Question

Quantitative thresholds for classification as an operating segment Our company has 5 business units that we classify as operating segments. Financial data for these units follows:

($ millions) A B C D E
Sales $13,200 $241,300 $852,373 $1,538,317 $3,470,833
Profit 2,327 (5,738) 23,833 37,533 580,833
Assets 231,837 588,333 5,458,332 2,837,334 12,327,833

a. Calculate the quantitative thresholds and determine which of these operating segments should be disclosed in the footnotes to our financial statements. Show your calculations.
b. Do the required segments meet the 75% test?

Answer 1

a) Quantitative Threshold $64,452.6 million

Segments to be disclosed is Segment E

b) No,it does not makes the 75%. It makes 57%

Step-by-step explanation:

Calculation of Quantitative threshold

Total profit of profit making segments = (2,327+23,833+37,533+580,833)

=644,526 *10% =64,452.6

Total loss of segments= 5,733 *10% =573.3

Step 2 : Take higher of the two the make it threshold

Higher is $64,452.6

so any segment with a profit or loss greater than $64,452.6 is a reportable segment.

b) 75% Test

Total Revenue = $6,116,023

E = 3,470,833/6,116,023

=0.567 *100

=57%