In order to determine which segments of a company's operations should be considered reportable, the company must consider several factors. These include the revenue test, the operating profit test, and the asset test.
- Revenue Test: A segment is reportable if it meets the revenue test, which states that a segment's revenue must be 10% or more of the combined revenue of all segments. Revenue includes inter-segment sales and transfers, and interest is included in the revenue test if the assets on which the interest is earned are included in that segment's identifiable assets.
- Operating Profit Test: A segment is reportable if it meets the operating profit test, which states that a segment's operating profit must be 10% or more of the combined operating profit of all segments. Operating profit is defined as a segment's revenue minus all operating expenses.
- Asset Test: A segment is reportable if it meets the asset test, which states that a segment's identifiable assets must be 10% or more of the combined identifiable assets of all segments. Identifiable assets are assets that can be clearly assigned to a specific segment
