Our company has 5 business units that we classify as operating segments. Financial data for these...

Our company has 5 business units that we classify as operating segments. Financial data for these units follows: (dollar values in thousands) A B C D E Sales $450 $1,275 $1,500 $4,500 $7,500 Profit ($300) $750 ($449) $1,500 $3,750 Assets $4,800 $1,800 $1,950 $12,000 $18,000 Required: Calculate the quantitative thresholds and determine which of these operating segments should be disclosed in the footnotes to our financial statements? Please answer "yes" in the area where the threshold is met and "no" where the threshold is not met.

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Expert Solution

Solution-

Calculation of quantitative threshhold -

Operating segment should be disclosed if

Segment revenue is greater than or equal to 10% if total revenue (Internal and External)
Segment result is greater than or equal to 10% of greater of

-Total profit of all segment in profit &

-Toatl Loss of all segment in loss

Segment Asset is greater than or equal to 10% of total asset

On the basis of above we solve the above solution-

Segment revenue

A	B	C	D	E	TOTAL REVENUE
$450	$1275	$1500	$4500	$7500	$15225
2.90%	8.30%	9.80%	29.55%	49.26%

NO NO NO YES YES

Segment result

Total Loss - $ 749

Total Profit - $ 6000

A	B	C	D	E
($300)	$750	($449)	$1500	$3750
40%	12.50%	60%	25%	62.5%

YES YES YES YES YES

Segment Asset

A	B	C	D	E	Total
$4800	$1800	$1950	$12000	$18000	$38550
12.45 %	4.67%	5.06%	31%	46.70%

YES NO NO YES YES

So as per above if any of the paramentre satisfied for each businuss unit then it will be considered as a operating segment

Unit A- Segment result and segment asset criteria is satisfied hence it will be disclosed in footnote

Unit B -Segment result criteria is satisfied hence it will be disclosed in footnote

Unit C - Segment result criteria is satisfied hence it will be disclose in footnote

Unit D -All the criteria is satisfied hence it will be disclosed in footnote

Unit E- All the criteria is satisfied hence it will be disclosed in footnote

Hence we conclude that all the unit are need to be disclosed as one or all criteria are satisfied for units

ekkarill92 answered 1 year ago

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