MFRS 8

OPERATING SEGMENTS

Good
Day Knowledge is
power

Lazar 1
 MFRS 8
The standard is applicable to entities whose equity or debt
securities are publicly traded, or file (or in the process of filing)
financial statements for the purpose of issuing securities in a public
market.
This standard is to be applied in complete sets of published
financial statements that comply with Malaysian Financial Reporting
Standards. Complete set of financial statements include the
statement of financial position, statement of profit or loss and other
comprehensive income, statement of cash flows, statement of
changes in equity and notes.
An entity that presents its own and consolidated financial
statements has to present information on its reportable segments
only on the basis of the consolidated financial statements.
Lazar 2
 Operating Segments
An operating segment is a component of an entity:
a. That engages in business activities from which it earns revenue or
incur expenses (including inter-segment transactions),
b. Whose activities are regularly reviewed by the chief operating
decision maker for resource allocation and assessing performance,
c. For which discrete financial information is available.

Not operating segments

- head office
- research and development department
Unless they undertakes business activities, such as treasury functions
by the head office and earns interest.
A discontinued operation can be classified as an operating segment if
continues to engage in business activities and meet the other criteria to
be classified as an operating segment
Lazar 3
 Reportable Segments

Operating components or an aggregation of operating segments

are reportable segments. There are four key issues to consider in
identifying operating segments. They are:

Identifying the chief operating decision maker(CODM).

Identifying business activities. Some may not earn revenue or incur
expenses.
Determining whether discrete financial information is available for
these business activities, and
Determining whether that information is regularly reviewed by the
chief operating decision maker.

Lazar 4
 Criteria - quantitative thresholds

For reporting purpose a reportable segment is one that meets any one of
the following quantitative thresholds:
i. Revenue
Its reported revenues from sales to external customers and inter-
segment sales is 10% or more of the combined revenues of the
external and internal segments; or
ii. Results
The absolute amount of the segments profit or loss is 10% or more
of the greater of:
the combined reported profit of all segments reporting profits, or
the combined loss of all segments reporting losses
iii. Assets
The segment assets are 10% or more of the total assets of all
segments.
Lazar 5
 Aggregation of operating segments
As a guide the segments aggregated must be similar in each of the
following respects:
the nature of the products or services,
the nature of the production processes;
the type or class of customer for the products or services;
the methods used to distribute the products or provide the services; and
the nature of the regulatory environment, for example, banking, insurance,
or public utilities, if applicable.

If a segment does not meet the 10% threshold criteria:

It can be designated as a reportable segment despite its size;
It can be combined with other similar segments that are also below the
thresholds of significance for the purpose of meeting the 10% test; or
It is included as an all other segments category.

Lazar 6
 Constraints
75% Constraint
The total revenue of all the reportable segments should constitute 75% of
the total consolidated or entity revenue. In a situation where the reportable
segments do not meet the 75% revenue criteria, additional segments
should be identified as reportable segments even if they do not meet the
above 10% threshold tests so that their combined revenues are at least
75% of the total consolidated or entity revenues.

Lazar 7
Number of Segments
To be practicable, MFRS 8 recommends that the
number of segments do not exceed ten.
Disclosure
An entity is required to disclose both general information
and specific financial information about the reported
segments results, assets, liabilities and basis of
measurement.
General Information
Factors used to determine reportable segment, and
Types of products and services of each reportable
segment.

Lazar 8
 Financial Information
For each segment the following are to be disclosed:
Profit or loss,
Total assets, and
Liabilities (only if the amount of liabilities are regularly reported to the chief
operating decision maker).

Detailed information in the measurement of profit or loss includes:

Revenue from external customers
Revenue from inter-segment transactions
Interest revenue
Interest expense
Depreciation and amortisation
Material items of income and expenses
Share of profit/loss of associates and joint ventures accounted for by the equity
method
Income tax expense
Material non-cash items other than depreciation and amortisation
Lazar 9
 Reconciliation Statement

The entity has to provide reconciliations of the totals disclosed in the

segment report to the amounts reported in the financial statements:

Segment revenue
Segment profit or loss before tax and discontinued operations, or
profit after tax if income tax is allocated to the various segments.
Segment assets
Segment liabilities (if reported)
Other material amounts

10 Lazar