%

For both revenue and long lived assets test New Zealand operations are separately reportable