Topic: Segment Reporting (IFRS 8)

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  • 7 Marks

CR – May 2023 – L3 – Q7b – Segment Reporting (IFRS 8)

Advise on reportable operating segments based on IFRS 8 criteria for Jafuwara PLC

Jafuwara PLC is a public limited company trading in six business areas, each reported separately in its internal accounts provided to the Chief Operating Decision Maker (CODM). The results of these segments for the year ended December 31, 2021, are as follows:

Operating Segment Information as at Dec. 31, 2021

Required:

Draft a report addressed to the directors of Jafuwara PLC advising them on which of the operating segments constitute a ‘reportable’ operating segment for the year ended December 31, 2021, in accordance with IFRS 8. (7 Marks)

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  • 8 Marks

CR – May 2023 – L3 – Q7a – Segment Reporting (IFRS 8)

Advise on whether research and development laboratories should be reported as separate segments under IFRS 8.

Fine Face (FF) Limited produces and sells a range of body care products through three separate divisions. Additionally, the company has two laboratories responsible for research and development activities.

  1. First Laboratory:
    • Funded internally and centrally for each of the three sales divisions.
    • Does not perform research and development activities for external entities.
    • Each division is allocated a budget for purchasing research and development services from the laboratory.
    • The laboratory is directly accountable to the divisional heads for this expenditure.
  2. Second Laboratory:
    • Performs contract investigation activities for other laboratories and body care companies.
    • Earns 75% of its revenue from external customers, representing 18% of the organization’s total revenue.
    • The head of the second laboratory is directly accountable to the Chief Operating Decision Maker (CODM), and the CODM regularly reviews its performance, operating activities, resource allocation, and financial results.

Fine Face Limited is uncertain whether the two laboratories should be reported as separate segments under IFRS 8 – Operating Segments.

Required:

Advise the directors of Fine Face Limited on this issue. (8 Marks)

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  • 20 Marks

CR – Nov 2016 – L3 – Q3 – Segment Reporting (IFRS 8)

Appraisal of contributions from each geographical location of Nationwide Plc through a vertical analysis based on segment information.

Nationwide Plc is a conglomerate with subsidiaries in two geographical locations. Each subsidiary has established its presence in relevant subsectors and contributes to the group’s gross earnings. Segment information is prepared based on geographical areas as well as business lines.

Segment Information by Geographical Areas as at December 31, 2012

Required: You are required to appraise the contributions of each of the geographical locations to the group’s performance through a vertical analysis from the segment information.

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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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  • 15 Marks

FR – May 2024 – L2 – SB – Q5 – Segment Reporting

Explanation of prior period errors, examples, and correction methods as per IAS 8, along with practical application to inventory errors in Lagos Company Nig. Limited.

a. Errors might happen when preparing financial statements. If such errors are discovered quickly, they are corrected before the finalised financial statements are published. When this happens, the correction of the error is of no significance for the purpose of financial reporting.

However, when an error is discovered that relates to a prior accounting period, a problem may arise.

Required:
Explain prior period errors, giving examples, and discuss how such errors are corrected in accordance with IAS 8 – Accounting Policies, Changes in Accounting Estimates, and Errors. (7 Marks)

b. During the year 2022, Lagos Company Nig. Limited discovered that certain items had been erroneously included in inventory at December 31, 2021. The amount was valued at ₦16.8 million, which had been sold before the year-end.

The following figures for the year 2021 (as reported) and 2022 (draft) are available as follows:

2022 (Draft) 2021 (Published)
Revenue ₦268,800,000 ₦189,600,000
Cost of sales (₦223,200,000) (₦138,280,000)
Profit before tax ₦45,600,000 ₦51,320,000
Income tax expense (₦13,600,000) (₦15,520,000)
Profit for the year ₦32,000,000 ₦35,800,000

The retained earnings at January 1, 2021, were ₦52 million. The cost of sales for the year 2022 includes a ₦16.8 million error in the opening inventories. The company income tax rate is 30%.

Required:
Prepare a statement of profit or loss and other comprehensive income for the year ended December 31, 2022, and retained earnings extracts showing comparative figures. (8 Marks)

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  • 7 Marks

CR – May 2023 – L3 – Q7b – Segment Reporting (IFRS 8)

Advise on reportable operating segments based on IFRS 8 criteria for Jafuwara PLC

Jafuwara PLC is a public limited company trading in six business areas, each reported separately in its internal accounts provided to the Chief Operating Decision Maker (CODM). The results of these segments for the year ended December 31, 2021, are as follows:

Operating Segment Information as at Dec. 31, 2021

Required:

Draft a report addressed to the directors of Jafuwara PLC advising them on which of the operating segments constitute a ‘reportable’ operating segment for the year ended December 31, 2021, in accordance with IFRS 8. (7 Marks)

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  • 8 Marks

CR – May 2023 – L3 – Q7a – Segment Reporting (IFRS 8)

Advise on whether research and development laboratories should be reported as separate segments under IFRS 8.

Fine Face (FF) Limited produces and sells a range of body care products through three separate divisions. Additionally, the company has two laboratories responsible for research and development activities.

  1. First Laboratory:
    • Funded internally and centrally for each of the three sales divisions.
    • Does not perform research and development activities for external entities.
    • Each division is allocated a budget for purchasing research and development services from the laboratory.
    • The laboratory is directly accountable to the divisional heads for this expenditure.
  2. Second Laboratory:
    • Performs contract investigation activities for other laboratories and body care companies.
    • Earns 75% of its revenue from external customers, representing 18% of the organization’s total revenue.
    • The head of the second laboratory is directly accountable to the Chief Operating Decision Maker (CODM), and the CODM regularly reviews its performance, operating activities, resource allocation, and financial results.

Fine Face Limited is uncertain whether the two laboratories should be reported as separate segments under IFRS 8 – Operating Segments.

Required:

Advise the directors of Fine Face Limited on this issue. (8 Marks)

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  • 20 Marks

CR – Nov 2016 – L3 – Q3 – Segment Reporting (IFRS 8)

Appraisal of contributions from each geographical location of Nationwide Plc through a vertical analysis based on segment information.

Nationwide Plc is a conglomerate with subsidiaries in two geographical locations. Each subsidiary has established its presence in relevant subsectors and contributes to the group’s gross earnings. Segment information is prepared based on geographical areas as well as business lines.

Segment Information by Geographical Areas as at December 31, 2012

Required: You are required to appraise the contributions of each of the geographical locations to the group’s performance through a vertical analysis from the segment information.

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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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  • 15 Marks

FR – May 2024 – L2 – SB – Q5 – Segment Reporting

Explanation of prior period errors, examples, and correction methods as per IAS 8, along with practical application to inventory errors in Lagos Company Nig. Limited.

a. Errors might happen when preparing financial statements. If such errors are discovered quickly, they are corrected before the finalised financial statements are published. When this happens, the correction of the error is of no significance for the purpose of financial reporting.

However, when an error is discovered that relates to a prior accounting period, a problem may arise.

Required:
Explain prior period errors, giving examples, and discuss how such errors are corrected in accordance with IAS 8 – Accounting Policies, Changes in Accounting Estimates, and Errors. (7 Marks)

b. During the year 2022, Lagos Company Nig. Limited discovered that certain items had been erroneously included in inventory at December 31, 2021. The amount was valued at ₦16.8 million, which had been sold before the year-end.

The following figures for the year 2021 (as reported) and 2022 (draft) are available as follows:

2022 (Draft) 2021 (Published)
Revenue ₦268,800,000 ₦189,600,000
Cost of sales (₦223,200,000) (₦138,280,000)
Profit before tax ₦45,600,000 ₦51,320,000
Income tax expense (₦13,600,000) (₦15,520,000)
Profit for the year ₦32,000,000 ₦35,800,000

The retained earnings at January 1, 2021, were ₦52 million. The cost of sales for the year 2022 includes a ₦16.8 million error in the opening inventories. The company income tax rate is 30%.

Required:
Prepare a statement of profit or loss and other comprehensive income for the year ended December 31, 2022, and retained earnings extracts showing comparative figures. (8 Marks)

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