Advanced Accounting Chapter 8

6718 words 27 pages
Chapter 8
Segment and Interim Reporting
Chapter Outline I. FASB Accounting Standards Codification Topic 280, Segment Reporting (FASB ASC 280), provides current guidance on segment reporting.
A. ASC 280 follows a management approach in which segments are based on the way that management disaggregates the enterprise for making operating decisions; these are referred to as operating segments.
B. Operating segments are components of an enterprise which meet three criteria.
1. Engage in business activities and earn revenues and incur expenses.
2. Operating results are regularly reviewed by the chief operating decision-maker to assess performance and make resource allocation decisions.
3. Discrete financial information is available
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1. Revenues are recognized for interim periods in the same way as they are on an annual basis.
2. Interim statements should not reflect the effect of a LIFO liquidation if the units of beginning inventory sold are expected to be replaced by year-end; inventory should not be written down to a lower market value if the market value is expected to recover above the inventory's cost by year-end; and planned variances under a standard cost system should not be reflected in interim statements if they are expected to be absorbed by year-end.
3. Costs incurred in one interim period but associated with activities or benefits of multiple interim periods (such as advertising and executive bonuses) should be allocated across interim periods on a reasonable basis through accruals and deferrals.
4. The materiality of an extraordinary item should be assessed by comparing its amount against the expected income for the full year.
5. Income tax related to ordinary income should be computed at an estimated annual effective tax rate; income tax related to an extraordinary item should be calculated at the margin.

VI. FASB ASC 270 provides guidance for reporting changes in accounting principles made in interim periods.
A. Unless impracticable to do so, an accounting change is applied retrospectively, that is, prior period financial statements are restated as if the new accounting principle had always been


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