1. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 13-1 Segment and Interim Reporting 13 Electronic Presentation by Douglas Cloud Pepperdine University Baker / Lembke / King

2. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 13-2 Segment Reporting Large, diversified companies can be viewed as a portfolio of assets operated as divisions or subsidiaries, often multinational in scope. The various components of a large company may have different profit rates, different degrees and types of risk, and different opportunities for growth Generally speaking, segment reporting refers to the supplemental disclosure of revenue, profits, assets, and other information for selected industry segments of an entity as well as disclosures about its foreign operations.

3. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 13-3  Business segment is a company’s component that can be differentiated in generating product or service and that component has its own risk and reward which is different from that of other components  Geographical segment is a company’s component that can be differentiated in generating product or service in certain economic areas and that component has its own risk and reward which is different from that of other components.Segment PSAK 5 provides definition on several terms:

4. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 13-4 Ten Percent Quantitative Thresholds What is the 10 percent significance rule concerning segment disclosure? PSAK 5 specified three 10 percent significance rules. Separate disclosures are required if an operating segment meets at least one of the tests on Slides 5 and 6. PSAK 5 specified three 10 percent significance rules. Separate disclosures are required if an operating segment meets at least one of the tests on Slides 5 and 6.

5. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 13-5  Its reported revenue, including both sales to external customers and intersegment sales or transfers, is 10 percent or more of the combined revenue, internal and external, of all operating segments,  The absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount, of (a) the combined reported profit of all operating segments that reported a profit or (b) the combined reported loss of all segments that reported a loss. Ten Percent Quantitative Thresholds Continued

6. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 13-6  Its assets are 10 percent or more of the combined assets of all operating segments. Ten Percent Quantitative Thresholds

7. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 13-7 Illustration of 10 Percent Tests PT Induk owns 80 percent of PT Anak’ common stock. PT Anak reports a profit of Rp50,000,000 for 20X1 and pays dividends of Rp3,000,000. The December 31, 20X1, balances in PT Anak’ stockholders’ equity accounts total Rp300,000,000, of which the noncontrolling interest is 20 percent. PT Induk acquires 40 percent of PT Baruna Jaya stock on January 1, 20X1, for a cost of Rp160,000,000, which is equal to the book value of the stock on that date. PT Baruna Jaya earns Rp80,000,000 in profit during 20X1 and pays Rp20,000,000 in dividends. The equity method is used to account for the PT Baruna Jaya investment.

8. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 13-8 Ten Percent Revenue Test Segment Percent of Combined Reportable Segment Revenue Revenue of Rp600,000,000 Segment Food ProductsRp323,000,000 53.8% Plastic and Packaging113,000,000 18.8 Consumer and Commercial45,000,000 7.5 Health and Scientific86,000,000 14.3 Chemicals 33,000,000 5.5 TotalRp600,000,000100.0% Yes No Yes No Separately reportable? *Unrounded percents for segments total to 100 percent. *

9. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 13-9 Ten Percent Profit (Loss) Test Profit Percent of Test Separately Segment (Loss) Amount of Rp279,000,000 Reportable Food ProductsRp198,000,000 71.0% Plastic and Packaging59,000,000 21.1 Consumer and Commercial(25,000,000) 9.0 Health and Scientific22,000,000 7.9 Chemicals(9,000,000) 3.2 Yes No Separately reportable?

10. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 13-10 Asset Test Percent of Segment Test Amount of Separately Segment Assets Rp1,276,000,000 Reportable Food ProductsRp 411,000,000 32.2% Plastic and Packaging375,000,000 29.4 Consumer and Commercial100,000,000 7.8 Health and Scientific310,000,000 24.3 Chemicals 80,000,000 6.3 TotalRp1,276,000,000100.0% Yes No Yes No Separately reportable?

11. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 13-11 Asset Test Items comprising each segment’s assets are defined by management.

12. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 13-12 Seventy-Five Percent Revenue Test Sales to unaffiliated customer by reportable segments: Food ProductsRp317,000,000 Plastic and Packaging95,000,000 Health and Science 86,000,000 Total of reportable segmentsRp498,000,000 Consolidated revenue572,000,000 Reportable segments’ percentage of consolidated revenue87.1% Rp498,000,000  Rp572,000,000 Because this percentage if equal to or greater than 75 percent, no further operating segments must be separately reported.

13. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 13-13 Reporting Segment Information PSAK 5 states that the following must be disclosed for each segment determined to be separately reportable.

14. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 13-14  General information about (a) how the company identifies each separately reportable segments, and (b) the types of products and services from which each reportable segment earns its revenue.  Amounts for each separately reportable segment: (a) each segment’s profit or loss and the measurement procedures used to determine the profit or loss, and (b) each segment’s assets and liabilities  General information about (a) how the company identifies each separately reportable segments, and (b) the types of products and services from which each reportable segment earns its revenue.  Amounts for each separately reportable segment: (a) each segment’s profit or loss and the measurement procedures used to determine the profit or loss, and (b) each segment’s assets and liabilities Reporting Segment Information ContinuedContinued

15. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 13-15  Measures of segment profit or loss: (a) revenues from external sales, (b) revenues from transactions with other operating segments of the company, (c) interest revenue, (d) interest expense, (e) depreciation and amortization expense, (f) equity in the income of investees accounted for by equity method, (g) income tax expense or benefit, (h) extraordinary items, (i) other significant non cash items Reporting Segment Information

16. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.13-16  Segment assets and liabilities: (a) the amount of investment in equity method investees and (b) the amount of liabilities.  Reconciliations to consolidated totals.  Segment assets and liabilities: (a) the amount of investment in equity method investees and (b) the amount of liabilities.  Reconciliations to consolidated totals. Reporting Segment Information

17. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 13-17  Income statements for the cumulative year- to-date time period and for the corresponding period of the prior fiscal year.  A balance sheet at the end of the current semi-annual and a balance sheet at the end of the corresponding interim period of the previous year.  Income statements for the cumulative year- to-date time period and for the corresponding period of the prior fiscal year.  A balance sheet at the end of the current semi-annual and a balance sheet at the end of the corresponding interim period of the previous year. Interim Reports Generally Contain-- Continued

18. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 13-18  A statement of cash flows as of the end of the current cumulative year-to-date period, and for the same time span for the prior year.  Notes to financial report  A statement of cash flows as of the end of the current cumulative year-to-date period, and for the same time span for the prior year.  Notes to financial report Interim Reports Generally Contain--

19. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 13-19  Estimated gross profit rates may be used to determine an interim period’s cost of goods sold.  Inventory losses due to an apparent permanent decline in market price are recognized in the period of decline using the lower-of-cost-or- market valuation method. Recoveries of market prices in later interim periods of the same fiscal year should be recognized up to the original cost. Practical Modifications for Determining Interim Income

20. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 13-20  Companies using a standard cost system for inventories should use the same procedure for computing and reporting variances in an interim period as used for the fiscal year. Practical Modifications for Determining Interim Income

21. McGraw-Hill/ Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 13-21 Chapter Thirteen The End