- 16 Marks
Question
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)
Answer
b.i Application of IFRS 8 provisions to Amaka Ltd
Evaluation of operating segments that meet the quantitative thresholds highlighted in ‘a’ above as outlined in IFRS 8 are:
(i) Revenue of the operating segments is 10% or more of the combined revenue (N477,540,000).
OR
(ii) The absolute profit or loss of the operating segment is 10% or more of the greater of:
- The combined absolute reported profit of all operating segments that did not report a loss (i.e., N19,440,000 + N21,240,000) = N40,680,000; and
- The combined absolute reported loss of all operating segments that reported a loss (i.e., N7,740,000 + N1,440,000) = N9,180,000.
- The greater of the two figures considered is N40,680,000.
(iii) The assets of the operating segments are 10% or more of the combined assets (N392,670,000) of all the operating segments.
Conclusion:
From the analysis below, Gambia, Ghana, and Nigeria are reportable segments in accordance with the provisions of IFRS 8.
Also, IFRS 8 requires the total sales revenue of reportable segments to be 75% or more of the total sales revenue; otherwise, additional operating segments must be identified as reportable segments. This requirement is also met.
Total revenue from reportable segments are:
N93,600,000 + N25,200,000 + N317,340,000 = N436,140,000
N436,140,000 as a percentage of the company’s total sales revenue is:
N436,140,000 × 100 / N477,540,000 = 92%.
Therefore, Amaka Ltd will prepare segment reports on Gambia, Ghana, and Nigeria, which are the identified reportable segments in line with IFRS 8.
The computations of the revenue, profit or loss, and assets of each operating segment are as follows:
| Location | Revenue Criteria | Asset Criteria | Profit/(Loss) Criteria | Remark |
|---|---|---|---|---|
| Gambia | 93,600/477,540 × 100 = 19.6% | 98,460/392,670 × 100 = 25.1% | 19,440/40,680 × 100 = 47.8% | Reportable segment |
| Ghana | 25,200/477,540 × 100 = 5.3% | 14,400/392,670 × 100 = 3.7% | 7,740/40,680 × 100 = 19.0% | Reportable segment |
| Nigeria | 317,340/477,540 × 100 = 66% | 258,210/392,670 × 100 = 65.8% | 21,240/40,680 × 100 = 52.2% | Reportable segment |
| Togo | 41,400/477,540 × 100 = 8.7% | 21,600/392,670 × 100 = 5.5% | 1,440/40,680 × 100 = 3.5% | Not a reportable segment |
b(ii) Other disclosure requirements for financial statements under IFRS 8
Amaka Limited should include the following disclosures in its financial statements for the year ended December 31, 2019:
- Factors Used to Identify Operating Segments:
- The basis of segmentation, such as geographical location or type of products/services.
- Types of Products or Services:
- Explanations of the different products or services generating revenues for each reportable segment.
- Management Review:
- How the information is reviewed by the Chief Operating Decision Maker (CODM).
- Segment Profit or Loss:
- A measure of profit or loss for each reportable segment.
- Segment Assets and Liabilities:
- A measure of total assets and liabilities for each reportable segment.
- Reconciliation:
- A reconciliation of total segment revenue, reported profit or loss, segment assets, and segment liabilities to the corresponding items in the financial statements.
- Geographical Analysis:
- Revenue and non-current assets analyzed by geographical area.
- Major Customers:
- Information about transactions with major customers contributing significantly to revenue.
- Tags: Financial Disclosure, IFRS 8, Operating segments, Segment Reporting
- Level: Level 3
- Topic: Segment Reporting (IFRS 8)
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