Australian Furnishing, Ltd. is a listed diversified manufacturing company. It pr
ID: 2581508 • Letter: A
Question
Australian Furnishing, Ltd. is a listed diversified manufacturing company. It produces most of its products in Australia and markets most of its products in Australia. It produces four types of products and services as follows:
Home furniture—wooden tables, chairs, and beds, sold to families through company stores and other furniture stores.
Office furniture—metal and plastic workstations and chairs, sold to corporate customers through company stores and other office furniture stores.
Interior design services—interior design advice from interior design professionals, customers are primarily high income females over 35 years of age, services market through company stores only.
Soft furnishings—curtains, cushions, and bed linens, sold to families through company stores only.
Australian Furnishings is organized internally into three business units, manufacturing home furniture, manufacturing office furniture, and stores. Stores include company owned stores that sell combinations of home furniture, office furniture, interior design services, and soft furnishings. Manufacturing home furniture includes the results of operating soft furnishings. Each business unit reports separate financial and operational information to the chief executive officer (CEO) and chief financial officer (CFO).
Required: Identify Australian Furnishings operating segments for application of IFRS 8.
Explanation / Answer
As per IFRS 8, an operating segment is a component of an entity
- that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity)
- whose operating results are regularly reviewed by the entity's Chief Operating Decision Maker to make decision about resources to be allocated to the segment and assess its performance, and, for which discrete financial information is available.
IFRS 8 indicates that a component should have its own revenue streams as well as incur expenses.
In light of the above explanation from IFRS 8, Australian Furnishing should have the following three Operating Segments -
Home Furniture : Financial and Operational information of Home Furniture business unit is reported to Chief Operating Decision makers (i.e. CEO and CFO). Home furniture are sold internally through Company Stores and also externally through other furniture stores and thus, it has own revenue stream and is incurring expenses.
Office Furniture : Like Home Furniture, office furniture unit is also reporting it's financial and operational information separately to CEO and CFO. Office furnitures are sold through Company Stores and other office furniture stores. Thus, it has it's own revenue stream and is incurring expeneses.
Stores : Other than selling Home and office furnitures, stores unit sells soft furnishings and also provide Interior Design Services. Thus, having it's own revenue stream and incurring expenses. Also, the financial and operating information of Stores unit are also separately reported to the CEO and CFO.
Thus, the three identifiable Operating Segments of Australian Furnishing as per IFRS 8 are Home Furniture, Office Furniture and Stores.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.