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OPERATING SEGMENTS

OBJECTIVE
MFRS 8 specifies how an entity should
report information about its operating
segments in annual financial statements.
It also sets out requirements for related
disclosures about products and services,
geographical areas and major customers.

INTRODUCTION
Para 5 defines operating segment as a
component of an entity:
that engages in business activities from which it earn
revenues and incur expenses (including revenues and
expenses relating to transactions with other
components of the same entity),
whose operating results are regularly reviewed by the
entitys chief operating decision maker to make
decisions about resources to be allocated to the
segment and assess its performance, and
for which discrete financial information is available.

INTRODUCTION
Illustration 5.10.1
NFS Land Bhd consists of several departments
engaging in different business activities. Two of the
departments are military vehicles (defence) department
and residential houses & office building (property)
development department. Both departments generate
revenues by selling their products to outside customers.
The operating result of these two departments is
regularly reviewed by NFSs CEO to make decisions
about resources to be allocated to the segment.
In this case, NFS Land Bhd may be considered to have
two operating segments which are defence segment and
property segment.

INTRODUCTION
Para 8 states additional characteristics to
identify operating segment including
the nature of the business activities of each
component,
the existence of managers responsible for
them, and
information presented to the board of
directors.

REPORTABLE SEGMENTS
Para 11: requires an entity to report
separately information about each
segment that:
a) has been identified in accordance with para
510 @ results from aggregating two or
more of those segments in accordance with
para 12, and
b) exceeds the quantitative thresholds in para
13.

REPORTABLE SEGMENTS
Para 13 - quantitative thresholds:
requires information for operating segments that meet
any of the following quantitative thresholds (the 10%
test) to be reported separately:
a) Its reported revenue ( both external & internal) is 10 %
or more of the combined revenue (internal and
external) of all operating segments.
b) Its reported profit or loss is 10 % or more of (i) the
combined reported profit of all operating segments that
did not report a loss and (ii) the combined reported
loss of all operating segments that reported a loss.
c) Its assets are 10 % or more of the combined assets of
all operating segments.

REPORTABLE SEGMENTS
Para 12 : two or more operating segments may be
aggregated into a single operating segment if aggregation is
consistent with the core principle of this MFRS, the
segments have similar economic characteristics, and the
segments are similar in each of the following respects:
a) the nature of the products and services;
b) the nature of the production processes;
c) the type or class of customer for their products and
services;
d) the methods used to distribute their products or provide
their services; and
e) if applicable, the nature of the regulatory environment,
for example, banking, insurance or public utilities.

REPORTABLE SEGMENTS
Illustration 5.10.2
ASAB Bhd provides medical consultation
services to several middle-east countries namely
Saudi Arabia, UAE and Jordan (3 operating
segments). These countries are believed to have
similar economic characteristics. Besides the
similarity of services provides, the type of
customer and the way the service being
provided is also similar.
In this case, ASAB Bhd may combine the three
segments into single operating segments.

REPORTABLE SEGMENTS
Operating segments that do not meet any of the
quantitative thresholds may be considered as
reportable and separately disclosed if management
believes that information about the segment would be
useful to users of the financial statements (para 13).
MFRS 8 requires at least 75 % of the entitys revenue
is included in reportable segments (Para 15).
Thus if the total external revenue reported by
operating segments constitutes less than 75 % of the
entitys revenue, additional operating segments
should be identified as reportable segments.

REPORTABLE SEGMENTS
Information about other business activities and
operating segments that are not reportable
should be combined and disclosed in an all
other segments category separately from other
reconciling items in the reconciliations required
by paragraph 28
(Paragraph 16).

REPORTABLE SEGMENTS
To ensure the issue of comparability is taken care of, MFRS
8 provides that:
Segment that had been identified as a reportable
segment in the immediately preceding period should
continue to be a reportable segment for the current
period, albeit if it no longer meet the criteria in paragraph
13, if the management of the entity judges the segment
to be of continuing significance (paragraph 17).
Segment which had been identified as a reportable
segment in the current period, prior period segment data
that is presented for comparative purposes should be
restated to reflect the newly reportable segment as a
separate segment. This provision is applicable even
though the segment did not satisfy the criteria in
paragraph 13 in the prior period, unless the necessary
information is not available & the cost to develop it would
be excessive (paragraph 18).

REPORTABLE SEGMENTS
MFRS 8 does not specify any limit on the
number of reportable segment that an
entity may separately disclose.
However, if the number of reportable
segment increases above 10, MFRS 8
requires the entity to consider whether a
practical limit has been reached
(paragraph 19).

DISCLOSURE
MFRS 8 requires an entity to disclose the
following items for each period for which an
income statement is presented:
general information as described in paragraph 22;
information about reported segment profit or loss,
including specified revenues and expenses included in
reported segment profit or loss, segment assets,
segment liabilities and the basis of measurement, as
described in paragraphs 2327; and
reconciliations of the totals of segment revenues,
reported segment profit or loss, segment assets,
segment liabilities and other material segment items to
corresponding entity amounts as described in
paragraph 28.

DISCLOSURE
In addition, reconciliations of balance sheet
amounts for reportable segments to the entitys
balance sheet amounts are also required for each
date at which a balance sheet is presented.
General Information (para 22)
An entity should disclose the following general
information:
factors used to identify the entitys reportable
segments,
types of products and services from which each
reportable segment derives its revenues.

DISCLOSURE
Besides that, an entity should disclose the following items
about each reportable segment: (para 23)

revenues from external customers;


revenues from transactions with other operating segments of
the same entity;
interest revenue;
interest expense;
depreciation and amortisation;
material items of income and expense disclosed in
accordance with paragraph 86 of MFRS 101 Presentation of
Financial Statements;
the entitys interest in the profit or loss of associates and joint
ventures accounted for by the equity method;
income tax expense or income; and
material non-cash items other than depreciation and
amortisation.

DISCLOSURE
Para 24 - requires an entity to disclose the
following items about each reportable
segment:
the amount of investment in associates and
joint ventures accounted for by the equity
method, and
the amounts of additions to non-current
asset other than financial instruments,
deferred tax assets, post-employment benefit
assets and rights arising under insurance
contracts.

MEASUREMENTS
Para 25 - requires an entity to measure the
amount of each segment item reported with same
measurement reported to the chief operating
decision maker for the purpose of making
decisions about assessing performance and
allocating entities resources.
Adjustments and eliminations made in entitys
financial statements and allocations of revenues,
expenses, and gains and losses should be
included in determining reported segment profit
and loss if they are included in the measure of the
segments profit or loss.

DISCLOSURE
MEASUREMENTS:
Para 27 - requires for an entity to provide
an explanation of the measurements of
segment profit or loss, segment assets
and segment liabilities for each reportable
segment.
As a minimum, the entity should disclose
the following:

DISCLOSURE
a)
b)

c)
d)
e)
f)

the basis of accounting for any transactions between reportable


segments.
the nature of any differences between the measurements of the
reportable segments profits or losses and the entitys profit or loss before
income tax expense or income and discontinued operations (if not
apparent from the reconciliations described in paragraph 28).
the nature of any differences between the measurements of the
reportable segments assets and the entitys assets (if not apparent from
the reconciliations described in paragraph 28).
the nature of any differences between the measurements of the
reportable segments liabilities and the entitys liabilities (if not apparent
from the reconciliations described in paragraph 28).
the nature of any changes from prior periods in the measurement
methods used to determine reported segment profit or loss and the effect,
if any, of those changes on the measure of segment profit or loss.
the nature and effect of any asymmetrical allocations to reportable
segments. For example, an entity might allocate depreciation expense to
a segment without allocating the related depreciable assets to that
segment.

DISCLOSURE
Reconciliations:
Para 28 requires an entity to provide of all the
following items:

the total of the reportable segments revenues to


the entitys revenue.
the total of the reportable segments measures of
profit or loss to the entitys profit or loss before
tax expense (tax income) and discontinued
operations.
the total of the reportable segments assets to
the entitys assets.
the total of the reportable segments liabilities to
the entitys liabilities if segment liabilities are
reported in accordance with paragraph 23.
The total of the reportable segments amounts for
every other material item of information disclosed
to the corresponding amount for the entity.

DISCLOSURE
Entity-wide Disclosure :
The following information should be
provided if it is not provide as part of the
reportable segment information:
(a) Information about products and
services,
(b) Information about geographical areas,
and
(c) Information about major customers.

End of the Chapter