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matthew_dc
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| Posted: 17 Sep 2009 at 11:43 | IP Logged
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Segment reporting (simul, p. 802/809). If an enterprise has total revenue of $14,200, broken down into $9,850 (external) and $4,350 (affiliated), is the 75% sufficiency rule for segment reporting applied to $9,850 or $14,200? I thought it was external rev only, and Wiley MCQ 4 in the same section takes external revenues only *.75 as the sufficiency test. I'd like to be sure about this. It seems one of their answers must be wrong. Thanks.
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bryris
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| Posted: 18 Sep 2009 at 11:13 | IP Logged
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I believe the 75% rule is applied to the $14,200.
With a public company, the goal is to provide information on reportable segments. Much leeway is given to the company in determining what a segment is. However, in the end, the object is to report 75% of the segment external revenue in detail and merely aggregate the others.
Of all the segments that MEET THE QUANTITATIVE THRESHOLDS (10/10/10), if the total EXTERNAL revenue of those segments does not equal at least 75% of the TOTAL REVENUE of the entity, then additional segments, NOT meeting the thresholds are reported until the 75% is reached. Once at this level, any additional segments are combined and reported together in aggregate.
In all honesty, I have nothing "real world" to go by on this. This is straight out of the book and for the next 5 minutes anyway, it is something that I can regurgitate.
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matthew_dc
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| Posted: 19 Sep 2009 at 18:53 | IP Logged
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Thanks. I took the plunge and looked up SFAS 131 and para. 20 reads:
"20. If the total of external revenue reported by operating segments constitutes less than 75 percent of total consolidated revenue, additional operating segments shall be identified as reportable segments (even if they do not meet the criteria in paragraph 18) until at least 75 percent of total consolidated revenue is included in reportable segments."
So I believe this means:
1. As segments have affiliated and external revenue, for this calculation ignore affiliated and sum all external revenue for the segments and compare to:
2. Take the company's total for *consolidated* revenue * .75 and that is the threshold. "Consolidated revenue" should mean it has incorporated elimination entries to get rid of affiliated revenue, so "consolidated revenue" should equal "total external revenue". "Combined revenue" would be the sum of all the segments' revenue without any eliminations. I remember this from another Becker MCQ.
So I think Wiley's wrong on this one and the external revenue figure is what the 75% is applied to, but maybe it's a word problem. Dunno. I'll look around some more. Thanks.
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bryris
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| Posted: 19 Sep 2009 at 21:21 | IP Logged
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I'm stumped. Your logic appears sound though.
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matthew_dc
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| Posted: 20 Sep 2009 at 11:33 | IP Logged
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Well, there's a Becker question that stresses the difference between "consolidated" and "combined", which is why I'm assuming what I do. Sometimes I feel part of the preparation for the exam is untangling the mysteries of the language rather than understanding the concepts. LOL.
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Topic: Wiley mistake?
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