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Pfrs 8: Operating Segments Objective: Other Related Points With The Definition

PFRS 8 establishes requirements for disclosing information about operating segments, products, services, geographical areas, and major customers. An operating segment is a component of an entity engaged in business activities to generate revenue and expenses for which discrete financial information is available. Reportable segments meet quantitative thresholds or contain information useful to users. Entities must disclose descriptions, basis of segmentation, and financial information including revenues, assets, and reconciliation of segment amounts to totals.

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66 views4 pages

Pfrs 8: Operating Segments Objective: Other Related Points With The Definition

PFRS 8 establishes requirements for disclosing information about operating segments, products, services, geographical areas, and major customers. An operating segment is a component of an entity engaged in business activities to generate revenue and expenses for which discrete financial information is available. Reportable segments meet quantitative thresholds or contain information useful to users. Entities must disclose descriptions, basis of segmentation, and financial information including revenues, assets, and reconciliation of segment amounts to totals.

Uploaded by

Nhel Alvaro
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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PFRS 8: OPERATING SEGMENTS

Objective
This standard sets out requirements for the disclosures of information about an entity’s
operating segments, products, services, the geographical areas in which it operates, and
regarding its major customers to enable users of financial statements to analyze the nature
and financial effects of its business activities.

Scope
The disclosure requirements of this standard are applicable to:
(a) The individual financial statements of an entity:
(i) Whose debt or equity instruments are traded in a public, domestic, or a regional markets
or in a foreign stock exchange and
(ii) Which is in the process of filing its financial statements with the relevant regulatory
authorities to issue any class of its instruments in a public market
(b) The Group financial reports of a group having parent:
(i) Whose debt or equity instruments are traded in a public, domestic, or a regional market
or in a foreign stock exchange and
(ii) Which is in the process of filing its financial statements with the relevant regulatory
authorities to issue any class of its instruments in a public market
If financial reports contain both, the individual financial statements of the parent that comes
within the scope of this IFRS as well as group financial reports of a group disclosure of
segment information will be placed in consolidated financial reports only.

Operating Segments
It is a function of an entity with the following aspects:
• Which involves in a business activity to generate revenues and incur costs, it
also include incomes and costs relating to dealings with the other internal
business functions of the same entity
• Whose financial results are regularly evaluated by the chief operating decision
maker of the entity for the purpose of resource allocation to the business
segments and performance assessment, and
• For which discrete or absolute financial information is available.

Other Related Points with the Definition


• A business activity which is under development age and it will start earning its
revenues in future can be treated as operating segments such as a business
segment with its start-up operations.
• Every function of the entity is not treated as operating segment. The parts of the
entity which do not earn revenues such as cost centers are not regarded as
operating segment for example research and development department or a head
quarter.
• The term ‘chief operating decision maker’ indicates the function of the entity
which allocate resources and evaluate the performance of the operating
segments, it may include CEO or board of directors.
• Operating segments may be identified on the basis of product, services or regions
depending upon the internal reporting structure of the entity.

Reportable Segment
The entity is required to disclose information separately as required by this standard in
respect of the operating segment which satisfies the following:
1) It should satisfy the definition of operating segment and
2) It should satisfy at least one of the following quantitative thresh hold:
(a) Its reported revenue from all the internal and external sources is 10 percent or more than
the total internal and external revenue of all operating segments of the entity.
(b) Its reported profit or loss is 10 per cent or more than the higher of:
(i) The total reported profit of all the profitable operating segments
(ii) The total reported loss of all loss making operating segments
(c) Its assets are 10 per cent or more than the total assets of all operating segments of the
entity.

• The operating segment which will satisfy the above mentioned criteria will be
classified as reportable segment, and entity is required to disclose information
separately as per the requirements of this standard
• At least 75 per cent of the total external revenue of the entity must be reflected
by the identified reportable segment, if this is not the case the entity will be
required to identify additional reportable segments until at least 75 per cent of
the total external revenue of the entity is reflected by reportable segments.
• An entity may combine financial results of two or more operating segments that
are below the quantitative threshold to generate a single reportable segment, if
such operating segments have similar attributes in majority of the following
aggregation criteria:
(a) The nature and specification of the products and services of the
operating segments
(b) The production processes of the operating segments
(c) The distribution regions or markets of the operating segments
(d) The category or class of customer of the operating segments;
(e) The nature of the distribution channels used by the operating segments
for their goods or services
(f) The nature of the regulatory environment and requirements such as
banking, insurance or public usage
• If the management identifies that an operating segment which was classified as
a reportable segment in the immediately previous reporting period contains
material information for the users of financial statements, the entity will
continue to classify such operating segment as reportable segment in the current
reporting period even though it is below than the quantitative thresholds, and
will disclose its information separately as per the requirements of this standard.
• If the management identifies that an operating segments that is below than all
of the quantitative thresholds, contains useful information for the users of
financial statements, then such operating segment can be classified as
reportable segment and disclosed separately as per the requirements of this
standard.
• The operating segments that are not classified as reportable segments will be
disclosed aggregately in a separate category titled as ‘all other segments’.

Disclosures require for Reportable Segments


The entity will disclose the following in respect of the reportable segment to enable users of
financial statements to analyze the nature and financial effects of its business activities:
• The description of the products and services from which each reportable segment
generate its incomes
• The basis used by the entity for the determination of the operating segments
such as product, services or geographical region basis or combination of such
factors.
• The entity is required to disclose also the following factors in respect of reportable
segments:
(a) Segment’s revenues from the external sources;
(b) Segment’s revenues from the other internal segments of the same entity
(c) The depreciation oramortization charge related to assets of the segment
(d) Any finance cost related to the reportable segment
(e) Any finance income related to the reportable segment
(f) Any share in the profit or loss of associate or joint venture held by the segment
(g) Segment’s tax charge or any tax refundable
(h) Any other significant item which in non-cash
(i) Total assets held by the segment and any addition to the segment assets
(j) Total liabilities related to the segment
• If the interest income is a primary source of income for the reportable segment,
then the entity should report interest income separately from the interest
expense otherwise these components may be netted of.
• The measurement method use to determine the profit or loss of the reportable
segment such as accounting policies.
• The basis for the allocation of common expenses to the operating segments
• The accounting polices used to determine the amounts of the segment assets
and any difference in accounting policies from those of the other assets of the
entity
• Any change in accounting policy in the current reporting period from that of the
previous period.
• A statement showing the reconciliation of the following components:
(a) The profit or loss of the reportable segments to the total profit or loss of the entity
(b) The revenue of the reportable segments to the total revenue of the entity
(c) The assets of the reportable segments to the total assets of the entity
(d) The liabilities of the reportable segments to the total liabilities of the entity
• Any change in the internal structure of the entity which results in change in the
basis of segmentation along with such circumstances, the entity will report both
the new and old segmental information.
• If the business functions of the entity are not organized on the basis of products,
services or differences in geographical areas of operations and the reportable
segments of the entity report revenues from a broad range of essentially different
products and services, or more than one of its reportable segments provide the
similar products and services, in such a case the entity is required to report
external revenue in respect of its each product, service and from each
geographical location, if it is not costs excessive.
• The amounts used in disclosure should be the same which are presented in the
financial statements of the entity
• The entity is required to disclose separately the information about its reliance on
its major customers. Such a disclosure is required if revenue from a single
external customer is 10% or more of the total revenue of the entity. The entity is
also required to disclose the total revenues from each such customer and the
identification of the segment or segments reporting those revenues. However, no
disclosure is required about the identity of such major customers.

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