馃攳
23-- Segment Reporting - YouTube
Channel: unknown
[0]
[Music]
[6]
I'm Larry Walter this is principles of
[9]
accounting dot-com chapter 23 and this
[12]
chapter is about reporting to support
[13]
managerial decisions this particular
[16]
module is on segment reporting a segment
[19]
is a discrete business unit for which
[20]
separate financial information is
[22]
prepared and evaluated by the chief
[25]
operating decision maker within the
[26]
organization so we are disaggregating
[29]
corporate information in looking at it
[31]
by unit of operation the decision-maker
[34]
usually has authority to allocate
[35]
resources and judge performance a
[37]
segment can be a region territory
[39]
division product category department or
[42]
any other classification this is a
[44]
highly subjective determination the goal
[46]
however is to divide or allocate overall
[48]
performance outcomes to the various
[50]
moving pieces that make up the entire
[52]
entity in the evaluating segment income
[55]
great care must be taken to develop a
[56]
very logical structure indirect cost for
[59]
example may be necessary cost for the
[61]
overall organization to function but
[63]
there's a question of how they should be
[65]
allocated to individual segments further
[68]
direct costs can become indirect as they
[70]
are pushed down within an organization
[72]
it's easy to overlook this facet for
[74]
example if you hit share an apartment
[75]
with a roommate the electricity consumed
[78]
by that apartment is a direct cost for
[80]
the apartment but for each of you
[82]
individually it becomes an indirect cost
[84]
because you're sharing the electricity
[86]
bill
[86]
the same issues arise in determining how
[88]
costs are spread within an organization
[90]
businesses often developed models for
[93]
allocating indirect costs to business
[94]
units the allocation scheme can be the
[97]
subject of debate and consternation as
[99]
each business unit may feel its profit
[101]
measurement is unduly burdened by an
[103]
unfair share of the indirect costs
[105]
reporting of segments is often
[108]
facilitated by some form of contribution
[110]
income statement it's an internal use
[112]
only document it identifies each
[114]
segments controllable cost elements and
[117]
costs it cannot be traced directly to a
[119]
subunit are considered only at higher
[121]
levels let's look at an example to show
[124]
how this can operate Zen computers is a
[126]
diversified company with two divisions
[128]
computer hardware and systems support
[131]
the hardware you
[132]
focuses on personal computers that is
[134]
PCs and personal digital entertainment
[137]
devices our PDEs will call them and so
[140]
here's their report and we can see we
[141]
look at the contribution margin for each
[143]
product and the division in the
[145]
aggregate the contribution margin
[146]
remember is sales - all variable cost
[149]
whether it's variable product cost or
[151]
variable sgna from that amount will
[154]
subtract controllable fixed cost that is
[157]
cost that are controllable by management
[159]
of that segment and directly traced to
[161]
that segments such as the supervisor
[163]
salary within this segment will subtract
[165]
those to find a controllable
[166]
contribution margin and that's a key
[169]
number and evaluating management
[170]
performance for an applicable unit will
[172]
also subtract certain uncontrollable
[174]
fixed cost that may not be controllable
[176]
by management but are definitely
[178]
incurred by the segment an example would
[180]
be property taxes or insurance for
[182]
example subtracting those amounts gives
[184]
us the segment margin for PCs for PDEs
[187]
and for the division there were certain
[189]
non-traceable cost non-traceable items
[192]
are directly traced to the overall
[194]
division not individual products and so
[196]
we're not allocating those to the PCs
[198]
our PDEs
[199]
the division total is going to be
[202]
carried forward into a successively
[203]
higher aggregation report that we'll see
[206]
in just a moment but first consider that
[208]
segment margins were computed for each
[209]
product that helped identify each
[212]
product is supporting it's an embedded
[214]
cost structure segment margin differs
[216]
from the controllable contribution
[218]
margin management is charged with
[220]
controlling certain costs a business
[223]
unit may incur additional fixed costs
[225]
that are beyond their control that's why
[227]
we break this out in our segment income
[229]
statement as we've done an
[230]
uncontrollable fixed cost must be
[232]
considered an evaluating unit viability
[234]
but not necessarily in assessing the
[236]
performance of a particular manager so
[238]
those are two discrete elements that
[240]
need to be evaluated management
[242]
effectiveness as well as the unit's
[244]
viability now here is the roll-up saw it
[247]
shaded the hardware division that's just
[250]
a role for the information from the
[251]
preceding combination of PCs and PDEs
[254]
will have similar items we'll calculate
[256]
the contribution margin and take into
[259]
account our other elements adding across
[261]
to get the company total but notice the
[263]
segment
[264]
I was fifty four hundred four hardware
[265]
it was fifteen hundred four systems but
[268]
there's still general corporate expenses
[270]
that we need to subtract and finding the
[271]
overall net income for the business the
[274]
general corporate expenses we do not
[275]
trace are assigned to a particular
[277]
division the point of the case study was
[280]
to show how contribution income
[282]
statements can remove bias that can
[283]
result from arbitrary allocations of
[285]
common cost it is also sometimes helpful
[288]
in identifying which business segments
[290]
are target's for expansions
[291]
restructuring or even discontinuing
[294]
occasionally a business might report
[296]
external information about segment
[298]
performance this is actually driven by
[299]
very specific generally accepted
[301]
accounting principles and rules however
[303]
before I get into that I want to point
[305]
out that management may be reluctant to
[306]
share this disaggregated information
[308]
they might not want to attract the
[310]
competition of a competitor or they have
[312]
particularly strong performing units on
[315]
the other hand they may not want to call
[316]
attention to their mistakes either they
[318]
may rather mask this that's why gap gets
[320]
into having a full disclosure about
[322]
certain segments information and so the
[324]
reporting rules require public companies
[326]
to present a limited amount of financial
[328]
information for each business segment
[330]
this generally consists of revenue
[332]
income and identify the last sets in use
[334]
by each significant segment of the
[336]
business there are specific mathematical
[337]
tests for determining generally ten
[339]
percent type test from determining when
[341]
a segments revenue is significant
[344]
separately as compared to the total
[345]
organization
[346]
similarly for operating profits and
[348]
assets and used by the business there's
[350]
a reconciliation of the corporate totals
[352]
and it might look like this this example
[355]
is repeated in your textbooks you can
[356]
see it and look at it in more detail if
[358]
you wish here's a business that has an
[360]
electrical product segment and a
[362]
galvanizing services segment and we're
[364]
not going to look at the specific
[366]
details here except a note that we do
[368]
have sales for each segment we have our
[370]
operating income for each segment and
[372]
we're dropping down and showing total
[374]
assets in use by each segment I've
[376]
skipped over that middle part there
[378]
which is the reconciliation of segment
[379]
income to total corporate income which
[381]
takes into account general corporate
[383]
expenses interest costs and so forth
[385]
businesses will also need to report
[387]
information about depreciation and
[389]
amortization and capital expenditures by
[391]
significant segments and so a fairly
[394]
robust set of information maybe not as
[396]
detailed as the intern
[397]
information we looked at maybe following
[399]
a little bit different classification
[401]
scheme but still giving sufficient
[402]
information to allow users of financial
[404]
statements to look inside beyond just
[407]
the consolidated results reported by the
[409]
business but to look inside the business
[410]
and see how specific business units are
[412]
performing
Most Recent Videos:
You can go back to the homepage right here: Homepage