CHAPTER 30

SEGMENT REPORTING

Perspective and Issues

Definitions of Terms

Concepts, Rules, and Examples

Applicability of ASC 280

Operating Segments

Reportable Segments

Revenue test

Profit and loss test

Assets test

Accounting Issues

Segment Disclosures

Entity-Wide Disclosures

Products and services

Geographic areas

Major customers

Restatement of Previously Reported Segment Information

PERSPECTIVE AND ISSUES

With many companies organized as conglomerates, the presentation of basic consolidated financial statements on an aggregated basis does not provide users with sufficient information for decision-making purposes. The objective of segment reporting, as set forth in Accounting Standards Codification (ASC) 280, Segment Reporting, is to

. . . Provide information about the different types of business activities in which an enterprise engages and the different economic environments in which it operates to help users of financial statements:

a. Better understand the enterprise’s performance
b. Better assess its prospects for future net cash flows [and]
c. Make more informed judgments about the enterprise as a whole.

The primary benefit of segment reporting is the release of “hidden data” from consolidated financial information. Different segments may possess different levels of profitability, risk, and growth. Assessing future cash flows and their associated risks can be aided by segment data. For example, knowledge of the level of reporting entity operations in a growing or declining ...

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