Question

A.  You were able to acquire some notes which the assistant had jotted down on a sheet of paper while he was preparing to work on the report.  These were as follows:

      1.   The total revenues of the Surveillancedivision was 25% of the total revenues of the company.  

      2.   The total revenues of the Appareldivision was 7% of the external revenues of the company.

      3.   The return on assets for the Communicationdivision was 35%.

      4.   The return on sales for the Appareldivision was 40%.

      5.   The profits for the Aviation division was 180% of its total assets.

B.   Next, the assistant applied the required tests to determine which of the six divisions discussed above are to be considered as reportable segments and obtained the following information:

      (i)  Revenue test

      1.   The total revenues for the Combatdivision exceeded the revenue test threshold figure by $260,000.  

      2.   Similarly, the total revenues for the Aviationdivision exceeded the revenue test threshold figure by $176,000.

      (ii)   Operating profit test       

              Not sure about this section.  To be determined later.

      (iii)  Identifiable Assets test:   The test threshold figure for identifiable assets amounted to $64,000.

      1.     The identifiable assets for the Combatdivision exceeded the test threshold figure by $136,000.

      2.     Similarly, the identifiable assets for the Appareldivision was less than the test threshold figure by $27,000.

      3.     The Transportdivision reported its annual interest expense for the year to be $1,280.  This interest expense, accruing annually, was paid in cash at a coupon rate of 5% on long term bonds.  The bonds were the only liabilities for the division and their amount was duly reported at the year end.

C.   The liabilities for each segment equaled 80% of the assets of that respective segment.

Figure I - in ‘000

Operations/Divisions	Combat	Surveillance	Transport	Apparel	Communication	Aviation	Total
Revenues-External	N01	N02	N03	N04	N05	N06	1,100,000
Inter-segment	0	0	5,000	21,000	20,000	54,000	N07
Total Revenues	N08	N09	N10	N11	N12	N13
Cost of Goods Sold %	0.55	0.6	0.7	0.75	0.55	0.45
Cost of Goods Sold $	N14	N15	(25,900)	N16	N17	N18
Operating Expenses	(108,000)	N19	N20	N21	(29,900)	N22
Operating Profit/(Loss) $	N23	62,000	(2,600)	N24	N25	N26
Assets	N27	N28	N29	N30	56,000	45,000
Liabilities	N31	N32	N33	N34	N35	N36

REQUIRED:

1.   Determine the several missing primary numbers which are blank and marked N01 - N36, in the table given above.  Show detailed computations for each figure.  Also show your computations for other supporting figures which maybe be required for the computation of these numbers.

Answer 1

First, let us calculate the numbers based on the information provided

Total Inter segment revenue = Submission of all inter-segment revenues = 100,000

Total revenue of surveillance division is 25% of total company's revenue = (1,100,000 + 100,000) * 25% = 300,000

Total revenue of apparel division = 7% of external revenues = 7% of 1,100,000 = 77,000

Operating profit of communication division = 35% of assets = 35% of 56,000 = 19,600

Operating profit of Apparel division = 40% of sales = 40% of 98,000 = 39,200

Operating profit of aviation division = 180% of total assets = 180% of 45,000 = 81,000

Revenue test threshold = 10% of total revenue = 10% of 1,200,000 = 120,000

Total revenues of combat division = 120,000 + 260,000 = 380,000

Total revenue of aviation division = 120,000 + 176,000 = 296,000

External revenue of aviation division = 296,000 - 54,000 = 242,000

Threshold for assets = 64,000, which would be 10% of total assets. Hence total assets = 64000/0.10 = 640,000

Assets for combat division = 64,000 + 136,000 = 200,000

Assets for apparel division = 64,000 - 27,000 = 37,000

Liability of transport division = 1,280 / 0.05 = 25,600

Now, we will calcuate the other numbers

External revenues of transport division:

Cost of goods sold = 25,900 which is 70% of total sales as mentioned in the question

Hence total sales = 25,900 / 0.70 = 37,000

External sales of transport division = 37,000 - 5,000 = 32,000

External revenues of communication division = Total external sales - total external sales of all other divisions

= 1,100,000 - 1,031,000 = 69,000

Costs of goods sold of other divisions is calculated by multiplying the given percentage by total sales

Operating expenses are calculated as balancing figures as now we have total revenues, cost of goods sold and operating profit/(loss)

Liabilities of transport division will be 80% of its assets as given in the question. Liabilities of transport division are 25,600

Hence assets = 25,600/0.8 = 32,000

Assets of Surveillance division is the balancing figure by subtracting total assets and assets of all other divisions

= 640,000 - 370,000 = 270,000

Liabilties of all other divisions are calcuated by multiplying assets by 80%

The table after all answers is as under:

Operations/Divisions	Combat	Surveillance	Transport	Apparel	Communication	Aviation	Total
Revenues-External	380,000	300,000	32,000	77,000	69,000	242,000	1,100,000
Inter-Segment	-	-	5,000	21,000	20,000	54,000	100,000
Total Revenues	380,000	300,000	37,000	98,000	89,000	296,000	1,200,000
Cost of Goods Sold %	0.55	0.60	0.70	0.75	0.55	0.45
Cost of Goods Sold	(209,000)	(180,000)	(25,900)	(73,500)	(48,950)	(133,200)	(670,550)
Operating Expenses	(108,000)	(58,000)	(13,700)	14,700	(29,900)	(81,800)	(276,700)
Operating Profit/(Loss)	63,000	62,000	(2,600)	39,200	19,600	81,000	262,200
Assets	200,000	270,000	32,000	37,000	56,000	45,000	640,000
Liabilities	160,000	216,000	25,600	29,600	44,800	36,000	512,000