Lecture Notes: Interim Financial Reporting and Reporting by Operating Segments

Introduction

• Lecturer: Kevin Troy Mchua
• Lesson Focus: Interim Financial Reporting, Reporting by Operating Segments
• Goals:
  • Explain interim financial reporting
  • Explain basic principles
  • Prepare interim financial reports
  • Describe segment reporting principles
  • Identify reportable segments using asset test, revenue test, operating result test

Key Concepts

Interim Financial Reporting (IAS 34)

• Definition: A period shorter than a full financial year
• Reports: Can be complete set or condensed financial statements
• Minimum Components:
  • Condensed statement of financial position
  • Condensed statement(s) of profit or loss and other comprehensive income
  • Condensed statement of changes in equity
  • Condensed statement of cash flows
  • Selected explanatory notes
• Requirements:
  • Follow IAS 1 if complete set of financial statements is published
  • For condensed reports, include headings, subtotals, explanatory notes
  • Update significant changes from last annual report

Disclosure Requirements

• Events like inventory write-downs, asset impairments, etc.
• Related party transactions
• Changes in financial asset/liability classifications
• Contingent liabilities or assets

Materiality

• Decided in relation to interim period data
• Greater reliance on estimates than annual reports
• Same accounting policies as annual reports

Operating Segments (IFRS 8)

• Purpose: Provide info on products/services and geographical areas
• For Publicly Traded Companies: Required if equity/debt securities are publicly traded
• Operating Segment: Engages in business activities, reviewed by chief operating decision maker, has discrete financial info
• Management Approach: Identifies segments based on management's internal reporting

Reportable Segments

• Quantitative Thresholds:
  • Revenue: ≥ 10% of total internal/external revenue
  • Profit/Loss: ≥ 10% of combined profit or loss
  • Assets: ≥ 10% of total assets
• Additional Considerations:
  • Aggregate external revenues should be ≥ 75% of total external revenues
• Comparability: Historical segment information disclosed if applicable

Practice Problems

Problem 1: Loss and Expenses

• Scenario: Calculate total losses and expenses for Q1
• Solution: Include insurance (allocated), losses from typhoon, inventory write-down

Problem 2: Uneven Costs

• Scenario: Advertising and bonuses
• Solution: Allocate bonuses based on percentage, report advertising expense fully if incurred in one period

Problem 3: Expense Allocation

• Scenario: Total expenses calculation
• Solution: Separate fixed and variable expenses, allocate advertising and depreciation evenly

Problem 4: Income Statement Analysis

• Scenario: Third quarter income statement
• Solution: Allocate sales, cost of goods sold, variable and fixed expenses proportionally

Conclusion

• Next Lesson: Accounting for the Collection of Errors
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Reminder: To understand segment reporting thoroughly, focus on the quantitative thresholds and ensure compliance with both IAS 34 and IFRS 8 standards.