Download Divisions Revenue Profit Assets

Slide 4.1
Chapter 4
Annual Report: Additional Financial
Statements
1
Slide 4.2
By the end of this chapter, you should be able to:
 discuss the value segmental information adds to
published financial statements;
 understand and evaluate the structure and content of
Segmental Reports and discuss the major provisions of
IFRS 8 Operating Segments;
 explain the criteria laid out in IFRS 5 Non-current
assets held for sale and discontinued operations that
need to be satisfied before an asset (or disposal group) is
classified as ‘held for sale’;
2
Slide 4.3



explain the accounting significance of classifying an
asset or disposal group as ‘held for sale’;
explain the meaning of the term ‘discontinued
operations’ and discuss the impact of such operations on
the statement of comprehensive income;
identify Related Parties in accordance with IAS 24.
3
Slide 4.4
SEGMENT REPORTING
IFRS8 requires a management approach to segment
reporting –
i.e the identification of operating segments is based on the
internal reports regularly reviewed by the entity’s chief
operating decision maker (CODM) in order to allocate
resources to the segment and assess its performance.
4
Slide 4.5
SEGMENT REPORTING - IFRS 8

Attempts to provide investors with the information
provided to management

It is specific to the organisation

It is more difficult to make inter-company comparisons
because of differences in the ways in which companies
compile/use these reports.
5
Slide 4.6
Criteria for identifying a
segment
An operating segment is a part of an entity:
Discrete financial
information has to be
available
That engages in
business activities from
which it may earn
Whose operating results are
revenues and
regularly reviewed by the
incurexpenses
entity’s chief operating decision
maker (CODM)
6
Slide 4.7
Criteria for reporting a segment
A reportable segment is one that meets any of the following criteria
Its reported revenue,
from internal and
external customers, is
10% or more of the
combined revenue
(internal and external)
of all operating
segments or
Its assets are 10% or more
of the combined assets of
all operating segments.
Its reported profit or loss
is 10% or more of the
greater of
(i) The combined profit
of all operating
segments that did not
report a loss and
(ii) The combined
reported loss of all
operating segments that
reported a loss or
7
Slide 4.8
8
WHICH DIVISIONS ARE REPORTABLE
SEGMENTS?
Slide 4.9
Divisions
Revenue Profit Assets
£000
Exam-based Training 360
21
176
E-Learning
60
3
13
Corporate Training
125
5
84
Print Media
232
27
102
Online Publishing
124
2
31
Cable TV
73
5
39
974
63
445
9
WHICH DIVISIONS ARE REPORTABLE
SEGMENTS?
Slide 4.10
Divisions
Revenue Profit Assets
£000
Exam-based Training 360*
21*
176*
E-Learning
60
3
13
Corporate Training
125*
5
84*
Print Media
232*
27*
102*
Online Publishing
124*
2
31
Cable TV
73
5
39
974
63
445
* = meets 10% requirement.
Therefore, E-Learning and Cable TV are not segments.
10
WHICH DIVISIONS ARE REPORTABLE
SEGMENTS?
Slide 4.11
Does the total revenue from these reporting
segments equal at least 75% of the company’s
total revenues?
Revenue Profit Assets
Exam-based Training 360*
21*
176*
Corporate Training
125*
5
84*
Print Media
232*
27*
102*
Online Publishing
124*
841
841/974 = 86%
Therefore, the 75% test is met, so no other
11
Slide 4.12
Operating segment disclosure
IFRS 8 requires detailed disclosure of “information to
enable users to evaluate the nature and financial effect of
the business activities in which it engages and the
economic environment in which it operates”
12
Slide 4.13
Discontinued operations IFRS 5
A discontinued operation is one that has either
been disposed
of, or is
classified as
held for sale
Represents a separate
major line of business
or geographical area
of operations
Is part of a single
coordinated plan to
dispose of a
separate major line
of business, or
geographical area of
operations, or is a
subsidiary acquired
exclusively with a
view to resale.
13
Slide 4.14
Held for sale definition IFRS 5
A discontinued operation is one that has either
If the carrying
amount will be
recovered
principally through
a sale transaction
rather than
through continuing
use and
It must be available for
immediate sale in its
present condition and
its sale must be
highly probable.
Held for sale assets
should not be
depreciated from the
classification date
be classified on the
Balance sheet as a
“held for sale” item –
usually as part of
current assets
14
Slide 4.15
Held for sale definition IFRS 5
Highly probable criteria
Management must be committed to a plan to sell
An active programme started to locate a buyer
Actively marketed for sale at a price that is
reasonable in relation to current fair value
Sale should be expected to be completed within
a year
It is unlikely that significant changes to the
plan will be made or that the plan will
be withdrawn.
15
Slide 4.16
PRESENTATION AND
DISCLOSURE
The results of continuing
and discontinued
operations should be
disclosed separately
It is necessary to
identify the revenue,
cost of sales and
expenses that relate to
the discontinued
operation in arriving at
the operating profit.
16
Slide 4.17
Arm’s length transactions
Related party relationships
may mean transactions
have not been entered into
on an arm’s length basis
It is necessary to The
Objective of IAS 24
Related Party
disclosures
Draw attention to the
fact results may have
been affected by
transactions with
related parties.
17
Slide 4.18
as defined by IAS 24
Where one party has direct
or indirect control of the
other party or
One party has such
influence over the
financial and operating
policies of the other party
that the other party might
be inhibited from pursuing
its own separate interests
or
The parties entering into a
transaction are subject to
such influence from the same
source that one party has
subordinated its own separate
interests.
18
Slide 4.19
.
Disclosures required of:
The person controlling the reporting entity and
Related party transactions such as
– Purchase or sale of goods, property or other assets
– Giving or receiving services
– Agency arrangements, leasing arrangements
– Transfer of research and development, licence
agreements
– Provision of finance and management contracts
19
Slide 4.20
Disclose relationships – even if no transactions
Disclose if there have been transactions



Nature of relationship
Types of transactions
Commercial detail – volumes, pricing policy.
20
Slide 4.21
IAS 24 – NOT DEEMED TO BE RELATED
PARTIES

Two companies with a director in common



However consider extent of his interest
Providers of finance, unions and government when in
course of normal dealings with the entity
Single customer, supplier simply based on volume of
business.
21
Slide 4.22
Reference
Elliott, Barry, Elliott Jamie,
Financial Accounting and Reporting
15th Edition chapter 4
22