 Hello and welcome to the session in which we would look at a CPA exam questions that deals with reportable segments. You need to know how do we determine whether a segment is a reportable segment. Now this topic obviously covered on the CPA exam, covered on an intermediate accounting and covered in advanced accounting. So this topic is covered in multiple places. Whether you went to college and there's a special test, not special testers, there's a quantitative materiality test and you must meet one of those tests, whether it's one of them is revenue test, profit or loss test or identifiable asset test. Now we're going to look at this question and we're going to determine what do they want us to use, which quantitative materiality test to determine whether a segment is reportable or not. The reason I'm showing you those tests is to let you know that I do cover this topic in a separate recording. 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Try one month of subscription and if you don't like it, cancel. Your gain is potentially passing the exam and check out my website, if not for anything, to find out how well or not well is your university doing on the CPA exam. As I mentioned, I have advanced accounting, intermediate accounting courses, so you can check out those courses as well as well as many other courses. Connect with me on LinkedIn and take a look at my LinkedIn recommendation, students that use my system to pass the exam, like my YouTube and share them, connect with me on Instagram and Facebook. Let's take a look at this question. We have Google Corporation and the reason I selected Google is because Google run many other companies. They have many segments, so this way I can make the example a little bit realistic. Reported the following operating results or net loss from its component for the year and the December 31st. So Google has Google Search, Google Maps, Google Ads, YouTube and Google Clouds. I just made up these numbers, so don't think these are the actual numbers for any particular period or anything. They don't reflect anything. Now, they want you to compute what is a reportable segment based on the operating result of the company. So we have to look at the operating result of the company. What does that mean? It means we have to look at the profit and loss. Simply put, we have to look at this measurement. We have to determine first the absolute amount of it's a profit or loss. Okay. Combine operating profit of all segments that did not incur a loss and combine all losses of the operating segment that did not report a loss. That did report a loss. Sorry. So we have to separate the losses from the gains. So let's do that first. We're going to have a profit column, so we have to determine a profit column and a loss column. Okay. So we have to kind of keep the profit together, the losses together, add them up first. So and we don't use the, we don't use the consolidated amount. We use the component profit and loss. For the profit and loss, you would use the component. Remember this. So they're trying to trick you here to add the elimination and the consolidation. For the Google Search, they have 2,150,000. Google maps 300,000. Google adds a loss of 1.8 million. That's a loss column. YouTube, a profit of 800,000. And Google Cloud, a loss of 200,000. Let's start with losses. All the losses equal to a million. I'm sorry, 2 million, not million, 2 million. So this is, this is what we do first. Add up all the losses. Now we're going to add up all the gain. So we have, that's 800,101.1 million. So we're looking at 3,250,000. First, you have to choose the greater of these two. The greater of these two is the profit. So we look at the absolute value. Okay. So if the losses were negative 4 million, we look at the absolute value, negative 4 million, which is the absolute value of negative 4 million will be greater than 3.2. So we're going to, we're going to look at, we're going to use the profit number, which is 3.5 million and multiply it by 10 percent to find our threshold. If we take this number, multiply it by 10, 10 percent. The threshold is, the threshold is 325,000. This is the threshold, 325,000. This is the threshold. How did I come up with this? I took the greater of the total profit or the total loss, the absolute value of the greater, which was the profit multiplied by 10 percent. Now the reportable segments are the segments that either, that exceeds this number. For example, we can take out Google Maps. Google Maps is 300,000. Google Maps is out. Therefore, let's take out Google Maps from all the answers. Google Maps is out. So A is out. B is out. Google Maps. So we still have two to go. We're going to include Google Search because it's obviously greater than 325. We're going to include Google Ads. Although Google Ads have 1.8 million of losses, we look at the absolute value. So Google Ads will stay. Google Ads, this is Google Ads. Google Ads will stay. I already find the answer because this one does not have Google Ads. So the answer is D. But let's make sure. So we finished Google Ads. YouTube 800,000. YouTube is included. YouTube is included. And the cloud is 200,000 of losses. It's less, the absolute value is 200,000. It's less than 325. As we, as I thought, D is the answer. So we're going to include Google Search as a separate component, Google Ads and YouTube. I know the names of the companies are a little bit difficult to follow here, but I chose these companies kind of to make you understand the concept as well. And this is what I do. I try to explain these concepts. Obviously, I explain this, the whole thing, segment reporting, but this is just an example to show you how it's illustrated. Now, don't think that's the only thing you need to know about segment reporting. There's other tests you need to be aware of, but this is what the typical CPA questions might ask about. Now, at the end of this recording, I'm going to remind you, look, I am not trying to take away your CPA review course. By all means, keep it. I can't. But if you want that extra help, look, it's $30. Right now, my subscription is $30. Are you willing to pay $30 to find out whether I can help you or not? My course is designed similar to your CPA review course. Similar, it means I structured it in a way that's going to make, it's going to make your life easier to follow. Check me out. Study hard, good luck, and stay safe.