UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA

CALAMBA CAMPUS, BRGY. PACIANO RIZAL,

CALAMBA CITY, LAGUNA, PHILIPPINES

Chapter 30: PFRS 8 Operating Segments EDMUND E. HILARIO, CPA, MBA

Financial Accounting 1stSEMESTER 2019 – 2020
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SEGMENT REPROTING – CORE PRINCIPLE or may earn revenue that is incidental only to the activities
An entity shall disclose information to enable users of of the entity would not be operating segments
financial statements to evaluate the nature and financial
effects of the business activities in which it engaged and the Chief operating decision maker
economic environments in which it operates. In other The term chief operating decision maker identifies a
words segment reporting is the disclosure of certain function and not necessarily a manager with a specific title.
financial information about the products and services an This function is to allocate resources to the segments and
entity produces and the geographical areas in which an assess their performance. The chief operating decision
entity operates. The purpose of such disclosure is to enable maker may be the entity’s chief executive officer chief
investors and users make better assessment of each operating officer or a group of executive directors
business activity leading to the understanding of the depending on who within the organization is responsible for
performance of the entity the allocation of resources and assessing the performance
of operating segments
Scope of PFRS 8
PFRS 8 shall apply to the separate or individual financial Identifying operating segments
statements of an entity and to the consolidated financial The management approach is used in identifying operating
statements of a group with a parent segments. The management approach means that the
a. Whose debt or equity instruments are traded in a public operating segments are identified on the basis of internal
market reports about components of an entity that are regularly
b. That files or is in the process of filing the consolidated reviewed by the chief operating decision maker in order to
financial statements with a securities commission or allocated resources to the segment and to assess its
other regulatory organization for the purpose of issuing performance. In other words operating segments are
any class of instruments in a public market identified based on the components of the entity that are
considered to be important for internal management
However if a financial report contains both the consolidated reporting purposes. The idea is that the reporting of
financial statements of a parent and the parent’s separate segment information is seen through the “eyes of
financial statements segment information is required only in management” and users would wish to see the business as
the consolidated financial statements the chief operating decision maker sees it.

Operating segment Reportable operating segments

An operating segment is a component of an entity An entity shall report information about an operating
a. That engages in business activities from which it may segment that meets any of the following quantitative
earn revenue and incur expenses including revenue thresholds
and expenses relating to transactions with other 1. The segment revenue including both sales to external
components of the same entity customers and intersegment sales or transfers is 10%
b. Whose operating results are regularly reviewed by the or more of the combined revenue internal and external
entity’s chief operating decision maker to make of all operating segments
decisions about resources to be allocated to the 2. The absolute amount of profit or loss of the segment is
segment and assess its performance 10% or more of the greater in absolute amount of
c. And for which discrete financial information is available a. Combined profit of all operating segments that
reported a profit
An operating segment can generally be thought of a s a b. Combined loss of all operating segments that
distinguishable component of an entity that is engaged in reported a loss
business activities which generate revenue and incur 3. The assets of the segment are 10% or more of the
expenses. Moreover to be classified as operating segment combined assets of all operating segments
separate financial information must be available about the
segment and its operating results shall be regularly Operating segments that do not meet any of the
reviewed by a chief operating decision maker. An operating quantitative thresholds may be considered reportable and
segment may engage in business activities for which it has separately disclosed on a voluntary basis if management
yet to earn revenue believes that information about the segment would be
useful to the users of the financial statements
For example start-up operations may be operating
segments before earning revenue. Not every part of an Overall size test 75% threshold
entity is necessarily an operating segment or part of an If the total external revenue of reportable operating
operating segment. For example corporate headquarters segments constitutes less than 75% of the entity external
or some functional departments that may not earn revenue revenue additional operating segments shall be identified
as reportable segments even if they do not meet the 10%
 UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL,
CALAMBA CITY, LAGUNA, PHILIPPINES

Chapter 30: PFRS 8 Operating Segments EDMUND E. HILARIO, CPA, MBA

Financial Accounting 1stSEMESTER 2019 – 2020
===============================================================================================
quantitative thresholds until at least 75% of the entity An entity shall disclose the revenue from external
external revenue is included in reportable segments customers for each product and services

Aggregation of segments Revenue and assets from geographical areas

Two or more operating segments may be aggregated into a An entity shall disclose the following geographical
“single operating segment” if the segments have similar information
economic characteristics and the segments share a a. Revenue from external customers in the entity’s
majority of the following five aggregation criteria country of domicile and in all foreign operations in total
a. Nature of product or service b. Separate disclosure of material revenue from external
b. Nature of production process customers in an individual foreign country
c. Type or class of customers
d. Marketing method or the method used to distribute the Disclosure about major customer
product A major customer is defined as a single external customer
e. The nature of the regulatory environment for example providing revenue which amounts to 10% or more of an
banking insurance or public utility entity’s external revenue. The entity shall disclose the fact
of reliance on major customers the total amount of
Information to be disclosed for each segment revenue from major customers and the identity of the
An entity shall disclose the following for each reportable segment or segments reporting the revenue. The entity is
operating segment not required to disclose the identity of the major customer
1. General information about the operating segment or the amount of revenue that each segment reports from
2. Information about profit or loss including specified that customer
revenue and expenses included in the measure of profit
or loss
3. Information about segment assets and segment
liabilities and the basis of measurement
4. Reconciliations of the totals of segment revenue
segment profit or loss segment assets segment
liabilities and other material segment items to
corresponding items in the entity’s financial statements

Disclosure about general information

An entity shall disclose the following general information
about an operating segment
a. Factors used to identify the reportable segments
b. Type of products and services from which each
reportable segment derives revenue

Disclosure of profit or loss assets and liabilities

An entity shall disclose for each reportable segment a
measure of profit or loss total assets and total liabilities. An
entity shall disclose a measure of profit or loss under all
circumstances. However an entity shall disclose a measure
of total assets and total liabilities for each reportable
segment if such an amount is regularly provided to the chief
operating decision maker

Entity wide disclosures

Entity wide disclosures are additional information that is
required to be disclosed by all entities if such information is
not provided as part of the reportable segment information.
An entity shall disclose information about the following
a. Information about products and services
b. Information about geographical
c. Information about major customers

Revenue from products and services