Test Bank 9e | Segment Reporting

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Chapter 22 Testbank

1. At the time IFRS 8 was being developed, there was a project in place to converge the accounting standards being released in the US by the Financial Accounting Standards Board (FASB) with those being released by the IASB.

True   False

2. In addressing concerns about competitive disadvantage, it should be appreciated that competitors have no sources of detailed information about an organisation other than the financial statements.

True   False

3. The term 'chief operating decision maker' identifies a function which is undertaken necessarily by a manager with a specific title.

True   False

4. Across time, an entity's operating segments may grow or contract relative to the sizes of other operating segments, and this has implications for identifying reportable segments.

True   False

5. While arguments relating to competitive harm suggest that organisations might want to limit their disclosure, there is evidence that many organisations are actually disclosing more segment-related information than the accounting standard requires.

True   False

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

A. financial statements would otherwise not show a reliable financial position.

B. it is nevertheless prepared for internal purposes.

C. preparation of the segment information is not a costly process.

D. it demonstrates a greater level of accountability that may attract investment funds.

7. The advantages of segment data include:

A. it highlights the performance of the various parts of an organisation.

B. managers are able to demonstrate greater accountability which might be an effective way to attract additional investment funds.

C. it enables users of financial statements to better predict the future profitability of an organisation.

D. All of the given answers are correct.

8. The following segment information relates to Tolkien Enterprises:

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

A. Industrial, mechanical and retailing; 75 per cent test satisfied

B. Industrial, project consulting, mechanical and retailing; 75 per cent test NOT satisfied

C. Mechanical and retailing; 75 per cent test NOT satisfied

D. Project consulting, mechanical and retailing; 75 per cent test satisfied

9. In AASB 8, segment assets are:

A. defined as the net value of assets that are directly employed by a segment in its activities

B. defined as the gross value of assets attributable to the segment plus any share of centrally held assets that contribute to segment activities indirectly

C. defined as 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. not specifically defined

10. AASB 8 requires that:

A. all segments to be identified shall be in accordance with entity's products and services

B. the amount reported for each operating segment item is the measure reported to the chief operating decision maker

C. the amount reported for each operating segment shall be measured according to the rules provided under AASB 8

D. all segments are to be based on the location of assets or location of customers

11. 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. However, the company is required to make a specific disclosure highlighting the fact

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. then all the remaining segments are included in the reportable segments

12. What is one of the advantages of AASB segment reporting?

A. All segments become reportable.

B. It provides full disclosure of the entity's activities.

C. It highlights the performance of the different activities of an entity.

D. It increases rules-based reporting.

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

A. there are unreasonable costs associated with preparing disclosures.

B. investors were not interested in the additional information.

C. providing segment information would be misleading for users.

D. providing segment information would result in competitive disadvantage.

14. Which of the following statements about segment disclosures is true?

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 segments may not provide useful information for the estimation of future profits.

D. Providing segment data demonstrates the lack of accountability of managers and may reduce their ability to attract additional investment funds.

15. Many users, particularly ___________, have a right to specific financial information about operating segments, as well as the entity-wide information (geographical, product-related and reliance on major customers) required by AASB 8.

A. shareholders

B. general public

C. creditors

D. management

16. SFAS 131 (upon which AASB 8 is based) was developed in ___________.

A. Australia

B. the USA

C. India

D. the UK

17. According to the Basis for Conclusions that accompanied the release of SFAS 131, the Board noted that concerns about competitive harm were addressed to the extent feasible by the following changes made during re-deliberations, EXCEPT:

A. changing second-level disclosure requirements about products and services and geography from an enterprise-wide basis to a segment basis

B. adding quantitative materiality thresholds for identifying reportable segments

C. eliminating the requirements to disclose research and development expense and liabilities by segment

D. changing the second-level disclosure requirements about products and services and geography from a segment basis to an enterprise-wide basis

18. AASB 8 is based largely on the ___________________ SFAS 131 Disclosures about Segments of an Enterprise and Related Information.

A. United States accounting standard

B. Australian accounting standard

C. Gulf accounting standard

D. Indian accounting standard

19. ___________________ Operating Segments was initially released in 2007 and replaces AASB 114 Segment Reporting.

A. AASB 8

B. AASB 116

C. AASB 102

D. AASB 120

20. The two fundamental qualitative characteristics of useful financial information are identified within the Conceptual Framework as relevance and _________________.

A. representational faithfulness

B. timeliness

C. materiality

D. responsiveness

21. The Basis for Conclusions released with SFAS 131 comments that 'it is apparent that users are willing to trade a degree of ____________ in segment information for more relevant information'.

A. reliability

B. clarity

C. timeliness

D. flexibility

22. Operating segments often exhibit similar __________ financial performance if they have _________ economic characteristics.

A. short-term; similar

B. long-term; similar

C. short-term; varying

D. long-term; dissimilar

23. If a reporting entity's reportable segments are based on differences in products and services, which of the following would typically be required?

A. No additional disclosures of revenue information about products and services

B. Comprehensive disclosures of revenue information about products and services

C. Some additional disclosure of revenue information about products and services

D. Comprehensive disclosure of revenue information if the cost to develop it is not excessive

24. While arguments relating to competitive harm suggest that organisations might want to limit their disclosure, there is evidence that many organisations are actually disclosing ______________________ than the accounting standard requires.

A. more segment-related information

B. less segment-related information

C. no segment-related information

D. limited information

25. Explain whether AASB 8 also requires disclosure of non-financial information in addition to financial information disclosures.

______________________________________________________________________________

26. Discuss the specific financial information items that must be disclosed in relation to operating segments.

______________________________________________________________________________

27. What is meant by consolidated statement of financial position?

______________________________________________________________________________

28. What is meant by an operating segment?

______________________________________________________________________________

29. What is a reportable segment?

______________________________________________________________________________

30. Is there a requirement to disclose any information about an organisation's products or services, its major customers or the geographic location of its operations?

______________________________________________________________________________

31. Why is it necessary to know about an organisation's reliance on major customers, or the geographical regions in which an entity operates?

______________________________________________________________________________

32. Why is it important to know how segment items are measured?

______________________________________________________________________________

33. Why is it necessary to know about operating segments?

______________________________________________________________________________

34. For the purpose of AASB 8, what is the major focus of the chief operating decision maker?

______________________________________________________________________________

35. What do we understand as the position of 'chief operating decision maker'?

______________________________________________________________________________

Chapter 22 Testbank