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FRS 114 Segment Reporting

FRS 114 Segment Reporting. Introduction : It is useful for users of financial statements where an enterprise engaging in more than one line of business, either locally or aboard, are subject to varying degrees of returns and risks

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FRS 114 Segment Reporting

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  1. FRS 114 Segment Reporting Introduction: • It is useful for users of financial statements where an enterprise engaging in more than one line of business, either locally or aboard, are subject to varying degrees of returns and risks • The standard should be applied by enterprises whose equity or debts are publicly traded and by enterprises that are in the process of issued equity or debts in public securities markets

  2. When both parent company and consolidated financial statements (“CFS”) are presented, the segment information required be presented on the basis of CFS • However, if subsidiary itself an enterprise whose securities are publicly traded, it should present segment information in its own separate financial statement

  3. 1.Identification of Reportable Segments • Business segment (“BS”) - a distinguishing component of an enterprise that is engaged in providing an individual product or service or a group of related product or services and that is subject to risks and returns that are different from those of the other BS • Geographical segment (“GS”) - a distinguishing component of an enterprise that is engaged in providing products or services within a particular economic environment and that is subject to risks and returns that are different from those of components operating in other economic environment • GS may be based on (para 14) • - location of an enterprise product or service facilities • - location of its markets or customers

  4. 2 Reportable Segments • To identify reportable segment, FRS 114 applies the 10% test (para 36) • - a majority of its revenue is earned from sales to external customer; and • - it meet ONE of the following test • -- its revenue (both external and internal) is 10% or more of the total revenue (external and internal) of all segments • -- its results is 10% or more of the combined results of all segments • -- its assets are 10% or more of the combined assets of all segments

  5. In the case of an INTERNALLY reported segment which is below the 10% test, para 37 provided it may be : • - treated as a reportable segment • - combined with other similar segment that are also below 10% • - included as an unallocated reconciling item

  6. Specifically, para 38 provided that the total EXTERNAL revenue attributable to the reportable segment should be at least 75% of the total consolidated or enterprise revenue • Otherwise, additional segments should be identified as reportable segment, even if they DO NOT meet the 10% threshold, until 75% of the total consolidated or enterprise revenue is included in reportable segment

  7. Para 43 and 44 emphasis comparability of the segment disclosure • The segment reported in the previous year should continue to be a reportable segment for the current period if it < 10% • Prior period segment reported is to be presented if a segment is identified as a reportable segment in the current period, unless it is impracticable to do so

  8. 3 Identification of Primary and Secondary Segments • The primary segment is determined based on the DOMINANT source and nature of an enterprise’s risks and returns • This should be based on the internal organisation and management structure and its systems of internal financial reporting to the BOD and CEO

  9. 4 Disclosure Requirements • FRS 114 requires much more detailed segment information disclosures for the primary segment than for the secondary segment • (a) Primary segment • Refer item (i) to (x) on page 239 • Refer illustration 1 • (b) Secondary segment • There are 3 possible formats as follow: • (1) Primary - BS, secondary - GS • -Disclosure item (I) to (iii) on page 240 • -All must meet the 10% test

  10. (2) Primary - GS based on location of assets, secondary - BS • -Disclosure is as per item (1) • -Plus segment revenue from external customer by geographical customer that is 10% or more of total external revenue • (3) Primary - GS based on location of customers, secondary - BS • -Disclosure is as per item (1) • -Plus segment assets and capital expenditure by location of assets, provided its segment assets are 10% or more of the total assets • Refer illustration 2

  11. 5 Other Disclosure Matters • Description of the BS and GS • Basic of pricing of inter-segment transfers, and any change therein • Revenue for any BS or GS whose external revenue is > 10% of enterprise revenue but not a reportable segment because a majority of its revenue is from internal transfers • Changes in accounting policies adopted for segment reporting that have a material effect on segment information • Changes to the identification of segments without restatement of prior period segment information because it is impractical to do so • Pls read section 6 and 7

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