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Aasb 8 operating segments

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Reference no: EM132419147

Problem: Skater Limited is a company that develops, manufactures and sells ice skates. The company has the following divisions within its group structure:

  • Product development - this division is responsible for research and development of new ice skates.
  • Manufacturing - this division manufactures all ice stakes sold by the company. The division does not generate any revenue, but instead passes all products manufactured directly to the two sales & distribution divisions discussed below.
  • Sales & distribution (domestic) - this division is responsible for all domestic sales and is responsible for generating 95% of the company's revenue.
  • Sales & distribution (international) - this division is responsible for all domestic sales and is responsible for generating the remaining 5% of the company's revenue.
  • Administration - this division includes all support functions, such as HR, IT and accounting. Apart from a small amount of investment income this division does not generate any revenue.

Due to the small amount of revenue generated by the international sales & distribution division it is combined with the domestic sales & distribution division for the purposes of monthly reporting to management.

For AASB 8 Operating Segments, which of the following statements is correct?

a) The 'Product development' and 'Manufacturing' divisions are not operating segments as they do not generate revenues.

b) The 'Sales & distribution (domestic)' division is an operating division as it engages in business activities that earn revenues and its results are regularly reviewed by the chief operating decision maker.

c) The 'Sales & distribution (domestic)' and 'Sales & distribution (international)' divisions are both operating divisions as they both engage in business activities that earn revenues.

d) The 'Sales & distribution (international)' division is not an operating division as its results are not regularly reviewed by the chief operating decision maker.

e) The 'Administration' division is an operating division as it earns revenue and its results are regularly reviewed by the chief operating decision maker.

Reference no: EM132419147

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