Operating segments – Cost centers

IFRS 8 defines an operating segment as a ‘component of an entity that engages in business activities from which it may earn revenues and incur expenses’. This recognises that not all business activities earn revenues.

Cost centers as a separate segment

Manufacturing entities that are managed by reference to operating cost centres, may not record cost center revenues because the entity’s total customer revenues are not allocated to each cost center.

Care should be exercised when determining whether an internally reported activity constitutes an operating segment (for example – A head office function that undertakes business activities (for example, a treasury operation that earns interest income and incurs expenses)) may be an operating segment as long as its revenues earned are more than incidental to the activities of the entity, and discrete financial information is reviewed by the CODM).

As long as discrete financial information is prepared and reviewed by the CODM such components would be considered operating segments.

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