How to classify segments?
1)LIMIT METHOD: segment revenue is 10% or more of total segment revenue.
segment assets are 10% or more of total segment asets.
segment result is 10% or more of total segment profit or total segment loss(whichever is higher).
for example : A B C D
RESULT 5 (90) 10 ( 10)
ANS: total of loss making segments is 90+10=100
total of profit making segments is 10+5=15
higher is 100
now for result of segment A is 5% of 100=not reportable
B is 90% of 100= reportable .
segment C & d are also reportable.
2)Reportable by managements choice:
management can classify any unreportable segment to reportable.
but it can not classify any reportable segment to unreportable.
3) comparative method
any segment can be classified as reportable if it was reportable in the previous year due to limit method not by management's choice.
4) last and most importantly all the reportble segments mentioned above should report at least 75% of external revenue....if such level is not attained, management may make furthur selections till 75% level is attained.
for example : segment A & D selected by applying limit method,C by managements choice,G by comparative method.
A+d+c+g=10 +255+15+10=290(external sales)
total external sales is 400.
then it comes to 72.5%. say there are segments like B,E ,F
B =15,E=25, F =20
say u have selected seg F , it will make it to 290+20=310.ie 77.5%.
SO ,FINALLY U HAVE REPORTABLE SEGMENTS IN HAND ....A,D,C,G,F.
HOPE THE ABOVE DISCUSSION WITH EXAMPLES WILL CLEAR YOUR ALL CONFUSIONS.
GOOD LUCK ,FOR YOUR EXAMS......