Segment Reporting and Operating Segments

The provided assignment is related to advanced financial accounting, specifically focusing on segment reporting and operating segments as per IFRS 8. The student needs to analyze a given scenario where a company has three segments: Timber, Steel, and Cardboard, with respective revenue, profit, and assets. They must identify which segments meet the criteria for reportable segments, considering quantitative thresholds such as revenue, profit/loss, and assets. This analysis requires students to understand IFRS 8's requirements for segment reporting and apply them to a practical scenario.

Running head: ADVANCE FINANCIAL ACCOUNTING
Advance financial accounting
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1ADVANCED FINANCIAL ACCOUNTING
Table of Contents
Answer (a)..................................................................................................................................2
Answer (b)..................................................................................................................................3
Reference....................................................................................................................................6

2ADVANCED FINANCIAL ACCOUNTING
Answer (a)
Accounting standards needs the alignment of segment and reporting for different
products and segments that are carried out by the company. It is done to enable the
shareholders to analyse the company and evaluate the performance based on the prospects
and understanding regarding the company’s products or segments as a whole. As the
investors and shareholders attempt to maximize the return on their investment, they need
information for different product performances with regard to take sound financial decisions
for investment and lending. In absence of the meaningful information the investors,
shareholders, capital owners, and creditors will take the decisions on the basis of tips,
unreliable news and guess work that will lead to inefficient resource allocation. Though not
all the segments or products are reportable, the segments or products with 10% of the total
assets or total revenues or total profits are reportable. It helps the investors to know which
product is profitable and which needs to be discarded (IFRS 8 — Operating Segments, 2018).
The segment reporting assists the shareholders in better assessment of the returns and risks of
the company, better understanding of the company’s financial performance and taking more
informed decisions regarding the entire company (NZ IFRS 8 » XRB, 2018).
Further, the information regarding various products that are produced by Diversified
Ltd will be beneficial to the shareholders in the following ways –
 Improved context – it helps the shareholders to get better view of the fluctuations that
may have impact on entire numbers. For instance, if the company reports much higher
earnings as compared to the budgeted one the segment reporting will reveal from
where that income came from. The shareholder can analyse the same report for
determining whether the numbers are sustainable or not NZ IFRS 8 » XRB, 2018)

3ADVANCED FINANCIAL ACCOUNTING
 Credit and investment decisions – As the prospects and progress of the diversified
company are accumulation of prospects and progress of various parts, the users of
financial statement it will enable the shareholders to take decisions in better way.
Further, the segment information will allow the shareholders to analyse the associated
uncertainties with regard to timing and amount of the expected cash flows in better
way. Thus, the investment related risks or lending loans to the company’s different
segments would be analysed in better way (New Zealand Equivalent to International
Financial Reporting Standard 8 Operating Segments (NZ IFRS 8), 2018).
 Separating the profitable segments – the major advantage of segment reporting to the
shareholders is transparency. Business that operates under various product categories,
the segment reporting analyse the segment which is most profitable and which drains
the profit. For instance, if segment reporting reveals that the overseas operations are
more profitable as compared to the domestic operations, it can prompt for the changes
in the strategic decisions. Further, it disables the managers to hide the unprofitable
segments of the company (IFRS 8 — Operating Segments, 2018).
 True and Fair view – the segment-reporting enable to present the financial statement
in true and fair view manner. The management will be liable to present the report the
actual amount of liabilities and assets, income and expenses with regard to all the
segments otherwise; the group statement may not be matched with the segment
statement figures. Therefore, the chances of manipulating the data will be reduced
(IFRS 8 — Operating Segments, 2018).
Answer (b)
The company shall report the information separately regarding each operating
segment if it has been identified that –

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1. The operating segment is the component of the entity that is -
 The segment is engaged in the business activities from which the company can earn
the revenues and for which it incurs expenses.
 The operating result of which segment is reviewed regularly by the chief operating
decision maker of the company for making decisions regarding the resources that is to
be allocated to segments and assessing the performances.
 The segment for which the separate financial data is available
2. The entity shall separately report the information regarding the operating segment that
fulfils any of the below mentioned quantitative threshold –
 Te reported revenue of the segment including intersegment transfers or sales as well
as the sales to the external customers is 10% or more than the combined revenue,
external and internal for all the operating segments.
 The assets of the segment are 10% or more of combined assets of all the operating
segments (Aboud & Roberts, 2013).
 The absolute amount of reported loss or profit for the segment is 10% or more of the
greater with regard to absolute amount among – (i) the combined profit that is
reported for all operating segment for the year of the company that is not reported loss
and (ii) reported combined loss for all operating segments for the year of the company
that is not reported loss
As per the given data –
Segment Revenue Segment Profit Segment Assets
($m) ($m) ($m)
Timber 800 75 900
Steel 100 25 420
Cardboard 60 (15) 180
Total 960 85 1,500

5ADVANCED FINANCIAL ACCOUNTING
10% of combined revenue = $ 960 m *10% = $ 96 m
10% of reported total profit = $ (75 + 25) * 10% = $ 10 m
10% of reported total loss = $ (-15 * 10%) = - $ 1.5 m
10% of combined assets = $ 1500 m * 10% = $ 150 m
Revenue aspect – considering the revenue aspect, the Timber segment and Steel segment
shall be reported as their revenue is $ 800 million and $ 100 million respectively that is more
than $ 96 million or 10% of total revenue (New Zealand Equivalent to International Financial
Reporting Standard 8 Operating Segments (NZ IFRS 8), 2018).
Segment profit or loss aspect - considering the segment profit or loss aspect, the Timber
segment and Steel segment shall be reported as their profit is $ 75 million and $ 25 million
respectively that is more than $ 100 million or 10% of total profit.
Segment asset aspect - considering the asset aspect, the Timber segment, Steel segment and
Cardboard segment shall be reported, as their asset is $ 900 million, $ 420 million and $ 180
million respectively that is more than $ 150 million or 10% of total asset (NZ IFRS 8 XRB.
(2018).
If above mentioned any 1 criteria out of the 3 is fulfilled then the segment is
reportable. Therefore, all the segments that is, the Timber segment, Steel segment and
Cardboard segment are reportable segments as per NZ IFRS 8 as timber and steel segment
fulfil all 3 criteria and cardboard segment fulfilled the net asset criteria.

6ADVANCED FINANCIAL ACCOUNTING
Reference
Aboud, A., & Roberts, C. (2013). Segmental Reporting Quality After IFRS 8: Multi-
Dimensional Measures.
IFRS 8 — Operating Segments. (2018). Iasplus.com. Retrieved 9 April 2018, from
https://www.iasplus.com/en/standards/ifrs/ifrs8
New Zealand Equivalent to International Financial Reporting Standard 8 Operating Segments
(NZ IFRS 8). (2018). New Zealand. Retrieved from
http://file:///C:/Users/user00/Downloads/NZ-IFRS-8-Jul14-158179.2.pdf
NZ IFRS 8 » XRB. (2018). Xrb.govt.nz. Retrieved 9 April 2018, from
https://www.xrb.govt.nz/accounting-standards/for-profit-entities/nz-ifrs-8/