Focus on: Segment Reporting—Module 20
SEGMENT REPORTING
Definition of Segments
Segments identified using management approach:
- Component earns revenue and incurs expenses
- Separate information is available
- Component is evaluated regularly by top management
Reportable Segments—Three Tests
- Combine profits for all profitable segments
- Combine losses for all losing segments
- Select larger amount
- Segments profit or loss ≥ 10% of larger amount
Disclosures for Reportable Segments
Segment profit or loss
- Segment revenues include intersegment sales
- Deduct traceable operating expenses and allocated indirect operating expenses
- Do not deduct general corporate expenses
Segment revenues
Segment assets
Interest revenue & expense
Depreciation, depletion, & amortization
Other items
PARTNERSHIP
Admitting a Partner
Calculating the Contribution—No Goodwill or Bonus
Journal entry:
| Cash | xxx | |
New partner’s equity |
xxx |
Excess Contribution by New Partner—Bonus Method
| Partnership equity (before new partner’s contribution) | |
| + New partner’s contribution | New partner’s contribution |
| = Total capital after contribution | |
| × New partner’s percentage | |
| = New partner’s capital | – New partner’s capital |
| = Bonus to existing partners |
Journal entry:
| Cash (new partner’s contribution) | xxx | |
Capital, new partner (amount calculated) |
xxx | |
Capital, existing partners (bonus amount) |
xxx |
Bonus is allocated to existing partners using their profit and loss percentages
Excess Contribution by New Partner—Goodwill Method
Journal entry:
| Cash (new partner’s contribution) | xxx | |
Capital, new partner (new partner’s contribution) |
xxx | |
| Goodwill (amount calculated) | xxx | |
Capital, existing partners |
xxx |
Goodwill is allocated to existing partners using their profit and loss percentages
Contribution Below New Partner’s Capital—Bonus Method
Journal entry:
| Cash (new partner’s contribution) | xxx | |
| Capital, existing partners (bonus amount) | xxx | |
Capital, new partner (amount calculated) |
xxx |
Bonus is allocated to existing partners using their profit and loss percentages
Contribution Below New Partner’s Capital—Goodwill Method
Journal entry:
| Cash (new partner’s contribution) | xxx | |
| Goodwill (amount calculated) | xxx | |
Capital, new partner (total) |
xxx |
Retiring a Partner
Payment Exceeds Partner’s Balance—Bonus Method
| Capital, retiring partner (existing balance) | xxx | |
| Capital, remaining partners (Difference – Bonus) | xxx | |
Cash (amount paid) |
xxx |
Bonus to new partner is allocated to existing partners using their profit and loss percentages
Payment Exceeds Partner’s Balance—Goodwill Method
Journal entries:
| Goodwill (amount calculated) | xxx | |
Capital, all partners |
xxx |
Goodwill is allocated according to the partners’ profit and loss percentages
| Capital, retiring partner | xxx | |
Cash (amount paid to retiring partner) |
xxx |
Partnership Liquidation—Five Steps
FOREIGN CURRENCY
Foreign Currency Transactions
Receivable or payable
- Record at spot rate
- Adjust to new spot rate on each financial statement date
Journal entry:
| Receivable or payable | xxx | |
Foreign currency transaction gain |
xxx | |
OR |
||
| Foreign currency transaction loss | xxx | |
Receivable or payable |
xxx |
Gain or loss = Change in spot rate × Receivable or payable (in foreign currency)
Forward Exchange Contracts
All gains and losses measured using forward rate—Rate expected to be in effect when settled
Hedge—Protection against change in exchange rate related to existing receivable or payable
- Change in forward rate results in gain or loss on hedge
- This will approximately offset loss or gain on change in spot rate on receivable or payable
Special hedge contracts:
- Hedge of foreign currency investment—Gains or losses reported in equity are excluded from net income but included in comprehensive income
- Hedge of foreign commitment—Gain or loss deferred and offset against transaction
Speculative contracts—Entered into in anticipation of change in rate
- Change in forward rate results in gain or loss
Foreign Currency Financial Statements
Conversion to U.S. $:
Functional Currency—Currency of primary economic environment in which entity operates.
- Translate from local currency to U.S. $
- Remeasure from local currency to U.S. $
- Remeasure from local currency to functional currency
- Translate from functional currency to U.S. $
Remeasurement and Translation
| Remeasurement | Translation |
| Historical rate: | Rate at balance sheet date:* |
Nonmonetary assets and liabilities |
Assets and liabilities |
Contributed capital accounts |
Rate in effect on transaction date |
Revenue and expense accounts |
(or weighted-average rate for period): |
| Current rate: | Revenues and expenses |
All other items |
Gains and losses |
| Difference: | Difference: |
Remeasurement gain or loss |
Translation gain or loss |
Reported on income statement |
Component of stockholders’ equity |
Excluded from net income |
|
Included in comprehensive income |
* NOTE: To prepare a translated statement of cash flows, the assets and liabilities must be translated at the weighted-average rate, not the rate at the balance sheet date.
INTERIM FINANCIAL STATEMENTS
General Rules
Special Rules
Inventory Losses
Expected to recover within annual period
- Not recognized in interim period
- Offset against recovery in subsequent interim period
- Recognized when clear that recovery will not occur
Not expected to recover within annual period
- Recognized in interim period
- Recovery in subsequent interim period recognized
Income Taxes
Estimate of rate that applies to annual period
Other Items
Property taxes—Allocated among interim periods
Repairs and maintenance
- Generally recognized in interim period when incurred (including major repairs)
- Allocated to current and subsequent interim periods when future benefit results
Disposal of a segment—Recognized in interim period in which it occurs
Extraordinary item—Recognized in interim period in which it occurs
IFRS: Interim
- Discrete report, therefore use same accounting policies as in year-end financial statements
- Not required
PERSONAL FINANCIAL STATEMENTS
Basic Statements
Statement of Financial Condition
Statement of Changes in Net Worth
Principles Applied
Assets and liabilities—Reported at fair market values
Business interests—Reported as single amount
Real estate
- When operated as business—Reported net of mortgage
- When not operated as business—Asset and mortgage reported separately
Retirement plans
- Contributions and earnings on contributions by employee included
- Contributions and earnings on contributions by employer included to extent vested
Life insurance—Cash surrender value minus borrowings against policy
Income taxes—Two components:
Other liabilities
- Current payoff amount, if available
- Otherwise, present value of future payments