Question

ADVANCED ACCOUNTING Client Research Memo – Segment Disclosures Assume you are a senior level accountant for...

ADVANCED ACCOUNTING

Client Research Memo – Segment Disclosures

Assume you are a senior level accountant for ABC Financial Services. Your client, Spencer Industries Inc. is a, mid-sized high growth company and its stock trades publicly on the NASDAQ exchange. Mr. Parker, the company’s CFO has asked for professional guidance regarding segment disclosures.

Spencer Industries specializes in the manufacture of specialty construction tools, but over the last few years has been working to diversify its product lines to include durable health care equipment and specialty quilting tools. The health care equipment is sold to a nation-wide market; however, most of the quilting products are sold to one customer who sells them exclusively under a well-known craft store brand name.

During the research and development phase of these two new divisions, Spencer Industries did not separately disclose related financial information in its financial statements.   However, during current year, these products were officially launched and are now contributing significantly to Spencer’s total revenues. Mr. Parker is not well schooled in segment reporting and has two questions related to financial statement disclosure for these two product lines.

1.       What are the criteria we should use to determine whether any one of our three product lines is an identifiable segment?

2.       Are there any special reporting requirements for the high percentage specialty quilting tools sales to one particular customer?

Required:

·       Construct a professional memo to address Mr. Parkers questions.

·       You must include at least two codification citations, in good form, to support the information you provide in your memo. Insert the codification citation at the end of the paragraph to which the citation relates.

Homework Answers

Answer #1

Ans 8. As per IFRS 8 an operating segment becomes reportable if it meets certain threshold tests related to
revenue, operating performance and assets.

A segment is considered to be reportable if it meets one of the specified criteria detailed
below. If any one of these tests results in a percentage of 10% or more, then the segment is
reportable:

1. segment revenue (including internal sales) as a percentage of all segment revenue
(including internal sales);

2. segment profit or loss as a percentage of the greater of:

a. total segment profit, excluding any segment that reported a loss

b. total segment loss, excluding any segment that reported a profit

3. segment assets as a percentage of all segment assets. This comparison is made on
a gross basis.

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