Question

An operating segment is significant based on the profit or loss test if its profit or loss is 10% or more of

O the smaller of the combined profit of all profitable segments or the combined loss of all segments reporting a loss.
O the larger of the combined profit of all profitable segments or the combined loss of all segments reporting a loss.
O consolidated net income.

Answer 1

An operating segment is significant based on the profit or loss test if its profit or loss is 10% or more of the smaller of the combined profit of all profitable segments or the combined loss of all segments reporting a loss.

Step-by-step explanation:

Based on the profit or loss test, an operating segment is considered significant if its profit or loss is equal to or exceeds 10% of the smaller value between the combined profit of all profitable segments and the combined loss of all segments reporting a loss.

For example, if the combined profit of all profitable segments is $100,000 and the combined loss of all segments reporting a loss is $50,000, then a segment with a profit or loss of $10,000 or more would be considered significant.

This test helps identify operating segments that have a significant impact on the overall financial performance of an organization.