Segmental Reporting Quality after IFRS-Free-Samples for Students

Questions: 1.Discuss why information on the different products produced by Diversified Ltd would be of benefit to its shareholders? 2.Determine which of the segments is reportable according to NZ IFRS 8. Show your workings. Answers: 1.Accounting standards needs the alignment of segment and reporting for different products and segments that are carried out by the company. It is done to enable the shareholders to analyse the company and evaluate the performance based on the prospects and understanding regarding the companys products or segments as a whole. As the investors and shareholders attempt to maximize the return on their investment, they need information for different product performances with regard to take sound financial decisions for investment and lending. In absence of the meaningful information the investors, shareholders, capital owners, and creditors will take the decisions on the basis of tips, unreliable news and guess work that will lead to inefficient resource allocation. Though not all the segments or products are reportable, the segments or products with 10% of the total assets or total revenues or total profits are reportable. It helps the investors to know which product is profitable and w hich needs to be discarded (IFRS 8 Operating Segments, 2018). The segment reporting assists the shareholders in better assessment of the returns and risks of the company, better understanding of the companys financial performance and taking more informed decisions regarding the entire company (NZ IFRS 8 XRB, 2018). Further, the information regarding various products that are produced by Diversified Ltd will be beneficial to the shareholders in the following ways Improved context it helps the shareholders to get better view of the fluctuations that may have impact on entire numbers. For instance, if the company reports much higher earnings as compared to the budgeted one the segment reporting will reveal from where that income came from. The shareholder can analyse the same report for determining whether the numbers are sustainable or not NZ IFRS 8 XRB, 2018) Credit and investment decisions As the prospects and progress of the diversified company are accumulation of prospects and progress of various parts, the users of financial statement it will enable the shareholders to take decisions in better way. Further, the segment information will allow the shareholders to analyse the associated uncertainties with regard to timing and amount of the expected cash flows in better way. Thus, the investment related risks or lending loans to the companys different segments would be analysed in better way (New Zealand Equivalent to International Financial Reporting Standard 8 Operating Segments (NZ IFRS 8), 2018). Separating the profitable segments the major advantage of segment reporting to the shareholders is transparency. Business that operates under various product categories, the segment reporting analyse the segment which is most profitable and which drains the profit. For instance, if segment reporting reveals that the overseas operations are more profitable as compared to the domestic operations, it can prompt for the changes in the strategic decisions. Further, it disables the managers to hide the unprofitable segments of the company (IFRS 8 Operating Segments, 2018). True and Fair view the segment-reporting enable to present the financial statement in true and fair view manner. The management will be liable to present the report the actual amount of liabilities and assets, income and expenses with regard to all the segments otherwise; the group statement may not be matched with the segment statement figures. Therefore, the chances of manipulating the data will be reduced (IFRS 8 Operating Segments, 2018). 2.The company shall report the information separately regarding each operating segment if it has been identified that The operating segment is the component of the entity that is - The segment is engaged in the business activities from which the company can earn the revenues and for which it incurs expenses.The operating result of which segment is reviewed regularly by the chief operating decision maker of the company for making decisions regarding the resources that is to be allocated to segments and assessing the performances.The segment for which the separate financial data is available The entity shall separately report the information regarding the operating segment that fulfils any of the below mentioned quantitative threshold Te reported revenue of the segment including intersegment transfers or sales as well as the sales to the external customers is 10% or more than the combined revenue, external and internal for all the operating segments. The assets of the segment are 10% or more of combined assets of all the operating segments (Aboud Roberts, 2013). The absolute amount of reported loss or profit for the segment is 10% or more of the greater with regard to absolute amount among (i) the combined profit that is reported for all operating segment for the year of the company that is not reported loss and (ii) reported combined loss for all operating segments for the year of the company that is not reported loss As per the given data Segment Revenue Segment Profit Segment Assets ($m) ($m) ($m) Timber 800 75 900 Steel 100 25 420 Cardboard 60 (15) 180 Total 960 85 1,500 10% of combined revenue = $ 960 m *10% = $ 96 m 10% of reported total profit = $ (75 + 25) * 10% = $ 10 m 10% of reported total loss = $ (-15 * 10%) = - $ 1.5 m 10% of combined assets = $ 1500 m * 10% = $ 150 m Revenue aspect considering the revenue aspect, the Timber segment and Steel segment shall be reported as their revenue is $ 800 million and $ 100 million respectively that is more than $ 96 million or 10% of total revenue (New Zealand Equivalent to International Financial Reporting Standard 8 Operating Segments (NZ IFRS 8), 2018). Segment profit or loss aspect - considering the segment profit or loss aspect, the Timber segment and Steel segment shall be reported as their profit is $ 75 million and $ 25 million respectively that is more than $ 100 million or 10% of total profit. Segment asset aspect - considering the asset aspect, the Timber segment, Steel segment and Cardboard segment shall be reported, as their asset is $ 900 million, $ 420 million and $ 180 million respectively that is more than $ 150 million or 10% of total asset (NZ IFRS 8 XRB. (2018). If above mentioned any 1 criteria out of the 3 is fulfilled then the segment is reportable. Therefore, all the segments that is, the Timber segment, Steel segment and Cardboard segment are reportable segments as per NZ IFRS 8 as timber and steel segment fulfil all 3 criteria and cardboard segment fulfilled the net asset criteria References Aboud, A., Roberts, C. (2013). Segmental Reporting Quality After IFRS 8: Multi-Dimensional Measures. IFRS 8 Operating Segments. (2018). Iasplus.com. Retrieved 9 April 2018, from https://www.iasplus.com/en/standards/ifrs/ifrs8 New Zealand Equivalent to International Financial Reporting Standard 8 Operating Segments (NZ IFRS 8). (2018). New Zealand. Retrieved from https://file:///C:/Users/user00/Downloads/NZ-IFRS-8-Jul14-158179.2.pdf NZ IFRS 8 XRB. (2018). Xrb.govt.nz. Retrieved 9 April 2018, from https://www.xrb.govt.nz/accounting-standards/for-profit-entities/nz-ifrs-8/