Ch.22 Verified Test Bank Consolidation controlled entities

Chapter 22 Testbank

1. The core principle of AASB 8 Operating Segments is for a reporting entity to disclose information to enable users of its financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environments in which it operates.

AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 22-03 Understand the disclosures required in relation to separate operating segments and know that segment disclosures provide information to enable a more informed assessment of the performance and associated risks of an organisation's various activities.
Section: An introduction to AASB 8
Topic: An introduction to AASB 8

2. If a financial report contains both the consolidated financial statements of a parent and the parent's separate financial statements, segment information is required for both statements.

3. Two or more operating segments may be aggregated into a single operating segment if aggregation is consistent with the core principle of AASB 8, or the segments have similar economic characteristics, or the segments are similar in the nature of the products and services.

AACSB: Reflective thinking
Difficulty: Medium
Learning Objective: 22-05 Be aware that information about an operating segment's profit or loss, assets and liabilities must be disclosed in the notes to a reporting entity's financial statements to the extent that the segments are deemed to be 'reportable' pursuant to AASB 8 Operating Segments.
Learning Objective: 22-06 Know how to determine whether a particular operating segment is of sufficient magnitude or importance to be deemed 'reportable'.
Section: Defining a reportable segment
Topic: Defining a reportable segment

4. AASB 8 Operating Segments requires reconciliation of total reportable segment revenues, total profit or loss, total assets, total liabilities and other amounts disclosed for reportable segments to the corresponding amounts shown in the parent entity's separate financial statements.

AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 22-07 Be able to describe the disclosures to be made about an operating segment's products and services, reliance on major customers, and the entity's geographical dispersion pursuant to AASB 8.
Section: Reconciliation of segment information to financial statements
Topic: Reconciliation of segment information to financial statements

5. AASB 8 Operating Segments requires an entity to report a measure of segment liabilities and particular income and expense items, if such measures are regularly provided to the chief operating officer.

6. Identification of operating segments in AASB 8 Operating Segments adopts a 'rules-based' approach, while its predecessor AASB 114 Segment Reporting adopts a 'principles-based' approach.

7. For a segment to be reportable, AASB 8 requires that majority of revenues be earned from external parties and the segment satisfies one of the three quantitative thresholds.

AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 22-05 Be aware that information about an operating segment's profit or loss, assets and liabilities must be disclosed in the notes to a reporting entity's financial statements to the extent that the segments are deemed to be 'reportable' pursuant to AASB 8 Operating Segments.
Learning Objective: 22-06 Know how to determine whether a particular operating segment is of sufficient magnitude or importance to be deemed 'reportable'.
Section: Defining a reportable segment
Topic: Defining a reportable segment

8. Research has shown that companies only provide segment information when it is required by accounting regulation.

AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 22-03 Understand the disclosures required in relation to separate operating segments and know that segment disclosures provide information to enable a more informed assessment of the performance and associated risks of an organisation's various activities.
Section: Advantages and disadvantages of segment reporting
Topic: Advantages and disadvantages of segment reporting

9. Segment information may be useful to investors who wish to use ethical guidelines about which industries or countries they invest in.

AACSB: Ethics
Difficulty: Easy
Learning Objective: 22-03 Understand the disclosures required in relation to separate operating segments and know that segment disclosures provide information to enable a more informed assessment of the performance and associated risks of an organisation's various activities.
Section: Advantages and disadvantages of segment reporting
Topic: Advantages and disadvantages of segment reporting

10. Management may be concerned that segment reporting will put the entity at competitive disadvantage, so it has been suggested that it can avoid providing accurate segment reports through opportunistic interpretation of the definition of a business segment.

AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 22-01 Understand that consolidated financial statements provide an aggregated view of the financial performance and financial position of business operations from various industries and geographical locations.
Learning Objective: 22-03 Understand the disclosures required in relation to separate operating segments and know that segment disclosures provide information to enable a more informed assessment of the performance and associated risks of an organisation's various activities.
Section: Advantages and disadvantages of segment reporting
Topic: Advantages and disadvantages of segment reporting

11. IFRS 8 was issued as part of the ongoing process to converge IASB standards with the US accounting standards.

12. AASB 8 identifies five factors that are to be considered in determining whether or not products and services are related for the purposes of defining a business segment. It further specifies that the products and services included in a business segment must be similar with respect to all these factors.

AACSB: Reflective thinking
Difficulty: Medium
Learning Objective: 22-05 Be aware that information about an operating segment's profit or loss, assets and liabilities must be disclosed in the notes to a reporting entity's financial statements to the extent that the segments are deemed to be 'reportable' pursuant to AASB 8 Operating Segments.
Section: Measurement of segment items
Topic: Measurement of segment items

13. A geographical segment is defined in part by AASB 8 as being a distinguishable component of an entity engaged in providing products and services within a particular social and cultural environment.

AACSB: Reflective thinking
Difficulty: Medium
Learning Objective: 22-07 Be able to describe the disclosures to be made about an operating segment's products and services, reliance on major customers, and the entity's geographical dispersion pursuant to AASB 8.
Section: Non-financial disclosures
Topic: Non-financial disclosures

14. AASB 8 specifies that a geographical segment cannot include more than two countries.

AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 22-07 Be able to describe the disclosures to be made about an operating segment's products and services, reliance on major customers, and the entity's geographical dispersion pursuant to AASB 8.
Section: Non-financial disclosures
Topic: Non-financial disclosures

15. AASB 8 specifies guidelines regarding whether or not a segment is reportable. These guidelines are known as the 10 per cent rules. All three rules are required to be met in order to establish a reportable segment.

16. AASB 8 allows reportable segments to be combined as a single operating segment if: (a) they exhibit similar long-term financial performance; and (b) they are similar in all of the appropriate factors identified in the standard in relation to segment revenues, expenses, assets and liabilities.

17. AASB 8 does not require disclosure of a reportable segment if a segment is mainly transacting with related parties.

AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 22-07 Be able to describe the disclosures to be made about an operating segment's products and services, reliance on major customers, and the entity's geographical dispersion pursuant to AASB 8.
Section: Required financial disclosures
Topic: Required financial disclosures

18. AASB 8 bans the disclosure of segments that do not pass the '10 per cent test'.

19. Legal entities often combine to form an economic entity.

20. The consolidated statement of comprehensive income provides an indication of the aggregated financial performance of many dissimilar entities.

21. An important argument for providing segmental information in the financial reports is:

A. it is simpler and easier for users to follow.
B. consolidated information is so aggregated that it may disguise poor performance and very good performance among segments of the entity.
C. the shareholders of the individual companies in the group can use the segment information to assess the performance of their company.
D. the segments of the entity will be taxed separately on their earnings.

22. Managers may choose to provide segment data voluntarily because:

A. they want to highlight the companies in the group that are doing well.
B. they generally do not believe that consolidated accounts are meaningful.
C. the segment information will demonstrate more accurately where they have done well and where they have done badly.
D. it demonstrates a greater level of accountability that may attract investment funds.

AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 22-03 Understand the disclosures required in relation to separate operating segments and know that segment disclosures provide information to enable a more informed assessment of the performance and associated risks of an organisation's various activities.
Section: Advantages and disadvantages of segment reporting
Topic: Advantages and disadvantages of segment reporting

23. Situations in which aggregated data may be sufficient to evaluate the performance of an entity include:

A. where the entity has not existed for a long period of time.
B. where the segments of the entity have highly correlated profit prospects.
C. where the entity has a large consolidated asset base.
D. where the entity operates in different geographic areas with different risks.

AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 22-03 Understand the disclosures required in relation to separate operating segments and know that segment disclosures provide information to enable a more informed assessment of the performance and associated risks of an organisation's various activities.
Section: Advantages and disadvantages of segment reporting
Topic: Advantages and disadvantages of segment reporting

24. In the situation where an entity has invested in segments that are diverse:

A. segment information should enable the users of the financial statements to better predict the future profitability of the entity.
B. segment information should enable the users of the financial statements to better predict the risk exposure of the entity.
C. segment information is less useful because according to portfolio theory investments that are not correlated reduce the risk of an entity.
D. segment information should enable the users of the financial statements to better predict the future profitability of the entity and enable the users of the financial statements to better predict the risk exposure of the entity.

AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 22-03 Understand the disclosures required in relation to separate operating segments and know that segment disclosures provide information to enable a more informed assessment of the performance and associated risks of an organisation's various activities.
Section: Advantages and disadvantages of segment reporting
Topic: Advantages and disadvantages of segment reporting

25. Potential costs of providing segment information include:

A. management taking extra risks in order to attempt to generate increased returns in its segment.
B. allowing current or potential investors to identify that the entity is earning high profits in a segment.
C. disclosing that a segment is making a loss, which may lead to take-over bids by other organisations.
D. allowing current or potential competitors to identify that the entity is earning high profits in a segment, which may increase competition through new entrants or an attempt to replicate the factors leading to the entity's success.

AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 22-01 Understand that consolidated financial statements provide an aggregated view of the financial performance and financial position of business operations from various industries and geographical locations.
Learning Objective: 22-02 Understand that to avoid information loss, the consolidated financial statements need to be supplemented by additional disclosures pertaining to the various operating segments in which an organisation operates.
Learning Objective: 22-03 Understand the disclosures required in relation to separate operating segments and know that segment disclosures provide information to enable a more informed assessment of the performance and associated risks of an organisation's various activities.
Section: Advantages and disadvantages of segment reporting
Topic: Advantages and disadvantages of segment reporting

26. An operating segment is defined by AASB 8 as:

A. a component of an entity that is of separable and identifiable interest to a section of stakeholders of the entity.
B. a distinguishable component of an entity and that component is engaged in providing an individual product or service or group of related products or services and is subject to risks and returns that are different from those of other distinguishable components of the entity.
C. an identifiable component of an entity that is engaged in providing an individual product or service to other entities within the group and is subject to special risks and returns as a result of relying on other components of the entity.
D. an identifiable component of an entity based on functional relationships with suppliers or customers or financiers established over a period of time.

27. The guidelines to determine that a segment is reportable in accordance with AASB 8 Operating Segments include:

A. the segment's assets are equal to or greater than 10 per cent of the entity's total assets.
B. the expenses of the segment that relate to external sales are equal to or greater than 10 per cent of total segment expenses.
C. the segment's assets are 10 per cent or more of the combined assets of all operating segments.
D. the expenses of the segment that relate to external and internal sales are equal to or greater than 10 per cent of total segment expenses.

28. AASB 8 identifies a number of purposes for segment data. These include to:

A. enhance understandability of the information.
B. achieve comparability with other entities.
C. provide relevant and reliable information to users about product/service-related risks and returns.
D. all of the given answers.

29. The guidelines to determine that a segment is reportable in accordance with AASB 8 Operating Segments include:

A. the segment's external revenue is equal to or greater than 10 per cent of the external sales of all operating segments.
B. the expenses of the segment that relate to external sales are equal to or greater than 10 per cent of total segment expenses.
C. the segment's reported revenue, including both sales to external customers and intersegment sales or transfers, is 10 per cent or more of the combined revenue, internal and external, of all operating segments.
D. the expenses of the segment that relate to external sales are equal to or greater than 10 per cent of total segment expenses, and the segment's revenues are 10 per cent or more of the total segment revenues.

30. According to AASB 8, factors to be considered in aggregating operating segments include:

A. a similar production process.
B. exchange control regulations.
C. a common communications network.
D. a similar regulatory environment.

31. The guidelines to determine that a segment is reportable in accordance with AASB 8 Operating Segments include:

A. the segment's reported revenue, including external customers and intersegment sales or transfers, is 10 per cent or more of the combined revenue, internal and external, of all operating segments.
B. the segment's reported profit or loss is 10 per cent or more of the greater, in absolute amount, of (i) the combined reported profit of all operating segments that did not report a loss and (ii) the combined reported loss of all operating segments that reported a loss.
C. the segment's assets are 10 per cent or more of the combined assets of all operating segments.
D. all of the given answers are correct.

32. Which of the following characteristics of a segment is not considered reportable in AASB 8 Operating Segments?

A. Reported revenue, both external and internal, is 10 per cent or more of the combined revenue, both external and internal of all operating segments.
B. The absolute amount of its reported profit or loss is 10 per cent or more of the greater, in absolute amount, of (i) the combined reported profit of all operating segments that did not report a loss and (ii) the combined reported loss of all operating segments that reported a loss
C. Assets are 10 per cent or more of the combined assets of all operating segments.
D. Operating segments that do not meet any of the quantitative thresholds, but management believes that information about the segment would be useful to users of the financial statements.

33. In AASB 8 Operating Segments, which of the following is not a consideration in determining the operating segments of an entity?

A. Business activities from which an entity may earn revenues and incur expenses.
B. Component of an entity whose operating results are regularly reviewed by the entity's chief operating decision maker.
C. The entity's distribution and supply chain management system.
D. Component of an entity where discrete financial information is available.

AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 22-04 Understand how 'operating segments' are defined.
Section: Defining an operating segment
Topic: Defining an operating segment

34. The guidelines for determining that a segment is reportable in accordance with AASB 8 include:

A. the segment's equity is equal to or greater than 10 per cent of the total segment equity.
B. the expenses of the segment that relate to external sales are equal to or greater than 10 per cent of total segment expenses.
C. the segment's revenues are 10 per cent or more of the total segment revenues.
D. the expenses of the segment that relate to external sales are equal to or greater than 10 per cent of total segment expenses and the segment's revenues are 10 per cent or more of the total segment revenues.

35. The guidelines for determining that a segment is reportable in accordance with AASB 8 include:

A. its segment result, whether a profit or loss, is 10 per cent or more of the combined result of all segments that earned a profit or the combined result of all segments that incurred a loss, whichever is the greater absolute amount.
B. its segment result, if a profit, is 10 per cent or more of the combined result of all segments that made a profit, or if the segment made a loss, its loss is 10 per cent or more of the absolute amount of the total segment losses.
C. its segment result, whether a profit or loss, is 10 per cent or more of the absolute value of the combined results of all segments.
D. its segment result, whether a profit or loss, is 10 per cent or more of the combined result of all segments that earned a profit or the combined result of all segments that incurred a loss, whichever is the lesser absolute amount.

36. AASB 8 requires that:

A. reportable segments must individually constitute less than 75 per cent of the entity's total revenues.
B. the total revenues attributable to the reportable segments must be equal to or greater than 75 per cent of the entity's total revenues.
C. the total external revenues attributable to reportable segments must equal at least 75 per cent of the entity's total revenues.
D. the sum of the individual reportable segment's profits or losses must be equal to or greater than 75 per cent of the entity's absolute amount of profit or loss.

37. The following segment information relates to Tolkein Enterprises:

Applying the tests for identifying a reportable segment in accordance with AASB 8, which of the above segments qualify for reporting and do the segments satisfy the 75 per cent test?

A. mechanical engineering and retailing, 75 per cent test satisfied; no
B. industrial manufacturing, mechanical engineering and retailing, 75 per cent test satisfied; yes
C. project consulting, mechanical engineering and retailing, 75 per cent test satisfied; yes
D. industrial manufacturing, project consulting, mechanical engineering and retailing, 75 per cent test satisfied; no

AACSB: Reflective thinking
Difficulty: Hard
Learning Objective: 22-05 Be aware that information about an operating segment's profit or loss, assets and liabilities must be disclosed in the notes to a reporting entity's financial statements to the extent that the segments are deemed to be 'reportable' pursuant to AASB 8 Operating Segments.
Learning Objective: 22-06 Know how to determine whether a particular operating segment is of sufficient magnitude or importance to be deemed 'reportable'.
Section: Defining a reportable segment
Topic: Defining a reportable segment

38. Gollum Ltd provides the following segment information:

There are no inter-segment sales. Which of the segments are reportable applying only the segment result test?

A. industrial manufacturing, project consulting, retailing, agriculture; geographical segments: Australia, Pacific Islands, US
B. business segments: industrial manufacturing, project consulting; geographical segments: Australia
C. business segments: industrial manufacturing, project consulting, mechanical engineering, retailing, agriculture; geographical segments: Australia, Pacific Islands, US
D. business segments: industrial manufacturing, project consulting, agriculture; geographical segments: Australia, Pacific Islands

39. Gandulf Ltd provides the following segment information:

Which of the segments are reportable applying only the segment asset test?

A. business segments: industrial manufacturing, project consulting, mechanical engineering; geographical segments: Australia, US
B. business segments: industrial manufacturing, mechanical engineering; geographical segments: Australia
C. business segments: mechanical engineering; geographical segments: Australia
D. business segments: industrial manufacturing, project consulting, mechanical engineering, retailing, agriculture; geographical segments: Australia, US

40. Segment revenues do not include:

A. interest earned on loans to other segments.
B. interest or dividend income, unless the segment's operations are primarily of a financial nature.
C. joint venturer's revenues from its share of joint venture operations.
D. interest earned on loans to other segments and interest or dividend income, unless the segment's operations are primarily of a financial nature.

AACSB: Reflective thinking
Difficulty: Easy
Learning Objective: 22-05 Be aware that information about an operating segment's profit or loss, assets and liabilities must be disclosed in the notes to a reporting entity's financial statements to the extent that the segments are deemed to be 'reportable' pursuant to AASB 8 Operating Segments.
Learning Objective: 22-07 Be able to describe the disclosures to be made about an operating segment's products and services, reliance on major customers, and the entity's geographical dispersion pursuant to AASB 8.
Section: Required financial disclosures
Topic: Required financial disclosures

41. Segment expenses do not include:

A. joint venturer's expenses relating to the operation of joint venture operations.
B. losses on sales of investments or extinguishment of debt unless the segment's operations are primarily financial in nature.
C. income tax expense.
D. losses on sales of investments or extinguishment of debt unless the segment's operations are primarily financial in nature and before income tax expense.

42. According to AASB 8, segment assets are:

A. the net value of assets that are directly employed by a segment in its activities.
B. the gross value of assets attributable to the segment plus any share of centrally held assets that contribute to segment activities indirectly.
C. the current assets that constitute the working capital of the segment and are used directly in its activities plus any non-current assets specifically held for the purpose identified as the segment's business or geographical activity.
D. required to be disclosed by way of an explanation of how the assets are measured for each reportable item.

AACSB: Reflective thinking
Difficulty: Medium
Learning Objective: 22-03 Understand the disclosures required in relation to separate operating segments and know that segment disclosures provide information to enable a more informed assessment of the performance and associated risks of an organisation's various activities.
Section: An introduction to AASB 8
Topic: An introduction to AASB 8

43. AASB 8 is more:

A. rules based.
B. cost based.
C. principles based.
D. profit based.

44. AASB 8 requires entities to disclose information to enable users of its financial statements to:

A. ensure management is using the resources efficiently.
B. evaluate the nature and financial effects of the business activities the entity is engaged in.
C. better understand the geographical areas.
D. determine the liabilities relating to finance leases.

45. AASB 8 requires:

A. the segments to be identified as business segments or geographical segments.
B. the amount reported for each operating segment item to be the measure reported to the chief operating decision maker.
C. the reporting entity to determine its primary reporting format.
D. the segments to be based on the location of assets or location of customers.

46. AASB 8 requires a number of reconciliations to be presented, including:

A. total reportable segment financial expenses reconciled to total entity financial expenses.
B. total reportable segment revenues reconciled to total entity revenues.
C. total reportable segment assets reconciled to total entity assets.
D. total reportable segment revenues reconciled to total entity revenues and total segment assets reconciled to total entity assets.

47. AASB 8 requires reconciliation of reported segments' amounts to the entity's reported amount for which of the following items?

A. Dividend income.
B. Expenses.
C. Depreciation.
D. Liabilities.

48. The following segment information is presented for Hobbitt Ltd:

Which segments are reportable according to the guidelines provided in AASB 8?

A. retailing, light manufacturing, mining, marine transport, general insurance
B. retailing, marine transport
C. light manufacturing, mining, marine transport, general insurance
D. retailing, mining, marine transport

49. The following information is provided for Gandalf Ltd:

Which segments are reportable according to the guidelines provided in AASB 8?

A. retailing, marine transport, general insurance
B. retailing, heavy manufacturing, marine transport, general insurance
C. retailing, light manufacturing, marine transport, general insurance
D. retailing, light manufacturing, mining, marine transport, general insurance

50. According to AASB 8, 'where total external revenues attributable to reportable segments constitute less than 75 per cent of the entity's total revenues':

A. additional reportable segments must be identified in accordance with the definition of reportable segments, until at least 75 per cent of the entity's total revenues are included in reportable segments.
B. the entity reports those segments already identified as reportable, even though they constitute less than 75 per cent of the entity's total revenues.
C. additional segments must be identified as reportable segments, even if they do not qualify as reportable segments, until at least 75 per cent of the entity's total revenues are included in reportable segments.
D. the entity considers whether total external revenues attributable to reportable segments constitute greater than 75 per cent of the entity's total external revenues, and if so, report those segments already identified.

51. Consider the following list of operating segments and segment results for the current reporting period relating to Legolas Ltd, and answer the question below.

What is the minimum loss (rounded to the nearest $1000) that the publishing segment could have made for that segment to be considered a reportable segment according to AASB 8?

A. ($39 000)
B. ($114 000)
C. ($103 000)
D. ($142 000)

52. Consider the following list of operating segments and segment assets for the current reporting period relating to Arwen Ltd, and answerthe question below.

What is the minimum asset amount (rounded to the nearest $1000) that the fast food segment should have for that segment to be considered a reportable segment according to AASB 8?

A. $83 000
B. $106 000
C. $174 000
D. $184 000

53. The following information relates to Aragorn Ltd and its Mordor segment:

In which years would the Mordor segment be classified as a reportable segment according to AASB 8?

A. 2011, 2013 and 2015
B. 2011, 2012, 2013 and 2015
C. 2012, 2013, 2014 and 2015
D. 2013 and 2015

54. In accordance with AASB 8, an operating segment is a component of an entity:

A. that engages in business activities from which it may earn revenues and incur expenses.
B. whose operating results are regularly reviewed by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and asses its performance.
C. for which discrete financial information is available.
D. all of the given answers are correct.

55. Information about operating segments that do not meet any of the quantitative thresholds:

A. should be ignored.
B. shall be combined and disclosed in an 'all other segments' category.
C. should be combined with other segments that exhibit similar economic characteristics.
D. all of the given answers are correct.

56. The following information relates to All Industrials Ltd and its operating segment (in $000s):

Which operating segments are considered to be reportable under AASB 8 using the segment revenue qualitative threshold?

A. all segments
B. retail and agriculture
C. retail, agriculture and brewing
D. retail, agriculture and chemicals

57. The following information relates to All Industrials Ltd and its operating segment (in $000s):

Which operating segments are considered to be reportable under AASB 8 using the absolute amount of its reported profit or loss qualitative threshold?

A. all segments
B. retail and agriculture
C. retail, agriculture and brewing
D. retail, agriculture and chemicals

58. The following information relates to All Industrials Ltd and its operating segment (in $000s):

Which operating segments are considered to be reportable under AASB 8 using the segment asset qualitative threshold?

A. all segments
B. retail and agriculture
C. retail, agriculture and brewing
D. retail, agriculture and chemicals

59. Which of the following is not likely to be a 'chief operating decision maker' as referred to in AASB 8 Operating Segments?

A. executive committee of the board
B. chief executive officer
C. chief operating officer
D. chief accountant

AACSB: Reflective thinking
Difficulty: Medium
Learning Objective: 22-04 Understand how 'operating segments' are defined.
Section: Defining an operating segment
Topic: Defining an operating segment

60. In accordance with AASB 8 Operating Segments, which of the following statements is incorrect?

A. If the total external revenue reported by operating segments constitutes less than 75 per cent of the entity's revenue, additional operating segments shall be identified as reportable segments until at least 75 per cent of the entity's revenue is included in reportable segments.
B. Operating segments that are not reportable are combined and disclosed as part of 'all other segments'.
C. If management judges that an operating segment identified as a reportable segment in the immediately preceding period is of continuing significance, information about that segment shall continue to be reported separately in the current period even if it no longer meets the criteria for a reportable segment.
D. Identification of operating segments in AASB 8 Operating Segments adopts a 'rules-based' approach, while its predecessor AASB 114 Segment Reporting adopted a 'principles-based' approach.

61. In accordance with AASB 8 Operating Segments, which of the following statements is incorrect?

A. The standard requires an entity to report financial and descriptive information about its reportable segments.
B. Reportable segments are operating segments or aggregations of operating segments that meet specified criteria.
C. The standard requires an entity to report a measure of operating segment profit or loss and of segment assets.
D. Reportable segments exclude business activities for which it has yet to earn revenues (e.g. start-up operations).

62. The following information relates to Gimli Ltd and its Elrond segment:

In accordance with AASB 8 Operating Segments, in which years is the Elrond segment a reportable segment?

A. 2011, 2012 and 2013
B. 2012, 2013 and 2014
C. 2012 and 2014
D. 2011 and 2015

63. The following information relates to Baggins Ltd and its Bilbo segment:

In accordance with AASB 8 Operating Segments, in which years is the Bilbo segment a reportable?

A. 2011, 2012 and 2013
B. 2012, 2013 and 2014
C. 2011 and 2012
D. 2013 and 2014

64. The following information relates to Sam Ltd and its Eomer segment:

In accordance with AASB 8 Operating Segments, in which years is the Eomer segment a reportable segment?

A. 2011, 2012 and 2013
B. 2011, 2014 and 2015
C. 2011 and 2014
D. 2012 and 2013

65. One of the advantages of AASB segment reporting is?

A. All segments are reportable.
B. Provides full disclosure of the entity's activities.
C. Highlights the performance of the different entity activities.
D. Increased rules-based reporting.

AACSB: Reflective thinking
Difficulty: Medium
Learning Objective: 22-03 Understand the disclosures required in relation to separate operating segments and know that segment disclosures provide information to enable a more informed assessment of the performance and associated risks of an organisation's various activities.
Section: Advantages and disadvantages of segment reporting
Topic: Advantages and disadvantages of segment reporting

66. Edwards and Smith (1996) found that one of the main reasons companies resisted segment disclosures is:

A. there are unreasonable costs to prepare disclosures.
B. investors were not interested in additional information.
C. the financial report had sufficient information for users.
D. it means a competitive disadvantage.

AACSB: Reflective thinking
Difficulty: Medium
Learning Objective: 22-03 Understand the disclosures required in relation to separate operating segments and know that segment disclosures provide information to enable a more informed assessment of the performance and associated risks of an organisation's various activities.
Section: Advantages and disadvantages of segment reporting
Topic: Advantages and disadvantages of segment reporting

67. AASB 8 requires reconciliation of reported segments' amounts to the entity's reported amount for which of the following items?

A. Dividend income.
B. Expenses.
C. Depreciation.
D. Revenues.

AACSB: Reflective thinking
Difficulty: Medium
Learning Objective: 22-07 Be able to describe the disclosures to be made about an operating segment's products and services, reliance on major customers, and the entity's geographical dispersion pursuant to AASB 8.
Section: Reconciliation of segment information to financial statements
Topic: Reconciliation of segment information to financial statements

68. AASB 8 requires which of the following information to be disclosed about major customers?

A. Customer identity.
B. Revenues when greater that 10 per cent of an entity's revenue.
C. Amount of revenues for each segment.
D. Revenue history.

69. Which of the following is not about IFRS 8 and AASB 8?

A. IFRS 8 was issued as part of the ongoing process to converge IASB standards with the US accounting standards.
B. Segment information may be useful to investors who wish to use ethical guidelines about which industries or countries they invest in.
C. AASB 8 specifies that a geographical segment cannot include more than two countries.
D. Research has shown that companies do provide segment information even when it is not required by accounting regulations.

AACSB: Reflective thinking
Difficulty: Hard
Learning Objective: 22-03 Understand the disclosures required in relation to separate operating segments and know that segment disclosures provide information to enable a more informed assessment of the performance and associated risks of an organisation's various activities.
Section: An introduction to AASB 8
Topic: An introduction to AASB 8

70. Bridgeview Ltd's reportable segments are based on the different products and services it provides. Which of the following is

about the required disclosures?
A. No additional disclosures of revenue information about products and services.
B. Extensive disclosures of revenue information about products and services.
C. Disclosures of revenue information about products only.
D. Disclosure of revenue information about services only.

AACSB: Reflective thinking
Difficulty: Medium
Learning Objective: 22-07 Be able to describe the disclosures to be made about an operating segment's products and services, reliance on major customers, and the entity's geographical dispersion pursuant to AASB 8.
Section: Required financial disclosures
Topic: Required financial disclosures

71. Which of the following about segment disclosures is ?

A. When an entity has various segments involved in diverse activities, segment data enables users of financial statement to better predict future profitability.
B. Prior research suggests that managers provide segment data only when the accounting standards require them to do so.
C. If a firm diversifies into segments with high correlations among its profit streams, the aggregated figure is simply a composite of the segments and it may not provide useful information for the estimation of future profits.
D. Providing segment data reduces the accountability of managers and may reduce their ability to attract additional investment funds.

AACSB: Analytic
Difficulty: Easy
Learning Objective: 22-03 Understand the disclosures required in relation to separate operating segments and know that segment disclosures provide information to enable a more informed assessment of the performance and associated risks of an organisation's various activities.
Section: Advantages and disadvantages of segment reporting
Topic: Advantages and disadvantages of segment reporting

72. Which of the following is correct about Aitken, Hooper and Pickering (1997)'s arguments?

A. Segment disclosures are often necessary if driven by concerns about the dissimilarity of profit streams rather than the underlying activities themselves.
B. The higher the correlation between the profit streams of a firm's various segments, the more useful segment information is likely to be to investors.
C. Segment information is considered to be of least benefit when a firm's diversification is such that an investor's knowledge of the earnings stream of one industry in which the firm operates will not provide knowledge about the earnings stream of the other industries.
D. Management will have more incentive to provide segment disclosures for related industries owing to a lack of information value in such disclosures.

73. Which of the following is not a disadvantage of segment reporting?

A. Providing segment data enables managers to show greater accountability and may be an effective way to attract additional investment funds.
B. Management might be less inclined to take business risks in particular segments if the results of each segment's operations are made visible to financial statement readers
C. Disclosure of segment data might result in competitors having access to information about the profitability of particular segments of an organisation.
D. Segment data might also encourage new entrants into the industry.

Chapter 22 Testbank Summary

Category	# of Questions
AACSB: Analytic	3
AACSB: Ethics	1
AACSB: Reflective thinking	69
Difficulty: Easy	37
Difficulty: Hard	4
Difficulty: Medium	32
Learning Objective: 22-01 Understand that consolidated financial statements provide an aggregated view of the financial performance and financial position of business operations from various industries and geographical locations.	6
Learning Objective: 22-02 Understand that to avoid information loss, the consolidated financial statements need to be supplemented by additional disclosures pertaining to the various operating segments in which an organisation operates.	2
Learning Objective: 22-03 Understand the disclosures required in relation to separate operating segments and know that segment disclosures provide information to enable a more informed assessment of the performance and associated risks of an organisation's various activities.	22
Learning Objective: 22-04 Understand how 'operating segments' are defined.	2
Learning Objective: 22-05 Be aware that information about an operating segment's profit or loss, assets and liabilities must be disclosed in the notes to a reporting entity's financial statements to the extent that the segments are deemed to be 'reportable' pursuant to AASB 8 Operating Segments.	36
Learning Objective: 22-06 Know how to determine whether a particular operating segment is of sufficient magnitude or importance to be deemed 'reportable'.	31
Learning Objective: 22-07 Be able to describe the disclosures to be made about an operating segment's products and services, reliance on major customers, and the entity's geographical dispersion pursuant to AASB 8.	10
Section: Advantages and disadvantages of segment reporting	16
Section: An introduction to AASB 8	10
Section: Defining a reportable segment	32
Section: Defining an operating segment	2
Section: Measurement of segment items	3
Section: Non-financial disclosures	3
Section: Reconciliation of segment information to financial statements	4
Section: Required financial disclosures	3
Topic: Advantages and disadvantages of segment reporting	16
Topic: An introduction to AASB 8	10
Topic: Defining a reportable segment	32
Topic: Defining an operating segment	2
Topic: Measurement of segment items	3
Topic: Non-financial disclosures	3
Topic: Reconciliation of segment information to financial statements	4
Topic: Required financial disclosures	3

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Chapter 22 Consolidation controlled entities

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