Reference no: EM132572394

SEGMENT REPORTING

In its annual financial statements for the year ended 31 March 2020, Syarikat Pengangkutan Rangkaian Mesra Bhd. (SPRM), a public listed company, had identified the following operating segments:

Segment 1 local train operations

Segment 2 inter-city train operations

Segment 3 railway constructions

• The company disclosed two reportable segments. Segments 1 and 2 were aggregated into a single reportable operating segment. Operating segments 1 and 2 have been aggregated on the basis of their similar business characteristics, and the nature of their products and services. In the local train market, it is the local transport authority which awards the contract and pays SPRM for its services. Contracts are awarded following a competitive tender process, and the ticket prices paid by passengers are set by and paid to the transport authority. In the inter-city train market, ticket prices are set by SPRM and the passengers pay SPRM for the service provided.

Required:

Question a) A central issue in reporting on operating segments of a business enterprise is the determination of which segments are reportable.

Instructions

(i) What are the tests to determine whether or not an operating segment is reportable?

(ii) What is the test to determine if enough operating segments have been separately reported upon, and what is the guideline on the maximum number of operating segments to be shown?

Question b) Advise SPRM on how the above accounting issue should be dealt with in its financial statements for the years ending 31 March 2020.