prepare any necessary entries in e s quarterly financial statements as at mar 31 01 613393

Identifying reportable segments using the quantitative thresholds

An entity divides its business into 9 operating units for internal reporting purposes and presents information to the Chief Operating Decision Maker as follows:

Assuming that none are eligible for aggregation under the qualitative aggregation criteria set out at 3.2.1 above, which units are required to be reported as operating segments in the entity”s financial statements?

Applying the above quantitative thresholds, Units 1, 2, 5, 7, 8 and 9 should be identified as reportable segments, as follows:

• A Unit whose internal and external revenue is 10% or more of the total revenue of all segments is a reportable segment. On this criterion Unit 1 (17%), Unit 7 (21%) and Unit 8 (14%) are reportable segments.
• A Unit is a reportable segment if its profit or loss, in absolute terms, is 10% or more of the greater of the combined profits of all profitable segments or the combined losses of all segments in loss. The combined profit of all profitable segments is £104.3m, which is greater than the total of £25.75m for segments in loss. On this basis, Unit 1 (21%), Unit 2 (23%), Unit 8 (34%) and the loss-making Unit 9 (20%) are reportable segments.
• A Unit is also a reportable segment if the measure of assets reported to the chief operating decision maker is 10% or more of the total reported measure of assets of all segments. On this test, Unit 5 (10%) joins the list of reportable segments, with Unit 2 (20%), Unit 7 (37%) and Unit 8 (14%) having been already identified under other criteria.

Only those segments that have similar economic characteristics (demonstrated, for example, by similar long-term average gross margins) and are similar in all of the qualitative criteria set out at 3.2.1 above could be combined into a larger segment for reporting purposes.