9 Other Cons Reporting Issues

OTHER CONSOLIDATION
REPORTING ISSUES
Seda Oz, PhD
seda.oz@uwaterloo.ca
AFM 491, SAF, University of Waterloo
November 5, 2018 Copyright @ 2017 Seda Oz, PhD. All Rights Reserved 1
NOTE
 In your intermediate accounting course you undoubtedly studied
the topic of income tax allocation.
 The effects of income tax allocation show up as “deferred tax”
on almost all statements of financial position. Deferred tax also is
a component of income tax expense.
 Deferred income tax arises from two causes:
 temporary differences between accounting income and taxable
income; and
 carrying forward of available but unused tax losses and tax credits.
 I will avoid the impact of income taxes, and any discussion of
deferred tax.
 I focus on the principal issues of accounting for business
combinations.
 Income taxes are not irrelevant, but they are not central to an
understanding of business combinations and the reporting of
business acquisitions.
Copyright @ 2017 Seda Oz, PhD. All Rights Reserved 2

JOINT ARRANGEMENTS
 Joint arrangements are a common mechanism where two or more
parties with common interests enter into a contract to do business
together on a “venture” basis, generally on an expensive or risky
project where they can share expertise as well as risk.
 Key characteristics:
 contractual sharing, no one with control (even if own >50%)
 decisions require unanimous consent of parties
 done to share risks or provide access to markets or technology
 In Canada, it is common in oil & gas industry (pipelines)
 In 2013 Bombardier wanted to sell planes to Russian airlines.
Russia wants the planes assembled in Russia
 Created a JV for the new assembly plant they will build and for
sales in Russia

QUESTION Answer:
 According to GAAP, what is the key feature of a joint

arrangement?
A. One venturer has a controlling interest in the joint

arrangement.
B. More than one venturer has a controlling interest in the joint
arrangement.
C. Joint control, namely, no one venturer can unilaterally
control the venture regardless of the size of the equity
contribution.
D. The two largest equity contributors will have joint control
over the venture.

TYPES OF JOINT
ARRANGEMENT
 Two types
 Joint operations
 Joint ventures
 It depends on the rights & obligations

JOINT OPERATIONS

TYPES OF JOINT
ARRANGEMENT
 Joint operations – jointly controlled assets
 each venturer contributes the use of assets or resources to the
new activity but retains title to and control of these assets and
resources.
 Their rights are to the specific assets or liabilities and you
account just for those rights
 Often new entities are not created to conduct the new joint
activity  Lack of a structured entity often indicates a joint
arrangement
 Could also be a JO with a separate legal entity, but rarely

JOINT OPERATIONS
 Example 1:
 Contractual arrangement to split the revenues from the sale of
a joint product
 1 company develops a drug, another co distributes it
 if costs separately incurred by the companies - developing
company has its own costs to recognize related to
development, waits to recognize its agreed upon % of revenue
when drug finally sold
 Or could have joint costs (assets located elsewhere maybe)
 Example 2:
 Several telecommunication companies jointly operate a
network cable.
 Each co uses the cable for data transfer – each bears an agreed
upon % of the costs of operating the cable

JOINT OPERATIONS
 Could be a separate legal entity or not or partnership
 Account for it as regular operations.
 Report your % of the joint rev/exp, assets/liabilities.
 A form of proportionate consolidation for fin reporting
 If contribute an asset with FV>BV can’t recognize your %
of gain until asset leaves the joint operation or is used up.
Next slide (like Ch 7 – unrealized gain).
 Recognize loss if sign of impairment

JOINT OPERATION
UNREALIZED GAIN
 Can recognize % gain of others. Unrealized gain is a contra
acct to the asset
 Transfer asset BV = $1,000, FMV = $1,200
 you own 30% of the JO
 Recognize gain of .70 x 200 = $140, defer $60 (30% x 200)
and recognize over time
 (i.e. When sold or through deprecation just like Chap 6 & 7).
 Investment Asset = 1,200 less contra acct 60 = 1,140

EXAMPLE: P9-6
 On January 1, Year 6, HD Ltd., a building supply company,
JC Ltd., a construction company, and Mr. Saeid, a private
investor, signed an agreement to carry out a joint operation
under the following terms and conditions:
 JC: buy and renovate homes, and arrange a first mortgage on
the property when purchasing the home.
 HD: construction materials at a reduced markup from its
regular sales.
 Mr. Saeid: guarantee the payment of the mortgage and would
lend money to JC for the down payment on the purchase of
the property and to finance the cost of materials and labour
during the renovation. The loans would be interest free with
no monthly payments and would be repayable out of the
proceeds on sale of the property.

EXAMPLE: P9-6
 On January 1, Year 6, HD Ltd., a building supply company,
JC Ltd., a construction company, and Mr. Saeid, a private
investor, signed an agreement to carry out a joint operation
under the following terms and conditions:
 All three parties would have a one-third interest in the
properties under renovation and cash for joint properties,
would be responsible for one-third of the mortgage payable
and loan payable to Mr. Saeid and would receive one-third of
the profit from sale of the renovated properties.
 JD would pay the other two joint operators their share of the
profit on each property within 30 days of the closing date for
the sale of the property.
 All three parties must agree on major operating and financing
decisions with respect to joint operations of the renovated
houses.

EXAMPLE: P9-6
 During Year 6, HD had sales of $102,000 to JC. On
December 31, Year 6, the property under renovation included
supplies purchased from JC of $30,000.There is a markup of
20 percent of selling price.
 HD reports its share of income from the joint operations
when it is received from JC.
 Both companies pay income tax at a rate of 40% on taxable
income. We’ll ignore it for now.

 Condensed SFP STATEMENTS OF FINANCIAL POSITION
At December 31, Year 6

HD Ltd. and JC
Assets
Ltd. for the year
HD Ltd. JC Ltd.
ended December
— $
31, Year 6, were: Joint properties under renovation $ 360,000
Inventory 460,000 —
Cash for joint properties 36,000

 Prepare corrected Other assets 1,200,000 728,000
Year 6 SFP for HD $1,660,000 $1,124,000
in accordance with
Shareholders’ Equity and Liabilities
IFRS 11.
 Ignore tax effects Ordinary shares
Retained earnings
$ 500,000 $
220,000
200,000
300,000
Mortgage payable 270,000
Loan payable to Mr. Saeid 126,000
Other liabilities 940,000 228,000
$1,660,000 $1,124,000

 Identify the STATEMENTS OF FINANCIAL POSITION
At December 31, Year 6

accounts that are
Assets
affected by the
HD Ltd. JC Ltd.
joint operations:
 Joint properties Joint properties under renovation $ — $ 360,000
under renovations Inventory 460,000 —
 Loan Payable Cash for joint properties 36,000
 Cash for joint Other assets 1,200,000 728,000
properties $1,660,000 $1,124,000
 Mortgage Payable Shareholders’ Equity and Liabilities

 Retained Earnings Ordinary shares $ 500,000 $ 200,000
Retained earnings 220,000 300,000
Mortgage payable 270,000
Loan payable to Mr. Saeid 126,000
$1,660,000 $1,124,000

Remember:
On December 31, Year 6, the property under renovation included
supplies purchased from JC of $30,000.There is a markup of 20
percent of selling price.
Unrealized profit:
Property under renovation (30,000 x 20%) = 6,000
HD’s portion (one third) = 2,000

HD LTD.
STATEMENT OF FINANCIAL POSITION
at December 31, Year 6
Assets
Joint properties under renovation (1/3*360,000 – 2,000 118,000
Inventory 460,000
Cash for joint properties 1/3*36,000 12,000
Other assets 1,200,000 1,200,000
Shareholders’ Equity and Liabilities

Ordinary shares 500,000 500,000
Retained earnings 220,000-2,000 218,000
Mortgage payable 2/3*270,000 90,000
Loan payable to Mr. Saeid 2/3*126,000 42,000

 Condensed I/S
HD Ltd. and JC INCOME STATEMENTS
Ltd. for the year For the year ended December 31, Year 6
ended December Sales—joint operations $ $ 621,000
31, Year 6, were: Sales—other 1,700,000 1,529,000
Income from joint operations 40,000
 Prepare corrected 1,740,000 2,150,000
Year 6 I/S for HD Cost of goods sold—joint operations 474,000

in accordance with Cost of goods sold—other 1,176,000 1,244,000
IFRS 11. Selling expenses—joint operations 27,000
 Ignore tax effects Payment to other venturers 80,000
Other expenses 360,000 169,000
Income tax expense 80,000 60,000
1,616,000 2,054,000
Profit $ 124,000 $ 96,000

 Identify the INCOME STATEMENTS
accounts that are
For the year ended December 31, Year 6
affected by the
Sales—joint operations $ $ 621,000
joint operations:
 Sales – JO Sales—other 1,700,000 1,529,000
 Sales – other Income from joint operations 40,000
 COGS – JO 1,740,000 2,150,000
 Selling Expenses Cost of goods sold—joint operations 474,000
– JO Cost of goods sold—other 1,176,000 1,244,000
 Payment to other Selling expenses—joint operations 27,000
ventures Payment to other venturers 80,000
Other expenses 360,000 169,000
1,616,000 2,054,000
Profit $ 124,000 $ 96,000

 During Year 6, HD had sales of $102,000 to
JC. On December 31, Year 6, the property
under renovation included supplies purchased
from JC of $30,000.There is a markup of 20
percent of selling price.

 HD reports its INCOME STATEMENTS
share of income For the year ended December 31, Year 6
from the joint Sales—joint operations $ $ 621,000
operations when it Sales—other 1,700,000 1,529,000
is received from JC Income from joint operations 40,000
 Income from JO = 1,740,000 2,150,000
$40,000 Cost of goods sold—joint operations 474,000
 How is it Cost of goods sold—other 1,176,000 1,244,000
calculated? Selling expenses—joint operations 27,000
 621,000 – Payment to other venturers 80,000
474,000 – Other expenses 360,000 169,000

27,000
1,616,000 2,054,000
= 120,000 Profit $ 124,000 $ 96,000
120,000 x 1/3 =
40,000

HD LTD.
INCOME STATEMENTS
for the Year Ended December 31, Year 6
Sales – joint operations 1/3x621,000 207,000

Sales – other 1,700,000 – 34,000 1,666,000
Income from joint operations 40,000 – 40,000 - ______
Cost of goods sold – joint operations 1/3*474,000 – 34,000 + 2,000 126,000
Cost of goods sold – other 1,176,000

Selling expenses – joint operations 1/3*27,000 9,000
Payment to other venturers
Other expenses 360,000
Income tax expense 80,000
Profit

JOINT VENTURES

TYPES OF JOINT
ARRANGEMENT
 Joint Ventures – jointly controlled enterprises
 a separate entity (e.g., corporation or partnership) formed to
conduct a new activity
 Each venturer contributes assets and resources. These assets
and resources are then legally owned by the separate entity
(the “joint venture”) and therefore the venturers do not retain
title to these assets and resources.
 Venturers don’t have any direct rights, they are exposed to the
changes in net assets
Need to use facts & circumstances of the

arrangement to determine which it is.

JOINT VENTURE
 Part owner via contractual rights (a shareholders
agreement)  Private company
 2 or more parties jointly controlling a business undertaking
 all parties have significant influence
 In Canada used to use Proportionate Consolidation
 Proportionate Consolidation not a viable framework – your
investment is in the NET assets not the % of the actual assets.
 Since 2013, in Canada, IFRS 11 is in effect, which dictates
the equity method for joint ventures (US uses this method
too)
 Principle based approach

JOINT VENTURE –
EQUITY METHOD
 Venturer recognizes its share of the income earned by the
joint venture as “Income from Joint Venture” as one line on
the income statement and “Investment in Joint Venture” as
one line on the balance sheet.

JOINT VENTURE –
EQUITY METHOD
 If you contribute assets with MV > BV your % is
unrealized.
 Your % is unrealized – is also a contra asset to the
investment acct
 The unrealized gain is amortized to income over the
expected service life of the asset to the JV if the asset is
being used to generate positive net income from the JV
 If contribute for a loss, recognize others % & yours if sign
of impairment, if not impaired => yours unrealized
 Unrealized until the asset has been sold to unrelated
outsiders by the joint venture

JOINT VENTURE –
EQUITY METHOD
 Only the gain represented by interests of the other
nonrelated venturers should be recognized on the date of the
contribution and only if the transaction has commercial
substance as the term is described in IAS 16.
 A transaction has commercial substance if the amount, timing
and uncertainty of future cash flows have changed as a result
of the transaction.
 No commercial substance  unrealized
 unless the venture receives assets in addition to an interest in
the JV.
 Consider the proceeds from the partial sale of the assets to the
other unrelated venturers
 a gain can be recognized for the portion of the asset deemed to be
sold.

JOINT VENTURE –
EQUITY METHOD
 No Acq Diff on newly formed JV (assets go in at MV, there
is no existing BV)
 If purchase a % of existing JV, may have Acq Diff.
 The following adjustments are required for its share for:
 amortization of Acq Diff, if existing JV
 Eliminate your % of interco transactions (your % of
unrealized profits) upstream & downstream
 Contributions to the joint venture.
 For a joint venture, the venturer’s share of any
intercompany asset profits is eliminated.

PROPORTIONATE CONSOLIDATION
(ASPE) ONLY TILL END OF 2015
 Only add in your % of S’s assets, liabilities, revenues and
expenses that you control. (Proprietary Theory)
 No NCI on the statements
 Only eliminate your share of the interco profits, sales, A/R
etc
 Considered to be dealing at arm’s length with the venture
because don’t control it. (assuming not related to the other
venturers)
 Does provide more complete information than a single line
of equity method.
 Unrealized gain still a contra asset but it must be associated
with the relevant asset acct since investment acct does not
exist

JV EXAMPLE
Initial Invstmt by A $20,000
A B C
Net Income JV = $1,000
30% 30% 40%
Unrealized profit in JV’s inventory
JV at end of year $200 after tax from A
A’s investment income from JV:
30% x 1,000 = $300
Less unrealized profit (only 30% x 200) (60)
Invstmt income $240
The unrealized gain would be a contra account to
Investment in JV (if using equity) or
to Inventory if using Proportionate consolidation

EXAMPLE
 X Ltd. and Y Ltd. formed a joint venture called XY Inc. on
January 1, 2018.
 X Ltd. contributed equipment with a book value of $600,000 and
a fair value of $2,100,000 for a 50% interest in the joint venture.
The equipment transferred has an estimated useful life of 20 years.
 On December 31, 2018, XY Inc. reported a net income of
$612,000. Ignore taxes.
 Calculate the gain on the contribution of equipment and prepare

the journal entries to record the events on January 1 and December
31, 2018.
 Calculate under the equity method X Ltd.'s share of net income
and the amount it will recognize.

SOLUTION
Fair value of equipment transferred to XY Inc.
Carrying value of the equipment on X's books
Unrealized gain on the transfer to XY Inc.
To be netted against investment account

SOLUTION
Investment in XY Inc. 2,100,900

SOLUTION
Equity pickup:
Investment in XY Inc. (50% of net 306,000

income)
Equity Earnings from XY 306,000
Unrealized Gain (contra account) 75,000

Gain on Transfer of equipment 75,000

EXAMPLE
 X Ltd. and Y Ltd. formed a joint venture called XY Inc. on
January 1, 2018.
 X Ltd. contributed equipment with a book value of $600,000 and
a fair value of $2,100,000 for a 50% interest in the joint venture.
The equipment transferred has an estimated useful life of 20 years.
 On December 31, 2018, XY Inc. reported a net income of
$612,000. Ignore taxes.
 In this case assume that X Ltd. receives a 50% interest plus

$390,000 in cash (which was contributed by the other joint
venturer). Record the contribution of assets, the share of earnings
and the realization of the gain on transfer.
 With the cash provided a portion of the equipment is now
considered to have been sold.

SOLUTION
 FV = $2,100,000
 CV = $600,000

SOLUTION
Immediate gain on sale

SOLUTION
 FV = $2,100,000
 CV = $600,000

SOLUTION
Contribution of equipment

SOLUTION
Year-end entries
Investment in XY Inc. (50% of net income

ASPE

JOINT ARRANGEMENTS
 3 Types:
1. Jointly controlled operations
2. Jointly controlled assets See next slide
3. Jointly controlled enterprises
 Similar to JV definition of IFRS
 Can use equity method or cost or analysis of interest. Must use
same method for all JVs
 New handbook section (effective since Jan 2016)

ASPE
 Joint Operation or Joint Assets
 Up to end of 2015 can use Proportionate Consolidation
 Effective 2016 only recognize % of assets controlled,
liabilities incurred, revenues & expenses
 Joint Arrangements
 Requirement to defer & amortize % of gain not related to
cash received removed
 For any arrangements using cost or equity must present
separately on I/S & B/S

STRUCTURED
ENTITIES (IFRS 10)

SPECIAL PURPOSE
ENTITIES
 A Special-Purpose Entity (“SPE”) is an entity (e.g., a
corporation or partnership) to accomplish a very specific
business activity.
 They are created for a special purpose (SPE)
 effectively controlled by P but not owned by P
 Credit card securitization, leased assets, conduct R&D
 Using assets transferred to them by their sponsors, SPE’s
can often secure lower cost debt financing for the sponsor
because credit risk is limited to the SPE’s assets, not the
broader assets of the sponsor, and because the business
activity of the SPE is restricted.

SPECIAL PURPOSE
ENTITIES
 Before GAAP changes were made, the assets, liabilities,
and results of operation of SPE’s frequently were not
consolidated with the sponsor although the sponsor
effectively controlled the SPE by governing agreements.
 The failure of Enron in 2001, which controlled but did not
consolidate a number of SPE’s that led to its bankruptcy,
prompted changes in GAAP

SPECIAL PURPOSE
ENTITIES
 Sponsors can obtain effective control of SPE through
“variable interests”
 Variable interests may indicate the sponsor retains the
majority of the risks and rewards of ownership of the assets of
the SPE.
 The primary risks and rewards of ownership of an SPE may
not be based on equity ownership but rather on the variable
interests conveyed by contractual arrangements.
 The equity investors typically receive a guaranteed rate of
return as a reward for providing the sponsor, or other primary
beneficiary with contractual control of the SPE.

SPECIAL PURPOSE
ENTITIES
 A Variable Interest Entity (VIE) is an SPE that is controlled

by means other than voting interests.
 SPE is a general term while VIE is an accounting term
 A new term was necessary for consolidation analysis

HOW DO THEY WORK?
 Primary benefit is that the VIE borrows at preferred rates
(because it only has 1 asset, it has lower risk than the
sponsoring Co). Has limited types of activities (also lowers
risk)
 Structure: Usually a very small equity investment by the
outside investors (earning small or fixed return)
 Normally the sponsoring Co needs to also provide
resources or guarantees before the SPE can get financing.
 Might limit the decision power of the equity investors thru
governance documents
 Takes the risks & rewards away from equity holders &
transfers them to Sponsor. Sponsor’s return varies with the
success of the SPE via participation rights.

VARIABLE INTERESTS IN
SPES
Variable interests Potential losses or returns
Guarantees of debt If an SPE cannot repay liabilities, sponsor will pay and incur a
loss
Subordinated debt If an SPE cannot repay its senior debt, the sponsor as
instruments subordinated debt holder may be required to absorb the loss
Variable-rate liability Sponsor as holder of debt may participate in returns of SPE
Lease residual If leased assets decline below the residual value, sponsor, as
guarantee lessee, will make up the shortfall
Non-voting equity Sponsor as holder of debt or equity may participate in residual
instruments profits
Services Sponsor as service provider receives portion of residual profits

SPECIAL PURPOSE
ENTITIES
 A Variable Interest Entity (VIE) is an SPE that is controlled

by means other than voting interests.
 SPE is a general term while VIE is an accounting term
 A new term was necessary for consolidation analysis
 To determine if consolidation of the VIE is required, it is

first necessary to determine if there is a primary beneficiary
of the VIE.

VARIABLE INTEREST
ENTITIES
 IFRS 10 defines control of an VIE
 How are the entity’s returns distributed?
 How are decisions affecting returns and distributions made?
 Who holds the authority to change the restrictions or strategic
operating and financing policies of the SPE?’
 Who has veto rights, if any, over the SPE’s activities?
 Control of a VIE or structured entity is usually based on

who directs its key activities.
 The more a reporting entity is exposed to the variability of
returns from its involvement with the VIE, the more power
the reporting entity is likely to have to direct the activities of
the VIE.

VARIABLE INTEREST
ENTITIES
 Since the primary beneficiary (Parent) controls the
resources of the VIE (subsidiary) and will obtain future
returns from these resources, these resources meet the
definition of an asset and should be included on the
consolidated balance sheet of the primary beneficiary.
 Since the primary beneficiary (Parent) usually bears the risk

of absorbing the majority of the expected losses of the VIE
(subsidiary), it is effectively assuming responsibility for the
VIE’s liabilities and therefore these liabilities should be
included on the consolidated balance sheet of the primary
beneficiary.

Shoppers Drug Mart Jean Coutu
• 1253 stores • 413 Cdn stores
• Separate legal entities but SDM • Franchisees do their own
provides capital & financial financing
support, no initial invstmt req’d
by licensees
• Store assets owned by SDM,
leased to licensees
• Pay fees + % of profits to SDM • pay royalties (% of sales)
• Are VIEs = consolidated • Are NOT VIE’s not

into SDMs F/S consolidated

CONSOLIDATION OF SPES
 Basically we do the same thing we’ve been doing so far
 When the primary beneficiary gets control of the net assets,

the total consideration given is the sum of the following:
 Fair value of consideration paid by the primary beneficiary to
the owners of the business, and
 Fair value of the NCI of the SPE
 If transfer assets to it – recognize @ NBV not FV (no
gain recognized)
 Since control was obtained by means other than share
ownership, need to determine implied value
 needs to be implied from assets transferred (@ NBV) or value
of the NCI or the consideration paid

CONSOLIDATION OF SPES
 If implied value < assessed value
 difference is negative goodwill which is recorded as a gain in
consolidated income.
 If implied value > assessed value

 the difference is reported as either (1) goodwill, when the VIE
is a self-sustaining profit-oriented business or
 (2) as a reduction of assets acquired when the VIE is not a
business.
 A business is defined in IFRS 3 as an integrated set of
activities and assets that is capable of being conducted and
managed for the purpose of providing a return in the form of
dividends.

SUBSEQUENT TO
INITIAL MEASUREMENT
 After the initial measurement, consolidation of VIEs with
their primary beneficiary should follow the same process as
if the entity were consolidated based on voting interests.
 The implied acquisition differential must be amortized.

 All intercompany transactions must be eliminated.
 The income of the VIE must be allocated among the parties
involved
 the equity-holders and the primary beneficiary, based on
contractual arrangements.

ASPE
 May report VIEs using consolidation, cost or equity

method.

EXAMPLE
Book Fair
 ABC invested $30 million
in cash in DEF Inc, which Value Value
was determined to be a VIE Cash $30 $30
whose primary beneficiary is Capital Assets $90 $100
ABC Inc.
Total Assets $120 $130
 The fair value of DEF's
non-controlling interest is
$55. Liabilities $50 $50
 The balance sheet of DEF Owner's Equity
on the acquisition date ABC $40
January 1, 2016 is shown (all
figures in millions $$ Non-Controlling $30
 Prepare the journal entry Interest:
required for consolidation Total Liabilities & $120
purposes on the date of Equity:
acquisition

SOLUTION
Total Implied Value of DEF

Amount Invested $30
FMV of NCI $55
$85

SOLUTION
Assessed Value of DEF's Net Assets:
Carrying Value of Amount invested by ABC 30

Fair Value of DEF’s own assets 100
Less: Fair Value of DEF’s liabilities (50)
Total assessed value (80)
Goodwil 5

SOLUTION
Journal Entry: Debit Credit
Cash 30
Capital Assets 100
Goodwill 5
Liabilities 50
Non-Controlling Interest 55
Investment in DEF 30

DISCLOSURES

DISCLOSURE
REQUIREMENTS
 Basis of control and accounting consequences
 The extent of non-controlling interests
 Nature and effect of restrictions on assets and liabilities held by
subsidiaries
 Nature and extent of, and changes in, the market risk, credit risk,
and liquidity risk of the reporting entity’s involvement with SPE’s
that are not controlled and therefore not consolidated
 Market risk includes interest rate, prepayment, currency, and price
risk
 Disclose the nature, purpose, and activities of the SPE
 Disclose income from, and assets transferred, to the SPE
 Other disclosures including estimated exposure to losses of SPE

SEGMENT
REPORTING

OPERATING SEGMENTS
 When consolidated financial statements of large and diverse
companies are prepared, a significant amount of detail about the
profitability of different products and services, the geographic
areas in which the consolidated operates, and its customers is
aggregated.
 Separate disclosure could provide useful predictive information for
analysts and other users of the financial statements.
 However, providing individual financial statements of subsidiaries
and consolidated adjustment details may overwhelm users.
 Managers do not wish competitors to have too much confidential or
sensitive data.
 Segmented reporting is an efficient method of communicating
enough but not excessive relevant data.

SEGMENT DISCLOSURS
 IFRS 8 requires separate disclosures for segments when one
or more of these thresholds is met:
 Reported revenue, both external and intersegment, is 10% or
more of the combined revenue, internal and external, of all
segments.
 The absolute amount of reported profit or loss is 10% or more
of the greater, in absolute amount, of:
 The combined reported profit of all operating segments that did
not report a loss, or
 The combined reported loss of all operating segments that did
report a loss.
 Its assets are 10% or more of the combined assets of all
operating segments.
 At least 75% of a company’s external revenues are reported.

QUESTION Answer: C
 Which of the following is not a requirement for a business

component to be considered an Operating Segment under
current Canadian GAAP?
A. Discrete financial information must be available.
B. Operating results are regularly reviewed by the
enterprise's Chief Operating Decision Maker to make
decisions about resources to be allocated to the segment and
assess its performance.
C. The reportable income or loss must be at least 10% of the
combined profit or loss for the combined entity.
D. It engages in business activities from which it may earn
revenues and incur expenses.

QUESTION
 JNG Corp has 4 segments, the details of which are shown
below. All figures are in thousands of dollars.
Segment Revenues Profits Assets
A $12 $6 $40
B $60 $2 $80
C $35 $10 $80
D $200 $80 $20
 Using only the Profit test, which segment(s) would be

reportable?
 C and D

QUESTION
A $12 $6 $40
B $60 $2 $80
C $35 $10 $80
D $200 $80 $20
 Using only the Revenue test, which segment(s) would be

reportable?
 B, C, and D

QUESTION
A $12 $6 $40
B $60 $2 $80
C $35 $10 $80
D $200 $80 $20
 Using only the Assets test, which segment(s) would be

reportable?
 A, B, and C

SEGMENT DISCLOSURES
 General information is required:
 Factors used to identify the enterprise’s reportable segments,
including the basis of organization.
 Address whether management has organized the enterprise
around differences in products and services geographic areas,
regulatory environments, or a combination of factors and whether
operating segments have been aggregated.
 Types of products and services from which each reportable
segment derives its revenues.
 Comparative balances for the prior year are presented.

SEGMENT DISCLOSURES
 Each of the following if the specific amount are included in
the measure of profit (loss) above
 Revenues from external customers
 Intersegment revenues
 Interest revenue and expense
 Depreciation and amortization
 Material income and expense items
 Equity income from associates
 Income taxes
 Significant noncash items other than depreciation and
amortization

SEGMENT DISCLOSURES
 The amount of investments in associates and joint ventures
accounted for by the equity method.
 The amounts of additions to non-current assets other than
financial instruments, deferred tax assets, and post-
employment benefit assets.
 Total expenditures for additions to capital assets and
goodwill.
 An explanation of how a segment’s profit (loss) and assets
have been measured, and how common costs and jointly used
assets have been allocated, and of the accounting policies
that have been used.

SEGMENT DISCLOSURES
 Reconciliation of the following:
 Total reportable segments’ revenue to entity’s revenues
 Total reportable segments’ profit or loss to entity’s profit or
loss
 Total reportable segments’ assets to entity’s assets
 Total reportable segments’ liabilities to entity’s liabilities
 Total reportable segments’ amounts for every other material
item of information disclosed to the corresponding amount for
the entity

SEGMENT DISCLOSURES
 The following information must also be disclosed, even
when there is only one reportable segment, unless such as
information has already been clearly provided as part of
segment disclosures.
 The revenue from external customers for each product
or service, or for each group of similar products and
services, whenever practical.
 The revenue from external customers broken down between
those from the company’s home country and those from all
foreign countries.
 Material revenues from an individual country must be disclosed.

SEGMENT DISCLOSURES
 Goodwill, property, plant, and equipment and intangible
assets broken down between those located in Canada and
those located in foreign countries
 Where assets located in an individual country are material, it
must be separately disclosed
 When a company’s sales to a single external customer are
10% or more of total revenues, the company must disclose
this fact, as well as the total amount of revenues from each
customer and which operating segment reported such
revenues
 The identity of the customer does not have to be disclosed
 Comparative totals for the last fiscal year are required

ASPE
 Are not required to disclose any information about
operating segments.

REFERENCES
 IFRS 11 – Joint Arrangements
 IFRS 10 – Consolidated Financial Statements
 IFRS 12 – Disclosure of Interests in Other Entities
 IFRS 8 – Operating Segments

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AFM 491, SAF, University of Waterloo

Copyright @ 2017 Seda Oz, PhD. All Rights Reserved 2

Copyright @ 2017 Seda Oz, PhD. All Rights Reserved 3

 According to GAAP, what is the key feature of a joint

A. One venturer has a controlling interest in the joint

Copyright @ 2017 Seda Oz, PhD. All Rights Reserved 4

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At December 31, Year 6

Cash for joint properties 36,000

Mortgage payable 270,000

Loan payable to Mr. Saeid 126,000

Other liabilities 940,000 228,000

Copyright @ 2017 Seda Oz, PhD. All Rights Reserved 14

At December 31, Year 6

under renovations Inventory 460,000 —

 Loan Payable Cash for joint properties 36,000

 Cash for joint Other assets 1,200,000 728,000

properties $1,660,000 $1,124,000

 Mortgage Payable Shareholders’ Equity and Liabilities

Retained earnings 220,000 300,000

Mortgage payable 270,000

Loan payable to Mr. Saeid 126,000

Other liabilities 940,000 228,000

Copyright @ 2017 Seda Oz, PhD. All Rights Reserved 15

Copyright @ 2017 Seda Oz, PhD. All Rights Reserved 16

Shareholders’ Equity and Liabilities

Copyright @ 2017 Seda Oz, PhD. All Rights Reserved 17

ended December Sales—joint operations $ $ 621,000

31, Year 6, were: Sales—other 1,700,000 1,529,000

Income from joint operations 40,000

 Prepare corrected 1,740,000 2,150,000

Year 6 I/S for HD Cost of goods sold—joint operations 474,000

 Ignore tax effects Payment to other venturers 80,000

Other expenses 360,000 169,000

Income tax expense 80,000 60,000

Profit $ 124,000 $ 96,000

Copyright @ 2017 Seda Oz, PhD. All Rights Reserved 18

 Sales – other Income from joint operations 40,000

 COGS – JO 1,740,000 2,150,000

 Selling Expenses Cost of goods sold—joint operations 474,000

– JO Cost of goods sold—other 1,176,000 1,244,000

 Payment to other Selling expenses—joint operations 27,000

ventures Payment to other venturers 80,000

Other expenses 360,000 169,000

Income tax expense 80,000 60,000

Profit $ 124,000 $ 96,000

Copyright @ 2017 Seda Oz, PhD. All Rights Reserved 19

Copyright @ 2017 Seda Oz, PhD. All Rights Reserved 20

share of income For the year ended December 31, Year 6

from the joint Sales—joint operations $ $ 621,000

operations when it Sales—other 1,700,000 1,529,000

is received from JC Income from joint operations 40,000

 Income from JO = 1,740,000 2,150,000

$40,000 Cost of goods sold—joint operations 474,000