Question

Ecru Company has identified five industry segments: plastics, metals, lumber, paper, and finance.

It appropriately consolidated each of these segments in producing its annual financial statements. Information describing each segment (in thousands) follows:

	Plastics				Metals				Lumber				Paper				Finance
Sales to outside parties	$	6,895			$	2,424			$	746			$	457			$	0
Intersegment transfers		164				187				152				164				0
Interest income from outside parties		0				41				28				0				49
Interest income from intersegment loans		0				0				0				0				215
Operating expenses		4,354				1,832				1,136				689				38
Interest expense		83				38				73				21				109
Tangible assets		1,571				3,266				594				841				214
Intangible assets		94				417				0				70				0
Intersegment loans (debt)		0				0				0				0				720

Ecru does not allocate its $1,390,000 in common expenses to the various segments.

Perform testing procedures to determine Ecru’s reportable operating segments.

A. Revenue Test

segmant	revenues	percentage	reported or not reported
plastics
metals
lumber
paper
finance
TOTAL:

B. Profit of loss test:

segmant	revenues	expenses	profit	loss	reported or not reported
plastics
metals
lumber
paper
finance
TOTAL:

C. Asset test

segment	assets	percentage	reported or not reported
plastics
metals
plastics
paper
finance
TOTAL:

Answer 1

Ans-A- For the Revenue test,the total amount of revenue must be determined each segment:-

	Plastics	Metals	Lumber	Paper	Finance	Totals
Sales	$6,895	$2,424	$746	$457	$0	$10,522
Intersegment Transfers	164	187	152	164	0	$667
Interest income from outdside Parties	0	41	28	0	49	118
Interest income from intersegment loan	0	0	0	0	215	215
Totals	$7,059	$2,652	$926	$621	$264	$11,522

Thresold= $11,522*10/100=$1,152.20

Any segment with a total revenue amount over the thresold is recognised as reportable. The only two segments that are reportable are Plastics and Metals.

Ans-B-For Profie and Loss Test we have to determine the total amount of revenues and expenses.The amount of revenue has already determined the amount of expenses is calculating as below:

	Plastics	Metals	Lumber	Paper	Finance	Totals
Operating Expense	$4,354	$1,832	$1,136	$689	$38	$8.049
Interest Expense	83	38	73	21	109	324
Totals	$4,437	$1,870	$1,209	$710	$147	$8,373

Determine the profit and loss for each segment:-

	Revenues	Expenses	Profit	Loss
Plastics	$7,059	($4,437)	$2,622
Metals	$2,652	($1,870)	$782
Lumber	$926	($1,209)		$283
Paper	$621	($710)		$89
Finance	$264	($147)	$117
Totals			$3,521	$372

Calculate the thresold:

Thresold=$3,521*10/100=$352.10

Any segment that has a profit or loss amount that is greater than or equal to the thresold amount is to be reported. the only amounts listed in the table are greater than or equal to the thresold are the Plastics and Metals.

Ans-C- Calculating the amount of total assets for each of the segments:-

	Plastics	Metals	Lumber	Paper	Finance	Totals
Tangible Assets	$1,571	$3,266	$594	$841	$214	$6,486
Intangible Assets	$94	$417	$0	$70	$0	$581
Intersegment loans	0	0	0	0	720	720
Totals	$1,665	$3,683	$594	$911	$934	$7,787

Calculate the thresold:-

Thresold=$7,787*10/100=$778.70

The listed segments that meet this standard are the Plastics,Metals, Paper and the Finance segments.

These four segments meet at least one of the three tests and are therefore considered reportable.

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