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QUESTION 1

Neo, a public listed company, has business operations located in many different regions. It has business operations in two main regions, Malaysia and Singapore. It also has operations in various
other countries. Currently, Neo reports to management based on these three regions. The information for the year ended 31 December x8 is as follows:

Revenue
External Internal Segment profit or (loss) Segment assets Segment
Region liabilities
RM'000 RM'000 RM'000 RM'000 RM'000
Malaysia ( 400) ( 6) ( (50) ( 600) ( 400)
Singapore ( 600) ( 4) ( 120) ( 1,600) ( 600)
Other regions
( 1,000) ( 10) ( 210) ( 6,400) ( 3,000)

Required:
Discuss the principles in MFRS8 Operating Segments for the determination of a company's reportable operating segments and discuss how these principles would be applied to Neo using the information given
above.

A reportable segment is one that meets any onr of the following quantitative thresholds:
1. Revenue: It's reported revenues from sales to external customers and inter-segment sales is 10% or more of the combined revenue of the external and internal segment; or
2. Results: The absolute amount of the segment's profit or loss is 10% or more of the greater
a) the combined reported profit of all segments reporting profits, or
b) the combined loss of all segments reporting losses
3. Assets: The segment assets are 10% or more of the total assets of all segments.

The total revenue of all reportable segments should constitute 75% of the total consolidated or entity revenue.
In a situation where the reportable segments do not meet the 75% revenue criteria, additional segments should be identified as reportable segments even if they do not meet the above 10% threshold tests
so that their combined revenues are at least 75% of the total consolidated or entity revenue.
The next reportable segment selected should be based on the next most meaningful operating segment such as largest in term of revenue.
Immaterial segments may be combined with material segment if the aggregation is consistent with the core principles of aggregation

Revenue Profit Asset liabilities


External Internal Totalpercentage
Revenue over combined revenue
Segment profit or (loss) Segment Percentag Segment
Region assets e liabilities
RM'000 RM'000 RM'000 % RM'000 profit loss Percentage RM'000 RM'000 RM'000
Malaysia ( 400) ( 6) ( 406) 20.10% ( (50) ( (50) 100.00% ( 600) 6.98% ( 400)
Singapore ( 600) ( 4) ( 604) 29.90% ( 120) ( 120) 36.36% ( 1,600) 18.60% ( 600)
Other regions( 1,000) ( 10) ( 1,010) 50.00% ( 210) ( 210) 63.64% ( 6,400) 74.42% ( 3,000)
Total ( 2,000) ( 20) ( 2,020) 100.00% ( 280) ( 330) ( (50) 8600 100.00%
MFRS 8 (Operating Segments)
Question 2

Question 2

In its annual financial statements for the year ended 31 March x13, Verge, a public limited company, had identified the following operating segments:
a. Segment 1- local operations
b. Segment 2- inter-city train operations
c. Segment 3- railway constructions

The company disclosed two reportable segments. Segments 1 and 2 were aggregated into a single reportable operating segment. Operating segments 1 and 2 has been aggregated on the basis of their sim

Required:
Advise Verge on how the above accounting issues should be dealt with in its financial statements.

MFRS 8 states that reportable segments are operating components or an aggregation of operating segments .The four key issues should consider are identifying the chief
operating decision maker, identifying business activities , some may not earn revenue or incur expenses, determining whether discrete financial information available for
these business activities and determining whether the information is regularly reviewed by CODM. For reporting purposes , a reportable segment is that meets revenue ,
results and assets as the quantative theresholds.Two or more operating segments can be combined and reported as one if they have similar economic characteristics and
performance , and certai conditions are met. As a guide ,the segments agregated must be similar to each of the following respects:
The nature of the products and services
The nature of production process
The type or class of customer
The methods used to distribute their products or provide their services
The nature of the regulatory environment

Segments 1 and 2 are having different customers . In view of the fact, that do not satisfy one of the aggregation criterion above. The decisions to withdraw or award a local train
contract rests with the transport authority and not with end of customers , the passengers. The decision to withdraw from a route in the inter-city train market would normally
rest with Verge but would be largely influenced by passengers actions that lead to the route becoming economically unviable.

In the local train market contract are avarded following competitve tender process , and there is no exposure to the passenger revenue risk. In contrast there are some
situations that lead to the exposure to the passenger revenue risk where in the local train market , the passengers are paying for ticket prices while the local train market
set by transport authority and not Verge and on the other hand , the inter-city train market , the ticket prices are set by Verge and the passengers who travel on the trains are
paying the fares for it.This risk would affect the two segments in different ways but generally through the action of the operating segment's customer.Therefore the economic
characteristics of the two segments are different and should be reported as separate segments.

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