SEGMENTAL REPORTS (IFRS 8)

Compiled by Dr. F.O.Ikapel

BACC 421: Advanced Financial Reporting

Many businesses operate in different geographical locations and also offer several products or
services. A segmental report provides information about the performance of the different units
of business to enable users have a wider perspective of the company and allow for even more
informed decision making. For example users can be able to understand the risk and return
profile of each segment of the business.

The objective of segment reporting is to establish principles for reporting financial information
by line of business and by geographical area. It applies to enterprises whose equity or debt
securities are publicly traded and to enterprises in the process of issuing securities to the public.
In addition, any enterprise voluntarily providing segment information should comply with the
requirements of the Standard.

Applicability

IFRS 8 must be applied by enterprises whose debt or equity securities are publicly traded and
those in the process of issuing such securities in public securities markets.

If an enterprise that is not publicly traded chooses to report segment information and claims that
its financial statements conform to IAS, then it must follow IAS 14 in full.

Segment information need not be presented in the separate financial statements of a (a) parent,
(b) subsidiary, (c) equity method associate, or (d) equity method joint venture that are presented
in the same report as the consolidated statements.

Important definitions

Business segment: A component of an enterprise that:

(a) provides a single product or service or a group of related products and services and

(b) that is subject to risks and returns that are different from those of other business segments.

Geographical segment: A component of an enterprise that:

(a) provides products and services within a particular economic environment and

(b) that is subject to risks and returns that are different from those of components operating in
other economic environments.

Reportable segment: A business segment or geographical segment for which segment

information to be reported.

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Segment revenue: Revenue, including inter-segment revenue, that is directly attributable or
reasonably allocable to a segment. This includes interest and dividend income and related
securities gains only if the segment is a financial segment (bank, insurance company, etc.).

Segment expenses: Expenses, including expenses relating to inter-segment transactions, that:

(a) result from operating activities and

(b) are directly attributable or reasonably allocable to a segment. This includes interest expense
and related securities losses only if the segment is a financial segment (bank, insurance company,
etc.). Segment expenses never include:

extraordinary items;
losses on investments accounted for by the equity method;
income taxes;
general corporate administrative and head-office expenses.

Segment result: Segment revenue minus segment expenses, before deducting minority interest.

Segment assets and segment liabilities: Those operating assets/liabilities that are directly
attributable or reasonably allocable to a segment.

Identifying a Business segment and a geographical Segment

An enterprise must look to its organizational structure and internal reporting system to identify
reportable segments.

Segmentation in internal financial reports prepared for the board of directors and chief executive
officer should determine segments for external financial reporting purposes.

If internal segments aren't along either product/service or geographical lines, is further

disaggregation appropriate.

Geographical segments may be based either on where the enterprise's assets are located or on
where its customers are located. Whichever basis is used, several items of data must be
presented on the other basis if significantly different.

Segments to be reported (IFRS 8)

The reportable segments are the business and geographical segments for which a majority of
their revenue is earned from sales to external customers.

The following criteria is used in selecting/identifying reportable segments;

(i) revenue from sales to external customers and from transactions with other segments is
10% or more of the total revenue, external and internal, of all segments; or

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 (ii) segment result, whether profit or loss, is 10% or more the combined result of all
segments in profit or the combined result of all segments in loss, whichever is greater in
absolute amount; or

(iii) assets are 10% or more of the total assets of all segments.

(iv) If total external revenue attributable to reportable segments identified using the 10%
thresholds outlined above is less than 75% of the total consolidated or enterprise revenue,
additional segments should be identified as reportable segments until at least 75% of total
consolidated or enterprise revenue is included in reportable segments.

Segments deemed too small for separate reporting may be combined with each other, if related,
but they may not be combined with other significant segments for which information is reported
internally. Alternatively, they may be separately reported. If neither combined nor separately
reported, they must be included as an unallocated reconciling item.

Vertically integrated segments (those that earn a majority of their revenue from inter-segment
transactions) may be, but need not be, reportable segments. If not separately reported, the selling
segment is combined with the buying segment.

IFRS 8 contains special rules for identifying reportable segments in the years in which a segment
reaches or loses 10% significance.

Accounting policies to be followed by segments

Segment accounting policies must be the same as those used in the consolidated financial
statements. If assets used jointly by two or more segments are allocated to segments, the related
revenue and expenses must also be allocated.

Information to be disclosed under IFRS 8

The standard has detailed guidance as to which items of revenue and expense are included in
segment revenue and segment expense. All companies will report a standardized measure of
segment result -- basically operating profit before interest, taxes, and head office expenses.

The following information should be disclosed for reportable segments;

✓ Sales revenue (distinguishing between external and intersegment revenues);

✓ Segment operating Profit
✓ Segment identifiable assets;
✓ Criteria for segment selection
✓ Segment identifiable liabilities;
✓ Segment capital additions;
✓ Depreciation;
✓ Segment non-cash expenses other than depreciation; and

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Other disclosure matters

Disclosure is required of external revenue for a segment that is not deemed a reportable segment
because a majority of its sales are inter-segment sales but none the less its external sales are 10%
or more of consolidated revenue.

✓ Special disclosures are required for changes in segment accounting policies.

✓ Where there has been a change in the criteria for identification of segments, prior year
information should be restated. If this is not practicable, segment data should be reported
for both the old and new bases of segmentation in the year of change.
✓ Disclosure is required of the types of products and services included in each reported
business segment and of the composition of each reported geographical segment.
✓ An enterprise must present a reconciliation between information reported for segments
and consolidated information.
At the minimum, the reconciliation should include:

• segment revenue to consolidated revenue

• segment result to comparable measure of consolidated operating profit or loss and
consolidated net profit or loss
• segment assets to the enterprise assets
• segment liabilities to the enterprise liabilities.

Format 1 - Segment Report

Particulars A B C D Elimination Total

Revenue
External Sales Revenue XX XX XX XX XX
Intersegment Sales Revenue XX - XX XX (XX) -
Total Revenue XX XX XX XX (XX) XX
Interest Income XX XX XX XX - XX
Interest Expense (XX) (XX) (XX) (XX) (XX)
Depreciation and Amortization (XX) (XX) (XX) (XX) (XX)
Segment Profit XX
Unallocated Income - - - - XX
Unallocated Expenses - - - - XX
Segment Result XX
Assets XX XX XX XX XX
Unallocated Assets - - - - XX
Consolidated Assets XX
Liabilities XX XX XX XX XX
Unallocated Liabilities - - - - XX
Consolidated Liabilities XX

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Format 2 – Segment Report

A B C D Total
Revenue/Sales (1)
Total Sales Revenue XX XX XX XX XX
Intersegment Sales Revenue (XX) (XX) (XX) (XX) (XX)
Sales to Third Parties XX XX XX XX (XX)
Operating Profit (2)
Segment Profit XX (XX XX XX XX
Intersegment Profit (XX) (XX) (XX) (XX) (XX)
Profit on Sales to third parties XX XX XX XX XX
Other Items
Interest Income XX XX XX XX XX
Interest Expenses (XX) (XX) (XX) (XX) (XX)
General Expenses (XX) (XX) (XX) (XX) (XX)
Depreciation and Amortization (XX) (XX) (XX) (XX) (XX)
Unallocated Income - - - - XX
Unallocated Expenses - - - - (XX)
Segment Profit Before Tax XX XX XX XX XX
Taxation - - - - (XX)
Segment Profit After Tax XX
Segment Assets (3)
Identifiable Assets XX XX XX XX XX
Unallocated Assets - - - - XX
XX
Segment Liabilities (4)
Identifiable Liabilities XX XX XX XX XX
Unallocated Liabilities - - - - XX
Consolidated Liabilities XX
XX

Illustration 1
From the following information relating to segments A, B, C, D and E, determine the
reportable segment and prepare a segment report based on the criteria specified in IFRS 8.

A B C D E Total
External Revenue 220 300 75 55 60 710
Internal Revenue 60 15 5 10 90
Total Revenue 280 315 75 60 70 800
Profit 60 50 20 -11 14 133

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Assets 5,000 4,000 300 300 400 10,000

Solution

A B C D E

Revenue 280 / 800 = 35% 315 / 800 = 39% 75 / 800 = 9% 60 / 800 = 7.5% 70 / 800 = 9%
Test Pass Pass Fail Fail Fail

60 / 133= 45% 50 / 133 = 37.59% 20 / 133= 14 / 133=

Profit Test 8.27%
Pass Pass 15.04% Pass 10.53% Pass

5,000 / 10,000 = 4,000 / 10,000 = 300 / 10,000 = 300 / 10,000 = 400 / 10,000 =
Assets Test
50% Pass 40% Pass 3% Fail 3% Fail 4% Fail

*Profitable segments only

A, B and C all pass one of the tests and so would be reported on

External Revenue Test

A + B + C = 595 / 710 = 84% PASS (No more segments needed)

Segment Report

A B C D E Total
External Revenue 220 300 75 55 60 710
Internal Revenue 60 15 5 10 90
Total Revenue 280 315 75 60 70 800

Profit 60 50 20 -11 14 133

Assets 5,000 4,000 300 300 400 10,000

Example 2
The following information was extracted from the books of Ruru Ltd which has six operating
segments
A B C D E F Total
External Revenue 1800 800 500 300 120 90 3610
Internal Revenue 16 90 100 0 16 300 522
Expenses for Salaries 600 370 400 310 320 60 2060
Rent and Rates 140 160 80 90 42 31 543
Segment Assets 100 300 600 200 300 500 2000

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Segment Liabilities 50 100 200 75 275 220 920

Required
i. Determine the reportable segment using the revenue, profit, asset test and the 75%
criteria of the IFRS 8
ii. Assuming that all the segments are reportable, prepare a segment report

Solution

A B C D E F Total
External Revenue 1800 800 500 300 120 90 3610
Internal Revenue 16 90 100 0 16 300 522
Total Revenues 1816(43.95) 890(21.54) 600(14.52)
300(7.26) 136(3.29) 390(9.44) 4132
Expenses for Salaries 600 370 400 310 320 60 2060
Rent and Rates 140 160 80 90 42 31 543
-100(- -226(- 1529
Profit 1076(70.37) 360(23.54) 120(7.85) 299(19.56)
6.54) 14.78)
Segment Assets 100(5) 300(15) 600(30) 200(10) 300(15) 500(25) 2000
Segment Liabilities 50(5.43) 100(10.87) 200(21.74) 75(8.15) 275(29.89) 220(23.91) 920

A+B+C (1800+800+500) 3100/3610*100 = 85.87%

iii. Assuming that all the segments are reportable, prepare a segment report

A B C D E F Total
Segment Revenue
External Revenue 1800 800 500 300 120 90 3610
Internal Revenue 16 90 100 0 16 300 522
Total Revenues 1816 890 600 300 136 390 4132
Expenses for Salaries (600) (370) (400) (310) 320 60 2060
Rent and Rates (140) (160) (80) (90) 42 31 543
Segment Profit 1076 360 120 (100) (226) 299 1529
Segment Assets 100 300 600 200 300 500 2000
Segment Liabilities 50 100 200 75 275 220 920
Reconciliation
Segment revenues 4,132
Intersegment Revenues (522)
Segment Result 3,610

Exercise
ABC Ltd is a listed Company of the Nairobi Securities Exchange. The Company has operating
segments whose reports are reviewed by the Chief Operating Decision Makar from time to time
to facilitate decision making by the Company. The following information is available for the
twelve months to December, 2024.
A B C D E Total
Total Revenue from Sales 20,900 10,600 3,800 5,900 1,050 42,250

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Intersegment Revenue/Sales 2,500 990 850 0 360 4,700
Interest Revenues 1,600 630 0 700 110 3,040
Interest Expense 1,240 1,600 0 1,250 602 4,692
Profit and Loss from Segments 12,300 4,200 1,980 (805) 425 18,100
Segment Assets 540 19,700 60 4,200 2,100 26,600

Required
i. Determine the reportable segment using the revenue, profit and asset test criteria of the
IFRS 8
ii. Assuming that all the segments are reportable, prepare a segment report

Exercises
Question 1
Gawanya Ltd is preparing segmental report for inclusion in its financial accounts for the year ended
31 December 2001 . The figures given below relate to Gawanya Ltd. And its subsidiaries but
exclude information on associated companies

Sh.’00
0’
Sales to customers outside the group by stationery division 11,759
Sales to customers outside the group by Kenyan companies 28,200
Sales not derived from stationery, tissue or packaging activities 3,290
Sales made to customers outside the group by tissue division. 18,390
Assets used by the Ugandan subsidiary companies 30,600
Assets not allocable to stationery, tissue or packaging activities 14,856
Assets used by the stationery division 31,750
Sales by the tissue division to other group members 3,658
Assets used by the packaging division 17,775
Assets used by the Kenyan companies 41,820
Sales not allocated to Kenya, Uganda or other areas 3,290
Sales by the stationery division to other group members 1,227
Sales made by the group to other areas of the world. 1,481
Expenses not allocated to Kenya, Uganda or other areas 4,073
Sales to customers outside the group by Ugandan companies 7,227
Expenses not allocated to stationery, tissue or packaging services 5,004
Sales by Ugandan companies to group members 2,117
Sales to customers outside the group for bureau service 5,200
Sales by Kenyan companies to other group members 2,430
Assets used by the tissue division 44,620
Assets used by the group in other areas. 21,660
Assets not allocated to Kenya, Uganda or other areas. 14,921
Segmental net profit by industry - Stationery 2,442
- Tissue 5,916
- Packaging 821
Segmental net profit by geographical area - Kenya 4,873
- Uganda 3,127
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 - Other areas 487
Consolidated net profit by industry 8,978
Consolidated net profit by geographical area 8,047
Required:
(a). An industry and geographical segmental report in accordance with IAS 14 (reporting
Financial Information by Segment) for inclusion in the annual report to give the maximum
information to the shareholders. (12 marks)
(b). Using Gawanya Ltd.’s figures as illustrations, discuss items for which you consider there
is need for further information to assist the reader to interpret the segmental data. (3
marks)
(c ). Identify the problems associated with segmental reporting. (5 marks)
Question 2
You are the financial controller of Omega, a listed entity which prepares consolidated
financial statements in accordance with International Financial Reporting Standards
(IFRS). The chief executive officer (CEO) of Omega has reviewed the draft consolidated
financial statements of the Omega group and of a number of the key subsidiary companies
for the year ended 31 March 2018. None of the subsidiaries are listed entities but all
prepare their financial statements in accordance with IFRS. The CEO has sent you an
email with the following queries: ‘I notice that the disclosures relating to operating
segments in the consolidated financial statements appear to be based on the geographical
location of the customers of the group. I am the non-executive director of another large
listed entity and the segment disclosures in their consolidated financial statements are
based on the type of products sold. Also some of our larger subsidiaries have customers
located in more than one geographical region, yet they provide no segment disclosures
whatsoever in their individual financial statements. I would like to see segment
disclosures given in the individual subsidiary accounts as well. I really don’t understand
these inconsistencies given that all these financial statements have been prepared using
IFRS. Please explain the reasons for these apparent inconsistencies.

Required:
Provide answers to the three queries raised by the chief executive officer. Your answers
should refer to relevant provisions of International Financial Reporting Standards

Solution

a) The relevant IFRS which deals with operating segments is IFRS 8 – Operating
Segments. The definition of an operating segment in IFRS 8 is based around an
entity’s business model, which could be different from entity to entity and the
disclosures focus on the information which management believes is important when
running the business.
b) IFRS 8 defines an operating segment as a component of an entity

✓ Which engages in business activities from which it may earn revenues and
incur expenses, and

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 ✓ Whose operating results are regularly reviewed by the chief operating
decision maker, and
✓ For which discrete financial information is available

c) The ‘chief operating decision maker’ is a role rather than a title or it is a function
and not necessarily a person. The role/function is defined around who monitors
performance and allocates resources of the operating segments.

d) IFRS 8 is only compulsory for listed entities. If we wanted to incl ude information
regarding the operating segments of individual subsidiaries, then we could as IFRS
8 requires judgement in its application. However, the information in the individual
financial statements would either need to comply with IFRS 8 in all respe cts or the
information cannot be described as ‘segment information’

Question 3
You are the financial controller of Badejo PLC, a listed entity which prepares consolidated
financial statements in accordance with International Financial Reporting Standards
(IFRS). You have recently produced the final draft of the financial statements for the year
ended 30 th September 20X6 and these are due to be published shortly. The managing
director, who is not an accountant, reviewed these financial statements and raised a list of
queries arising out of the review.

“On reviewing our financial statements, I found a note giving information about the
different segments of our business and also the disclosure of the earnings per share of our
entity. Neither the segment notes nor the earnings per share disclosure appears in the
financial statements of the subsidiary. Even though our subsidiary is unlisted, both entities
report under full International Financial Reporting Standards so I do not understand how
this difference can occur. Please explain this to me’’.

Required:
Provide answers to the queries raised by the managing director.

Solution

a) Where two companies report under the same reporting framework, you would
generally expect the same reporting requirements to apply to bot h companies.
However, there are certain requirements of IFRS which apply to listed companies
only
b) The requirement to provide segmental information and to disclose earnings per
share are both examples of requirements which only listed companies are forced t o
comply with.
c) If an unlisted entity voluntarily chooses to provide segmental information, or to
disclose its earnings per share, then it must comply with the provisions of the
relevant IFRS in both cases.

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Question 4
You are the financial controller of Bidii Ltd, a listed entity which prepares consolidated
financial statements in accordance with International Financial Reporting Standards
(IFRS). The managing director, who is not an accountant, has recently been appointed.
She formerly worked for Rival, one of the company’s key competitors. She has reviewed
the financial statements for the year ended 30 September 20X4 and has prepared a series
of queries relating to those statements: ‘I was very confused by the note that included
financial information relating to our operating segments. This note bears very little
resemblance to the equivalent note included in the financial statements of Rival. Please
explain how the two notes can be so different.’

Required:
Provide answers to the three queries raised by the managing director. Your answers should
refer to relevant provisions of International Financial Reporting Standards

Solution

Query One It is true that the there is an International Financial Reporting Standard (IFRS) which
deals with operating segments and lays down the content of segmental reports (concept). The
relevant standard is IFRS 8 - Operating Segments. However, differences between the segment
reports of organizations will arise from how segments are identified and what exactly is reported
for each segment (concept).
FRS 8 defines an operating segment as a component of an entity which engages in revenue
earning activities and whose results are regularly reviewed by the chief operating decision maker
(CODM).
The CODM is the individual, or group of individuals, who makes decisions about segment
performance and resource allocation.

This definition means that the operating segments of apparently similar organizations could be
identified very differently, with a consequential impact on the nature of the report.

As stated above, differences also arise due to the reporting requirements for each segment. IFRS
8 requires that ‘a measure’ of profit or loss is reported for each segment. However, the
measurement of revenues and expenses which are used in determining profit or loss is based on
the principles used in the information the CODM sees. This is so, even if these principles do not
correspond with IFRS. This could clearly cause differences between reports from apparently
similar organizations.

Additionally, IFRS 8 requires a measure of total assets and liabilities by operating segment if the
CODM sees this information. Since some CODMs may see this information and some may not,
this could once again cause differences between the reports of apparently similar organizations.

Question 5
You are the financial controller of Mzalendo Ltd, a listed company which prepares
consolidated financial statements in accordance with International Financial Reporting
Standards (IFRS). Your managing director, who is not an accountant, has recently

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attended a seminar and has prepared a number of questions for you concerning two issues
raised at the seminar:

(b) ‘One of the topics discussed at the seminar was segment reporting. I believe I heard
someone say that segment reporting varies from company to company depending on its
internal structure. Please explain how we should identify the segments we use to provide
our segment reporting information. I do not need to know the detailed content of a
segment report.’ (10 marks)

Required:
Provide answers to the questions raised by the managing director.

Solution
✓ A reportable segment is an operating segment that satisfies certain materiality criteria.
✓ An operating segment is a component of an entity:
✓ That engages in business activities from which it may earn revenues and incur expenses.
✓ Whose operating results are regularly reviewed by the Chief Operating Decision Maker
(CODM).
✓ For which discrete financial information is available.
✓ The CODM is a function, not a title. The function is to make decisions about allocating
resources and assessing performance.
✓ The materiality criteria are any one of the following:
• Reported revenue is 10% or more of the total revenue of all operating segments
• The absolute amount of its reported profit or loss is 10% or more of the greater of
the combined reported profit of all the profit-making segments and the combined
reported loss of all the segments that reported a loss.
• Total assets are 10% or more of the total assets of all operating segments.
• Two or more operating segments that exhibit similar economic characteristics can
be combined into a single operating segment for reporting purposes.
• Even if an operating segment does not meet any of the quantitative thresholds, it
can be considered reportable if management believes that information about that
segment would be useful to users of the financial statements.
• As a minimum, the total external revenue of reportable segments should be at
least 75% of total entity revenue. If this is not achieved by applying the size
criteria to individual segments, additional reportable segments need to be added
until this threshold is achieved.

Question 6
The following information relates to Hustler Ltd , a listed company with five divisions of
operation, for the year ended June 30, 20X3:

Particulars A B C D E
KSh KSh KSh KSh KSh
Revenue from External Customers 200,000 45,000 45,000 150,000 44,000
Inter Segment Revenue 20,000 - 5,000 20,000 2,000

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Reported Profit 40,000 9,000 10,000 45,000 10,000
Total Assets 1,500,000 300,000 400,000 2,000,000 400,000

Required:
Which of the above business divisions are reportable segments under IFRS-8 Operating
Segments? Justify your answer.

Solution

Particular A B C D E Total 10
s %
KSh KSh KSh KSh KSh
Revenue 200,000 45,000 45,000 150,000 44,000 487,000
from
External
Customers
Inter 20,000 - 5,000 20,000 2,000 47,000
Segment
Revenue
Total 220,000 45,000 50,000 170,000 46,000 531,000 53.1
Revenue
Reported 40,000 9,000 10,000 45,000 10,000 114,000 11.4
Profit
Total 1,500,000 300,000 400,000 2,000,000 400,000 4,600,00
Assets 0
Revenue 220/531*100 45/531*100 50/531*100 170/531*100 46/531*100
test 10% 41.4% 8.47% 9.42% 32% 8.66%
or More
Profit Test 40/114*100 9/114*100 10/114*100 45/114*100 10/114*100
10% or 35.1% 7.89% 8.77% 39.47% 8.77%
More
Total 1500/4600*10 300/4600*10 400/4600*10 2000/46000*10 400/4600*10
Assets 0 0 0 0 0
Test 10% 32.6% 6.52% 8.70% 43.48% 8.70%
or More
External 200/487*100 45/487*100 50/487*100 150/487*100 44/487*100
revenue 41.07% 9.24% 10.27% 30.8% 9.03%
75% or
More

Division A and Division D are reportable segments on the basis of all 10% threshold criteria.
However, another division must be made reportable to meet 75% external revenue criteria,
Division C seems most suitable with higher figures than segment B and E

Question 7
XYZ Ltd. is operating in the Manufacturing industry. Its business segments comprise Segment A
and Segment B. The following information for financial year ended 31st December, 20X2 is
given below:

Particulars Segment A Segment B Total

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 KSh’000’ KSh’000’
Revenue from External Customers 2,000,000 700,000 2,700,000
Intersegment Sales 50,000 30,000 80,000
Other Operating Income 400,000 150,000 550,000
Reported Profit 100,000 40,000 140,000
Segment Assets 500,000 300,000 800,000
Segment Liabilities 300,000 100,000 400,000

Additional information:
1. Unallocated income net of expenses is KSh.30,000
2. Interest and bank charges is KSh.2,000
3. Income tax expenses is KSh.2,000 (current tax KSh.1,950 and deferred tax KSh.5,000)
4. Unallocated Investments are KSh.100,000 and other assets are KSh.100,000
5. Unallocated liabilities, Reserves & surplus and share capital are KSh.20,000, KSh.30,000
and KSh.10,000 respectively
6. Depreciation amounts for Segment A and B are KSh.10,000 and KSh.30,000
respectively.
7. Capital expenditure for Segment A and B are KSh.5,000 and KSh.2,000 respectively.
8. Revenue from outside Kenya is KSh.620,000 and segment asset outside Kenya
KSh.100,000

Required
Based on the above information, show how X Ltd. would disclose information about reportable
segment revenue, profit or loss, assets and liabilities for financial year ended 31st December,
20X2.

Question 8

ABC Ltd has five reportable segments: car parts, motor vessels, software, electronics and
finance. The segment A produces replacement parts for sale to directly to retailers. Segment B
produces similar replacement parts for export. Segment C produces software for sale to computer
manufacturers and retailers. Segment D produces integrated circuits (IC) and related products for
sale to computer manufacturers. Segment E is responsible for the Company’s financial
operations including financing customer purchases of products from other segments and property
lending operations.

The accounting policies of the operating segments are the same as those described in the
summary of significant accounting policies except that pension expense for each operating
segment is recognised and measured on the basis of cash payments to the pension plan.
Diversified Company evaluates performance on the basis of profit or loss from operations before
tax expense not including non-recurring gains and losses and foreign exchange gains and losses.
Diversified Company accounts for intersegment sales and transfers as if the sales or transfers
were to third parties, ie at current market prices.
The Company’s reportable segments are strategic business units that offer different products and
services. They are managed separately because each business requires different technology and

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marketing strategies. Most of the businesses were acquired as individual units, and the
management at the time of the acquisition was retained.
The Segments information is given as shown below:
s

A B C D E Other Totals

KSh KSh KSh KSh KSh KSh KSh

Revenues from external customers 3,000 5,000 9,500 12,000 5,000 1,000 35,500

Intersegment revenues – – 3,000 1,500 – – 4,500

Interest revenue 450 800 1,000 1,500 – – 3,750
Interest expense 350 600 700 1,100 – – 2,750
Net interest revenue(b) – – – – 1,000 – 1,000
Depreciation and amortisation 200 100 50 1,500 1,100 – 2,950

Reportable segment profit 200 70 900 2,300 500 100 4,070

Other material non-cash items:

Impairment of assets – 200 – – – – 200

Reportable segment assets 2,000 5,000 3,000 12,000 57,000 2,000 81,000
Expenditures for reportable segment non- 300 700 500 800 600 – 2,900
current assets
Reportable segment liabilities 1,050 3,000 1,800 8,000 30,000 – 43,850

Required
a) Prepare a segment report showing the reconciliation of segment revenue, profit/loss,
assets and liabilities
b) Explain the information that should be disclosed in a segment report as provided by IFRS
8.
c) Discuss the importance of segment reporting in Financial Reporting

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