Question

Your friend Joe invested bought shares in Big Inc a large manufacturing operations with direct operations in various industries. Joe received the Annual Report and he reached out for you needing assistance in the following matters.

Required

Part a – 4 marks

The following data pertain to the industries in which operations were conducted for the year ended December 31, 2020. The numbers are all in thousands of Canadian Dollars.

Industry	Revenues	Profits	Assets
ALEX	25,000	1,650	10,000
FAB	4,000	1,400	2,500
Wire	16,000	350	500
PACK	3,000	550	1,500
STRUCT	13,333	675	10,000
BARM	2,600	225	1,400
	63,933	4,850	25,900

According to IFRS, how many reportable segments does Big Inc. have? Show you calculations

Part b- 3 marks

“I am so confused” Why do I need all this information in part a? Explain to Joe briefly , what is segmented information and why is it relevant

Part c - 3 marks

Joe read recently a business article about the Notes to the financial statements and was wondering

1. Are notes considered part of the financial statements?
2. What basic purpose do they serve?

Answer 1

As per IFRS 8, Every entity which are listed are required to report the financial and descriptive information about its Reportable segments. Reportable segments are those operating segments or aggregation of operating segments that meet Specific Criteria as mentioned in IFRS 8.13. The conditions are as follows:

1. Revenue reported by each segment is 10% or more of the combined revenue of all the operating segments.

2.Profits reported by each segment is 10% or more of the combined Profits or losses of all the operating segments

3.Its assets are 10% or more of the combined Assets of all operating segments

Given :

we have all the operating segments information

1. reportable segments as per Revenue condition

Total combined revenue = 63933

10% of combined Revenue = 63933*10%= 6393

so all the entities having revenue greater than $6,393 are reportable entities

Alex ($25000),Wire ($16000),Struct($13333) are reportable entities as their revenues are more than $6393.

2. Based on Profits

Total combined profits=$4850

10% of combined profits = $4850*10%=$485

so all the entities having profits greater than $485 are reportable entities.

Alex($1650),Fab($1400),Pack ($550), Struct($675) are reportable entities as their profit are above $485.

3.Based on Assets

Total combined Assets =$25,900

10% of combined profits = $25900*10% = $2,590

so all the entities having assets  greater than $2590 are reportable entities.

Alex ($10000),Struct ($10000) are reportable entities as their assets are above $2590.

Total number of reportable entites are 5 enitities.

Except for Barn remaining 5 entities are reportable entities based on IFRS 8.

Part B: Importance of Segment Reporting:

The first and foremost importance of segment reporting is to provide information to investors and creditors regarding the financial results and position of the most important operating units of the entity that are classifed as "Reporting Segments " as per IFRS 8. This ensure that the company is transparent and consistent with the applicable financial reporting framework.

All the information provided in part A is important for identifying reportable segments as per the critieria laid down in IFRS 8 which is explained in part a of the solution.

Part C:

Yes Notes to Accounts are considered part of financial statements.

Basic Purpose

Notes to financial statements form crucial part of financial reporting as they provide indepth disclosures and explainations for the items disclosed in financial statements . Without Notes to Financial Statements, Investors cannot analyize the performance of the business accurately as they have partial information.The main purpose of Notes to accounts is to further clarify the accounting procedures used by the entity and to provide information that has occured during the period of financial statements until the period of reporting.