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Problem 8-21 Easy Company provided the following statement of financial position on December 31, 2011 and income

statement for the current year:


Current assets 130,000
Revenue 1,800,000

Property, plant and equipment


Goodwill Investment in associate Total Assets Current liabilities

500,000
100,000 70,000 800,000 90,000

Cost of sales
Gross profit Other income Distribution cost Administrative expenses Other expenses Finance cost Share in profit of associate Income before tax Income tax expense Net income

(1,200,000)
600,000 60,000 (200,000) (100,000) (50,000) (60,000) 10,000 260,000 (90,000) 170,000

Noncurrent liabilities
Share capital Retained earnings Total liabilities and equity

60,000
400,000 250,000 800,000

The following data are relevant to the presentation of segmental information: 1. The entity is organized for management purposes into three major operating segments, namely furniture, stationery and computer products. There are other smaller operating segments. 2. The sales revenue for the operating segments is set out below.
External sales Furniture Stationery Computer products 800,000 500,000 400,000 Intersegment sales 200,000 150,000 50,000

3. The cost of sales, distribution cost, administrative expenses and Other segments 100,000 finance cost can be allocated as follows:
Furniture 50%

Stationery Computer products


Other segments

25% 20%
5%

4. The cost of sales related to intersegment sales amounted to P240,000 to be allocated as follows:
Furniture Stationery Computer Furniture Current assets Property, plant & equip. Goodwill Total assets Current liabilities Noncurrent liabilities Total liabilities 80,000 300,000 60,000 440,000 45,000 30,000 75,000 50% 40% 10% Stationery 40,000 100,000 30,000 170,000 30,000 20,000 50,000 Computer products 5,000 85,000 10,000 100,000 8,000 7,000 15,000 Others 2,000 3,000 5,000 1,000 2,000 3,000

5. The segment assets and liabilities are as follows:

6. The other income and other expenses are not allocated to the operating segments as a measure of profit or loss. 7. The chief operating decision maker does not allocate income tax expense to reportable segments as a measure of profit or loss. REQUIRED: 1. Determine the profit or loss for all of the operating segments. 2. Prepare the disclosures required under PFRS 8. 3. Prepare the necessary reconciliations between the segment information and amounts shown in the entitys financial statements.

Furniture Segment profit or loss External sales Intersegment sales Total sales Intersegment sales elim. Entity sales Cos of sales- external Cost of sales- intersegment Total cost of sales Intersegment COS elim. Entity cost of sales Gross profit Share in profit of assoc. Other income Distribution cost Administrative expense Other expense Finance cost Segment profit or loss Income tax expense Net income (30,000) (100,000) (50,000) 280,000 (600,000) (120,000) (720,000) 800,000 200,00 1,000,000

Stationery 500,000 150,000 650,000

Computer products 400,000 50,000 450,000

Other Segments 100,000 100,00

TOTAL 1,800,000 400,000 2,200,000 (400,000) 1,800,000

(300,000) (96,000) (396,000)

(240,000) (24,000) (264,000)

(60,000) (60,000)

(1,200,000) (240,000) (1,440,000) (240,000) 1,200,000

254,000

186,000

40,000

600,000 10,000 60,000

(50,000) (25,000)

(40,000) (20,000)

(10,000) (5,000)

(200,000) (100,000) (50,000)

(15,000)

(12,000)

(3,000)

(60,000) 260,000 (90,000) 170,000

100,000

164,000

114,000

22,000

2. The minimum disclosures under PFRS 8 relating to the reportable operating segment shall include the following:
Furniture Stationery Computer products

External sales
Intersegment sales Finance cost

800,000
200,000 30,000

500,000
150,000 15,000

400,000
50,000 12,000

Segment profit or loss


Total assets Total liabilities

100,000
440,000 75,000

164,000
170,000 50,000

114,000
100,000 15,000 60,000 90,000

Entitys share in profit of associate Income tax expense

3. Reconciliations
Revenue Revenue of reportable segments Revenue of nonreportable segments Elimination-intersegment sales 2,100,000 100,000 (400,000)

Entity revenue shown in income statements


Profit of loss Profit of reportable segment Profit of nonreportable segment Elimination- intersegment profit Unallocated amounts: Share in profit of asscociate Other income Other expenses Entity income before tax

1,800,000

378,000 22,000 (160,000) 10,000 60,000 (50,000) 260,000

Total assets

Total assets of reportable segments Total assets of nonreportable segments


Unallocated corporate assets Total assets shown in statement of financial position Total liabilities Total liabilities of reportable segments Total liabilities of nonreportable segments Unallocated corporate liabilities Total liabilities shown in statement of financial position

710,000 5,000
85,000 800,000

140,000 3,000 7,000 150,000

Problem 8-22 Revlon Company has expanded rapidly and segment reporting is now required under PFRS 8. The entity has no intersegment sales. The following data are for the eyar ended on December 31, 2011: Operating Segment Operating Identifiable Segment Revenue profit (loss) assets 1 2 620,000 100,000 200,000 20,000 400,000 80,000

3
4 5

340,000
190,000 180,000

70,000
(30,000) (25,000)

300,000
140,000 180,000

6
7 Others

70,000
120,0000 380,000

10,000
(20,000) (25,000)

120,000
140,000 140,000

a. The others: category includes five operating segments, non of which has revenue or assets greater than P80,000 and more with an operating profit.
b. Operating Segments 1 and 2 produce very similar products and use very similar production processes, but serve different customer types and use quite different product distribution system. These differences are due in part to the fact that Segment 2 operates in a regulated environment while Segment 1 does not. c. Operating Segments 6 and 7 have very similar products, production processes, product distribution systems, but are organized as separate divisions since they serve substantially different types of customers. Neither Segments 6 and 7 operate in a regulated environment.

REQUIRED: 1. Determine the reportable segments without regard to aggregation criteria. Operating Segment 1 2 3 4 5 Segment Revenue 620,000 100,000 340,000 190,000 180,000 Percentag e (%) 31 5 17 9.5 9

6
7 Others TOTAL

70,000
120,0000 380,000 2,000,000

3.5
6 19 100

Operating Segment

Operating profit

Operating (loss)

Percentage (%)

1
2 3

200,000
20,000 70,000

reportable
7 reporatabl e

4
5 6

10,000

(30,000)
(25,000)

10
8 3

7
Others TOTAL (absolute amount)

300,000

(20,000)
(25,000) 100,000

7
8

Operating Segment
1 2

Identifiable assets
400,000 80,000

Percentage (%)
reportable 6

3
4 5

300,000
140,000 180,000

reportable
reportable 12

6
7 Others TOTAL

120,000
140,000 140,000 1,500,000

8
9 9 100

Thus, the reportable segments are Segments 1, 3, 4 and 5 since they were able to meet at least one of the three quantity thresholds.

2 and 3.

Reportable Segment
1 3 4 5 TOTAL 620,000/2M 340,000/2M 190,000/2M 180,000/2M

Percentage (%)
31 17 9.5 9 66.5

Segment 6 & 7

(70,000+120,000)/2M

9.5
76

After considering the overall size test, the reportable segments are now segments 1, 3, 4, 5 and 6 & 7.

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