Segment and Interim Reporting

1. Baker / Lembke / King 13 Segment and Interim Reporting Electronic Presentation by Douglas Cloud Pepperdine University

2. Segment Reporting • Large, diversified companies can be viewed as a portfolio of assets operated as divisions or subsidiaries, often multinational in scope. • The various components of a large company may have different profit rates, different degrees and types of risk, and different opportunities for growth • Generally speaking, segment reporting refers to the supplemental disclosure of revenue, profits, assets, and other information for selected industry segments of an entity as well as disclosures about its foreign operations.

3. Segment PSAK 5 provides definition on several terms: • Business segment is a company’s component that can be differentiated in generating product or service and that component has its own risk and reward which is different from that of other components • Geographical segment is a company’s component that can be differentiated in generating product or service in certain economic areas and that component has its own risk and reward which is different from that of other components.

4. Ten Percent Quantitative Thresholds PSAK 5 specified three 10 percent significance rules. Separate disclosures are required if an operating segment meets at least one of the tests on Slides 5 and 6. What is the 10 percent significance rule concerning segment disclosure?

5. Ten Percent Quantitative Thresholds • Its reported revenue, including both sales to external customers and intersegment sales or transfers, is 10 percent or more of the combined revenue, internal and external, of all operating segments, • The absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount, of (a) the combined reported profit of all operating segments that reported a profit or (b) the combined reported loss of all segments that reported a loss. Continued

6. Ten Percent Quantitative Thresholds • Its assets are 10 percent or more of the combined assets of all operating segments.

7. Illustration of 10 Percent Tests PT Induk owns 80 percent of PT Anak’ common stock. PT Anak reports a profit of Rp50,000,000 for 20X1 and pays dividends of Rp3,000,000. The December 31, 20X1, balances in PT Anak’ stockholders’ equity accounts total Rp300,000,000, of which the noncontrolling interest is 20 percent. The equity method is used to account for the PT Baruna Jaya investment. PT Induk acquires 40 percent of PT Baruna Jaya stock on January 1, 20X1, for a cost of Rp160,000,000, which is equal to the book value of the stock on that date. PT Baruna Jaya earns Rp80,000,000 in profit during 20X1 and pays Rp20,000,000 in dividends.

8. Ten Percent Revenue Test * *Unrounded percents for segments total to 100 percent. Separately reportable? Segment Percent of Combined Reportable Segment Revenue Revenue of Rp600,000,000 Segment Food Products Rp323,000,000 53.8% Plastic and Packaging 113,000,000 18.8 Consumer and Commercial 45,000,000 7.5 Health and Scientific 86,000,000 14.3 Chemicals 33,000,000 5.5 Total Rp600,000,000 100.0% Yes Yes No Yes No

9. Ten Percent Profit (Loss) Test Separately reportable? Profit Percent of Test Separately Segment (Loss) Amount of Rp279,000,000 Reportable Food Products Rp198,000,000 71.0% Plastic and Packaging 59,000,000 21.1 Consumer and Commercial (25,000,000) 9.0 Health and Scientific 22,000,000 7.9 Chemicals (9,000,000) 3.2 Yes Yes No No No

10. Asset Test Separately reportable? Percent of Segment Test Amount of Separately Segment Assets Rp1,276,000,000 Reportable Food Products Rp 411,000,000 32.2% Plastic and Packaging 375,000,000 29.4 Consumer and Commercial 100,000,000 7.8 Health and Scientific 310,000,000 24.3 Chemicals 80,000,000 6.3 Total Rp1,276,000,000 100.0% Yes Yes No Yes No

11. Asset Test Items comprising each segment’s assets are defined by management.

12. Seventy-Five Percent Revenue Test Rp498,000,000  Rp572,000,000 Sales to unaffiliated customer by reportable segments: Food Products Rp317,000,000 Plastic and Packaging 95,000,000 Health and Science 86,000,000 Total of reportable segments Rp498,000,000 Consolidated revenue 572,000,000 Reportable segments’ percentage of consolidated revenue 87.1% Because this percentage if equal to or greater than 75 percent, no further operating segments must be separately reported.

13. Reporting Segment Information PSAK 5 states that the following must be disclosed for eachsegment determined to be separately reportable.

14. Reporting Segment Information • General information about (a) how the company identifies each separately reportable segments, and (b) the types of products and services from which each reportable segment earns its revenue. • Amounts for each separately reportable segment: (a) each segment’s profit or loss and the measurement procedures used to determine the profit or loss, and (b) each segment’s assets and liabilities Continued

15. Reporting Segment Information • Measures of segment profit or loss: (a) revenues from external sales, (b) revenues from transactions with other operating segments of the company, (c) interest revenue, (d) interest expense, (e) depreciation and amortization expense, (f) equity in the income of investees accounted for by equity method, (g) income tax expense or benefit, (h) extraordinary items, (i) other significant non cash items

16. Reporting Segment Information 13-16 • Segment assets and liabilities: (a) the amount of investment in equity method investees and (b) the amount of liabilities. • Reconciliations to consolidated totals.

17. Interim Reports Generally Contain-- • Income statements for the cumulative year-to-date time period and for the corresponding period of the prior fiscal year. • A balance sheet at the end of the current semi-annual and a balance sheet at the end of the corresponding interim period of the previous year. Continued

18. Interim Reports Generally Contain-- • A statement of cash flows as of the end of the current cumulative year-to-date period, and for the same time span for the prior year. • Notes to financial report

19. Practical Modifications for Determining Interim Income • Estimated gross profit rates may be used to determine an interim period’s cost of goods sold. • Inventory losses due to an apparent permanent decline in market price are recognizedin the period of decline using the lower-of-cost-or-market valuation method. Recoveries of market prices in later interim periods of the same fiscal year should be recognized up to the original cost.

20. Practical Modifications for Determining Interim Income • Companies using a standard cost system for inventories should use the same procedure for computing and reporting variances in an interim period as used for the fiscal year.

21. Chapter Thirteen The End