Question Tag: Segment Reporting

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  • 16 Marks

CR – May 2021 – L3 – Q2b – Segment Reporting (IFRS 8)

Apply IFRS 8 principles to segment information and discuss disclosure requirements.

The advisors of Amaka Limited have requested various types of information from the company to facilitate the preparation of a prospectus and other financial information in view of the fact that Amaka Limited is about to be listed on the Nigerian Stock Exchange.

As the Chief Accountant of the company, the CEO has requested that you provide the advisors with necessary information about your company that you use to allocate resources and assess performance of the company in year 2019.

You have therefore identified the following potential segments that could be reported on, based on the areas of location of the company’s operations in West Africa.

Location Revenue (N’000) Profit/(Loss) (N’000) Assets (N’000) Liabilities (N’000)
Gambia 93,600 19,440 98,460 75,600
Ghana 25,200 (7,740) 14,400 13,500
Nigeria 317,340 21,240 258,210 74,970
Togo 41,400 (1,440) 21,600 14,400
Total 477,540 31,500 392,670 178,470

Required:

i. Explain how the principles highlighted in (a) above would be applied to Amaka Limited using the information provided. (12 Marks)
ii. Discuss other disclosure requirements which Amaka Limited should include in the financial statements for the year ended December 31, 2019 as required by IFRS 8. (4 Marks)

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  • 15 Marks

CR – Nov 2018 – L3 – SC – Q7 – Segment Reporting (IFRS 8)

Guidance on segment reporting and revenue recognition for long-term contracts for Agbero Plc’s operating and contract revenue.

a. Agbero plc is a public company rendering services to the Lagos State Government, primarily in public transport. Listed on the Lagos Stock Exchange, Agbero plc identified three operating segments in its annual financial statements for the year ended March 31, 2018:

  • Segment 1: Local bus operations
  • Segment 2: Inter-city bus operations
  • Segment 3: Road constructions

The company disclosed two reportable segments. Segments 1 and 2 were aggregated into a single reportable operating segment, based on similar business characteristics, and the nature of their products and services. In the local bus operations market, the Lagos State Transport Authority awards the contract and pays Agbero for its services. Contracts for local bus operations are awarded via a competitive tender process, and ticket prices are set and paid to the Lagos State Transport Authority. In the inter-city bus operation market, Agbero sets the ticket prices, and passengers pay Agbero directly for the service.

Required:

i. Advise Agbero plc on how the above accounting issues should be dealt with in its financial statements. (6 Marks)

ii. Although the company is satisfied with IFRS 8 – Operating Segment, it is unclear who to designate as the chief operating decision maker (CODM) under the standard. Define the chief operating decision maker in line with IFRS 8 – Operating Segment and identify who this should be in Agbero plc. (2 Marks)

b. Agbero Plc entered a contract with the Lagos State Government on April 1, 2016, to construct a new light railway line. The contract total revenue is N5 billion over a three-year period. The contract specifies that N1 billion will be paid at the start of the contract, but subsequent payments will be settled only upon completion of the project. Invoices have been sent as follows:

  • Year ended March 31, 2017: N2.8 billion
  • Year ended March 31, 2018: N1.2 billion
  • Remaining balance to be invoiced on March 31, 2019

To date, Agbero Plc has only recognized the initial payment in the financial statements up to March 31, 2017, as no subsequent payments are due until March 31, 2019. The invoiced amounts reflect the work completed in each period.

Required:

Agbero Plc. wishes to know how to account for the revenue on the contract in the financial statements to date. Advise Agbero Plc. Market interest rates are currently at 6%. (7 Marks)

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  • 20 Marks

CR – Nov 2023 – L3 – SB – Q3 – Segment Reporting (IFRS 8)

Guidance on segment reporting and accounting for a conditional building asset transfer and related costs.

Puppsy PLC had identified the following segments in its annual financial statements for the year ended September 30, 2020:

i. Segment A
ii. Segment B
iii. Segment C

The company disclosed two reportable segments. Segments A and B were aggregated into a single reportable operating segment. Operating segments A and B have been aggregated on the basis of their similar basic features and the nature of their goods and services. In the local train market, it is the local transport authority which awards the contract and pays Puppsy PLC for its services. In the local train market, contracts are awarded following a competitive tender process, and the ticket prices paid by passengers are set by and paid to the transport authority. In the inter-city train market, ticket prices are set by Puppsy PLC, and the passengers pay Puppsy PLC for the service provided.

Required:
Advise Puppsy PLC on how the above issues should be dealt with in its financial statements for the year ended September 30, 2020.
(10 Marks)

b. Puppsy PLC was given a building by a private person in August 2018. The benefactor of the building included a condition that the building must be brought into use as a train museum in the interests of the local community or the asset (or a sum equivalent to the fair value of the asset) must be returned. The fair value of the asset was N7.5 million in August 2019. Puppsy PLC took over the building in November 2018.

However, the company could not utilize the building in accordance with the condition until August 2019 as the building needed some renovation and adaptation and in order to abide with the condition attached to it. Puppsy PLC spent N2.5 million on renovation and adaptation.

Required:
Advise Puppsy PLC on the appropriate accounting treatment for the building and the costs incurred in preparing it for use in its financial statements for the year ended September 30, 2020.
(5 Marks)

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  • 16 Marks

CR – May 2021 – L3 – Q2b – Segment Reporting (IFRS 8)

Apply IFRS 8 principles to segment information and discuss disclosure requirements.

The advisors of Amaka Limited have requested various types of information from the company to facilitate the preparation of a prospectus and other financial information in view of the fact that Amaka Limited is about to be listed on the Nigerian Stock Exchange.

As the Chief Accountant of the company, the CEO has requested that you provide the advisors with necessary information about your company that you use to allocate resources and assess performance of the company in year 2019.

You have therefore identified the following potential segments that could be reported on, based on the areas of location of the company’s operations in West Africa.

Location Revenue (N’000) Profit/(Loss) (N’000) Assets (N’000) Liabilities (N’000)
Gambia 93,600 19,440 98,460 75,600
Ghana 25,200 (7,740) 14,400 13,500
Nigeria 317,340 21,240 258,210 74,970
Togo 41,400 (1,440) 21,600 14,400
Total 477,540 31,500 392,670 178,470

Required:

i. Explain how the principles highlighted in (a) above would be applied to Amaka Limited using the information provided. (12 Marks)
ii. Discuss other disclosure requirements which Amaka Limited should include in the financial statements for the year ended December 31, 2019 as required by IFRS 8. (4 Marks)

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  • 15 Marks

CR – Nov 2018 – L3 – SC – Q7 – Segment Reporting (IFRS 8)

Guidance on segment reporting and revenue recognition for long-term contracts for Agbero Plc’s operating and contract revenue.

a. Agbero plc is a public company rendering services to the Lagos State Government, primarily in public transport. Listed on the Lagos Stock Exchange, Agbero plc identified three operating segments in its annual financial statements for the year ended March 31, 2018:

  • Segment 1: Local bus operations
  • Segment 2: Inter-city bus operations
  • Segment 3: Road constructions

The company disclosed two reportable segments. Segments 1 and 2 were aggregated into a single reportable operating segment, based on similar business characteristics, and the nature of their products and services. In the local bus operations market, the Lagos State Transport Authority awards the contract and pays Agbero for its services. Contracts for local bus operations are awarded via a competitive tender process, and ticket prices are set and paid to the Lagos State Transport Authority. In the inter-city bus operation market, Agbero sets the ticket prices, and passengers pay Agbero directly for the service.

Required:

i. Advise Agbero plc on how the above accounting issues should be dealt with in its financial statements. (6 Marks)

ii. Although the company is satisfied with IFRS 8 – Operating Segment, it is unclear who to designate as the chief operating decision maker (CODM) under the standard. Define the chief operating decision maker in line with IFRS 8 – Operating Segment and identify who this should be in Agbero plc. (2 Marks)

b. Agbero Plc entered a contract with the Lagos State Government on April 1, 2016, to construct a new light railway line. The contract total revenue is N5 billion over a three-year period. The contract specifies that N1 billion will be paid at the start of the contract, but subsequent payments will be settled only upon completion of the project. Invoices have been sent as follows:

  • Year ended March 31, 2017: N2.8 billion
  • Year ended March 31, 2018: N1.2 billion
  • Remaining balance to be invoiced on March 31, 2019

To date, Agbero Plc has only recognized the initial payment in the financial statements up to March 31, 2017, as no subsequent payments are due until March 31, 2019. The invoiced amounts reflect the work completed in each period.

Required:

Agbero Plc. wishes to know how to account for the revenue on the contract in the financial statements to date. Advise Agbero Plc. Market interest rates are currently at 6%. (7 Marks)

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  • 20 Marks

CR – Nov 2023 – L3 – SB – Q3 – Segment Reporting (IFRS 8)

Guidance on segment reporting and accounting for a conditional building asset transfer and related costs.

Puppsy PLC had identified the following segments in its annual financial statements for the year ended September 30, 2020:

i. Segment A
ii. Segment B
iii. Segment C

The company disclosed two reportable segments. Segments A and B were aggregated into a single reportable operating segment. Operating segments A and B have been aggregated on the basis of their similar basic features and the nature of their goods and services. In the local train market, it is the local transport authority which awards the contract and pays Puppsy PLC for its services. In the local train market, contracts are awarded following a competitive tender process, and the ticket prices paid by passengers are set by and paid to the transport authority. In the inter-city train market, ticket prices are set by Puppsy PLC, and the passengers pay Puppsy PLC for the service provided.

Required:
Advise Puppsy PLC on how the above issues should be dealt with in its financial statements for the year ended September 30, 2020.
(10 Marks)

b. Puppsy PLC was given a building by a private person in August 2018. The benefactor of the building included a condition that the building must be brought into use as a train museum in the interests of the local community or the asset (or a sum equivalent to the fair value of the asset) must be returned. The fair value of the asset was N7.5 million in August 2019. Puppsy PLC took over the building in November 2018.

However, the company could not utilize the building in accordance with the condition until August 2019 as the building needed some renovation and adaptation and in order to abide with the condition attached to it. Puppsy PLC spent N2.5 million on renovation and adaptation.

Required:
Advise Puppsy PLC on the appropriate accounting treatment for the building and the costs incurred in preparing it for use in its financial statements for the year ended September 30, 2020.
(5 Marks)

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