A company has several reporting segments. For segment reporting purposes under ASC 280, a segment is considered reportable if its reported revenue (including both sales to external customers and intersegment sales) is at least 10% of the combined revenue of all operating segments. Which of the following is also a criterion for a segment to be considered reportable?
- AIts assets are at least 5% of the combined assets of all operating segments.
- BIts cash flows from operations are at least 10% of the combined cash flows from all operating segments.
- CIts segment liabilities are at least 10% of the combined liabilities of all operating segments.
- DIts profit or loss is at least 10% of the combined reported profit of all operating segments that did not incur a loss.
Show answer & explanationAnswer & explanation
Correct answer: D. Its profit or loss is at least 10% of the combined reported profit of all operating segments that did not incur a loss.
ASC 280 outlines three 10% tests for identifying reportable segments: revenue, profit/loss, and assets. A segment is reportable if it meets any one of these tests. The profit/loss test compares the segment's absolute profit or loss to the greater of the combined profit of all profitable segments or the combined loss of all segments that incurred a loss.
Why the other options are wrong
- A. The asset threshold is 10%, not 5%.
- B. There is no 10% cash flow test for reportable segments.
- C. There is no 10% liabilities test for reportable segments.
ASC 280 Reportable Segment Criteria
Under ASC 280 (Segment Reporting), an operating segment is considered reportable if it meets any of three 10% quantitative thresholds: revenue, profit/loss, or assets. Additionally, the combined external revenue of all reportable segments must be at least 75% of the entity's total external revenue.
- Three 10% tests: Revenue, Profit/Loss, Assets
- Meet any one test to be reportable
- 75% external revenue coverage rule
Memory trick: To be a 'Reportable Star,' you need 10% of Revenue, Profit/Loss, or Assets, and 75% external coverage.