Advance Financial Accounting Assignment: NZ IFRS 8 Segment Reporting

This assignment solution addresses advance financial accounting principles, specifically focusing on segment reporting under NZ IFRS 8. The document begins with an introduction to operating segments, explaining how companies report performance based on different products or geographical areas to provide shareholders and investors with crucial information for decision-making. The solution then explores the benefits of segment reporting to shareholders, including a true and fair view of financial data, risk assessment, and improved investment and credit decisions. It also provides a detailed analysis of reportable segments, applying the 10% threshold criteria for revenue, profit, and assets. The assignment uses examples of timber, steel, and cardboard segments to illustrate the application of these criteria and determine which segments are reportable according to NZ IFRS 8. The solution also includes the relevant references.

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

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Part 1
Introduction
As per NZ IFRS 8 the operating segment is the entity’s component that is involved in
the business activities from which the company can earn revenue and make expenses, the
operating result of which company is reviewed regularly by the chief decision maker
regarding operation for making decisions regarding resources that requires allocation to
segments and analyse the performance and for which the discrete financial data are available
If the company produce more than one product or carries out the business in more than
one country then the company must analyse performance of different products and future
prospects of the products or geographical areas and report it separately to the financial
statement. Generally the shareholders and potential investors are interested about the the
performance of the company as their main motive is to maximize their investment. Reporting
on various segments will assist them to assess the performance of different segments and take
their decisions accordingly. Further, it reveals which product or segment is making profit and
which needed to be discarded (NZ IFRS 8 » XRB, 2018).
Answer 1
Benefits to shareholders
Without proper information regarding different segments or products of the company
the investors will take unreliable decision based on their knowledge and available news.
However, all the products or segments are not reportable. Products or segments with more
than or equal to 10% of total revenues, net profit or loss whichever is more or total assets are
reportable. Segment reporting further assist the shareholders in –

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 True and fair view – if the company reports about the products or segments separately
it will enable the shareholders to get the information of revenue, expenses, assets or
liabilities for each segment or products separately. It will further minimize the
chances of manipulation of data and will therefore present the data in true and fair
manner. It helps the user of the financial statement to take quality decisions that will
be more judged with regard to vertical and horizontal division of the company (NZ
IFRS 8 » XRB, 2018).
 Risk assessment – information regarding different segments or products of the
company and their operation are known as segment information. This information is
relevant for assessing the returns and risks of the multi locational or diversified
products. This will not be possible from the consolidated statements. Further, it
facilitates higher level of transparency for the financial information as the users of the
financial statement will have more information regarding the operational activities of
the company (New Zealand Equivalent to International Financial Reporting Standard
8 Operating Segments (NZ IFRS 8), 2018).
 Investment and credit decisions – segment reporting enable the shareholders to
analyse uncertainties of amount and timing of the expected cash flows in better way
and therefore, risks associated with providing loan to the company or investing in the
company can be analysed better (NZ IFRS 8 » XRB, 2018).
 Profitability analysis – as per the given information, diversified Ltd has various
product segments like timber, steel and cardboard. All product segments differ on
profit, level of risk, potential growth and operational aspect. Therefore, the
shareholders will be better informed and can analyse the profitability of different
products in better way (New Zealand Equivalent to International Financial Reporting
Standard 8 Operating Segments (NZ IFRS 8), 2018).

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Answer b
The segment is reportable if it fulfils any of the 3 criteria mentioned below –
 The reported revenue of the segment inclusive of intersegment transfers or sales as
well as sales to the external customers is equal to or more than 10% of combined
revenue of all the operating segments (NZ IFRS 8 » XRB, 2018).
 Absolute amount of the reported loss or profit is equal to or more than 10% of greater
in the absolute amount of combined reported profits or loss of all the segments
whichever is more
 Assets of the segment are equal to or more than 10% of combined assets of all the
operating segments (NZ IFRS 8 » XRB, 2018).
As per the given information –
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
10% of combined revenue = $ 960 m *10% = $ 96 m
10% of reported total profit = $ 85 * 10% = $ 8.5 m
10% of combined assets = $ 1500 m * 10% = $ 150 m
Revenue approach – timber segment and steel segment shall be reported as their revenue is
more than 10% of combined revenue that is 960 *10% = 96.
Profit approach – timber segment and steel segment shall be reported as their profit is more
than 10% of combined profit that is 85 *10% = 8.5.

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Net asset approach - timber segment, steel segment and cardboard segment all are reportable
as their asset is more than 10% of combined assets that is 1500 *10% = 150.
Therefore, all the segments are reportable as per the requirement of NZ IFRS 8 as the
timber and steel segment fulfils all the 3 criteria and cardboard segment fulfils net asset
approach criteria.

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Reference
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/