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Inclusion of segmental information

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Reference no: EM131177286

Legion Air Limited is a company incorporated in Kenya which operates throughout East, Central and Southern Africa. It is in the process of making an Initial Public Offering of its shares in the Nairobi Stock exchange.

The following information is provided:

1. The main revenue-earning asset is a fleet of Aircraft,  each of which is registered in Kenya, and its other main source of revenue comes from the sale of holidays in the coastal region of Kenya. The directors are unsure as to how to identify business and geographical segments

2. The company also owns an aircraft maintenance subsidiary which carries out maintenance to its aircraft and third parties. Routine maintenance is charged by subsidiary at market price. However, for specialized work, since there is often no equivalent market price, the companies negotiate a price for the work.

3. The company has incurred an exceptional loss on the sale of several aircraft to the government of the Democratic republic of Congo. The loss occurred due to a fixed price contract which had been signed several years ago for the sale of second hand aircraft; the contract was denominated in the currency of the Congo: the Congo currency had fallen in value substantially against the Kenya shilling.

4. In the year under consideration, the company decided to discontinue its holiday business due to competition in this sector. This plan had been approved by the board of directors and announced in the press.

5. The company owns 40% of the ordinary shares of Tanzania Tours Limited, an unquoted company incorporated in Tanzania, which specializes in flying tourists to game parks in Tanzania from Arusha and Dar-es-salaam. The investment is accounted for using the equity method of accounting and it is proposed to exclude the company's results and financial position from segment revenue and assets.

Required:

(a) Explain why the information content of financial statements is improved by the inclusion of segmental information on individual business segments.

(b) Discuss the implications of each of the above points for the determination of the segmental information required to be prepared and disclosed under IAS 14 (Revised) "Segment Reporting" and other relevant International Accounting Standards.

Reference no: EM131177286

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