Question

In: Accounting

What is segmented information, and how do companies determine segments? What are three advantages and three...

What is segmented information, and how do companies determine segments? What are three advantages and three disadvantages of segmented financial data? Give your opinion on whether or not the advantages outweigh the disadvantages. Outline the manner in which Verizon segments its financial data. Suggest key actions that Verizon’s management can take in order to improve the company’s segmented financial data.

Solutions

Expert Solution

Segment information is the financial information about different segments of an entity. Segment information include segment profit and loss statement, assess and liabilities and cash flow information of different segments. Segments are either determined on the basis of geographical area of operation of an entity or on the basis of products and services or both. Thus, companies identify the different segments on the basis of geographical area of operations or products and services or both.

There are number of advantages and disadvantages of segment information; these are as following:

Advantages:

  1. Segment information provides information as to the profit and loss of an organization from different geographical areas in which the entity operates.
  2. Such information provides revenue, profit and loss earned by an entity from different products and services.
  3. In case of any particular area of operations which is not doing well segment information helps to identify those area of operations.

Disadvantages:

  1. Often such information is of no use to an average shareholder and investors.
  2. Excessive cost of preparation of financial information for different segments.
  3. Lack of clarity to correctly identify different segments properly.

Yes, advantages of preparation of segment information far outweigh the disadvantages. The segment information is primarily for the management and internal stakeholders of the organization. Such information helps the management to correct decisions to improve the financial performance and position of different segments and subsequently the overall performance and position of the entity improve.

Verizon has provided its segment data in a compact and precise manner. The financial information as to the revenue, profit and loss of different segments have been clearly reported in segment reports. However, the lack of clarity of the organization while identifying the reporting segments can be improved by providing the basis which have been used to identify reportable segments. Apart from the segment information should have detailed information as to the revenue, expenditures, assets and liabilities of different segments.


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