Question

Shamrock Company is involved in five separate industries. The following information is available for each of the five industries:

Operating Segment	Total Revenue	Operating Profit (Loss)	Identifiable Assets
Ohio	$20,000	($1,700)	$30,000
Texas	$13,000	($1,500)	$170,000
Iowa	$29,000	$1,100	$35,000
Delaware	$12,000	$1,600	$10,000
Nevada	$48,000	$15,000	$80,000
	$122,000	$14,500	$325,000

Required: Determine which of the operating segments are reportable based on the:

Revenue test.                                                                         

Operating profit (loss) test.                                                    

Identifiable assets test.                                                          

What are the benefits of disclosing financial results based on segments?

Answer 1

1. identification of the reportable segments through revenue test

as per revenue test where the reported reveue of the segment is 10 % or more of the combined revenues of all departments , then it is a reportable segment

operating segment	revenue ($)	% of segment revenue to total revenue
ohio	20,000	16.39
texas	13,000	10.66
iowa	29,000	23.77
delaware	12,000	9.8
nevada	48,000	39.34
total	122,000

therefore except delaware all other segments are reportable according revenue test

2.identification of the reportable segments through operating profit or (loss) test

if the reported profit or loss of the segment is 10 % or more of the combined profit or loss in absolute terms then it is a reportable segment

operating segment	operating profit/(loss) ($)	% of segment profit/(loss) to total profit/(loss) in absolute terms
ohio	(1700)	11.72
texas	(1500)	10.34
iowa	1100	7.59
delaware	1600	11.03
nevada	15000	103.45
total	14500

therefore except iowa all other segments are reportable according revenue test

3.identification of the reportable segments through identifiable asset test

if the assets identified of the segment is 10 % or more of the total assets of all the operating segments then it is a reportable segment.

operating segment	operating assets ($)	% assets of segment to total assetsof all segments
ohio	30,000	9.23
texas	170,000	52.30
iowa	35,000	10.77
delaware	10,000	3.076
nevada	80,000	24.62
total	325,000

therefore texas, iowa and newada are the reportable segments according to asset test.

Therefore as per the above tests all segments are reportable. a segment is reportable if it qualifies any of the above three tests

benefits of disclosing financial results based on segments:

segmental reporting can identitfy the segments that are the key to the companys profitability and identify the week segments

it gives segmentwise details of companys assets incomes and profitability and better picture of risk and returns of the company