Question

Vehicle Corporation is organized into four operating segments. The internal reporting system generated the following segment information: Revenues from Outsiders Intersegment Transfers Operating Expenses Autos $ 4,018,000 $ 118,000 $ 3,618,000 Trucks 3,518,000 218,000 4,018,000 SUVs 2,618,000 0 2,018,000 Motorcycles 918,000 68,000 1,038,000 The company incurred additional operating expenses (of a general nature) of $1,218,000. What is the profit or loss of each of these segments? Perform the profit or loss test to determine which of these segments is separately reportable.

Answer 1

A. Profit and Loss of each segment

Particulars	Auto	Trucks	SUVs	Motorcyles
Outsider Revenue	4018000	3518000	2618000	918000
Intersegment Transfer	118000	218000	0	68000
Expenses	3618000	4018000	2018000	1038000
Profit/(Loss)	518000	(282000)	600000	(52000)

B. A segment is reportable when follwing conditions satisfied

a. Its reported revenue, including both sales to external customers and intersegment sales or transfers, is 10 percent or more of the combined revenue, internal and external, of all operating segments.

b. The absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount, of either:

1. The combined reported profit of all operating segments that did not report a loss.

2. The combined reported loss of all operating segments that did report a loss.

c. Its assets are 10 percent or more of the combined assets of all operating segments

Now we have to apply profit or loss test i.e as per point number (b) above

1. Total profit of Profitable segment (Auto & SUVs) - $11,18,000

2. Total Loss of segment reporting loss (Trucks & Motorcycles) - $334,000

Since profit is higher, we will consider Auto & SUVs.

Since Auto & SUVs segment both reporting more than 10% of total profit of profitable segment, hence Auto and SUVs are reportable segment as per profit or loss test.