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PRACTICE QUESTIONS
QUESTION 1
Norman, a public limited company, has three business segments which are currently reported in its
financial statements. Norman is an international hotel group which reports to management on the basis of
region. The results of the regional segments for the year ended 31 May 2008 are as follows:
Region Revenue Segment results Segment Segment
External Internal profit/(loss) assets liabilities
$m $m $m $m $m
Europe 200 3 (10) 300 200
South East Asia 300 2 60 800 300
North America 460 4 103 1,900 1,260
Central America 30 1 1 80 100
Others 10 – 1 20 40

There were no significant intercompany balances in the segment assets and liabilities. The hotels are
located in capital cities in the various regions, and the company sets individual performance indicators for
each hotel based on its city location.
REQUIRED:
Discuss the principles in IFRS 8 Operating segments for the determination of a company’s reportable
operating segments and how these principles would be applied for Norman plc using the information given
above. (11 marks)

QUESTION 2
In its annual financial statements for the year ended 31 March 2013, Verge, a public limited company, had
identified the following operating segments:
(i) Segment 1 local train operations
(ii) Segment 2 inter-city train operations
(iii) 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 Verge for its services. In the local train
market, 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 Verge and the passengers pay Verge for the service provided.
REQUIRED:
Advise Verge on how the above accounting issue should be dealt with in its financial statements for the
years ending 31 March 2013. (5 marks)

Laurian, Vicent CPA(T), MSc

QUESTION 3
IFRS 8 Operating Segments seeks to assist the user of financial statements gain a clearer understanding
of the performance of the business by requiring disaggregation of the reported financial information into
segments.
Gedward plc is a conglomerate whose equity shares are quoted on the Dublin stock exchange. The group
manufactures, distributes and retails food products. It also operates a hotel chain for diversification of
revenues. The financial controller presents the following data to you. She wishes to know if IFRS 8 applies
to the entity, and if so what segments should be reported on. She informs you that the operating results of
each of the divisions below are internally reported separately to the chief operating decision maker.
Business Revenue (External) Revenue (Internal) Profit (loss) Assets
€ million € million € million € million
Manufacturing 460 250 32 1,450
Distribution 5 42 3 250
Retailing 750 15 75 375
Hotel chain 150 3 (14) 100
REQUIREMENT:
a) Discuss the requirements of IFRS 8 regarding:
(i) The identification of reportable segments; and
(ii) The information to be presented in respect of each reportable segment. (10 marks)
b) By applying IFRS 8 to the above financial data, explain with reasons which of the above
businesses of Gedward plc are reportable segments. (10 marks) [Total: 20 MARKS]

QUESTION 4
Klancet, a public limited company, is a pharmaceutical company and is seeking advice on the following
financial reporting issue.
Klancet produces and sells its range of drugs through three separate divisions. In addition, there are two
laboratories which carry out research and development activities.
In the first of these laboratories, the research and development activity is funded internally and centrally for
each of the three sales divisions. It does not carry out research and development activities for other
entities. Each of the three divisions is given a budget allocation which it uses to purchase research and
development activities from the laboratory. The laboratory is directly accountable to the division heads for
this expenditure.
The second laboratory performs contract investigation activities for other laboratories and pharmaceutical
companies. This laboratory earns 75% of its revenues from external customers and these external
revenues represent 18% of the organization’s total revenues.
The performance of the second laboratory’s activities and of the three separate divisions is regularly
reviewed by the chief operating decision maker (CODM). In addition to the heads of divisions, there is a
head of the second laboratory. The head of the second laboratory is directly accountable to the CODM and
they discuss the operating activities, allocation of resources and financial results of the laboratory.

Laurian, Vicent CPA(T), MSc

REQUIRED:
Klancet is uncertain as to whether the research and development laboratories should be reported as two
separate segments under IFRS 8 Operating Segments, and would like advice on this issue. (8 marks)

Laurian, Vicent CPA(T), MSc