Question

Ermine Oil Limited (Ermine) is a fully integrated Canadian oil company. Ermine commenced operations as a petroleum exploration company and was very successful in its oil field discoveries. To attain market security and improve profits, Ermine was forced to embark on a program of vertical integration. It first acquired a refining division and then marketing and transportation divisions. From the beginning, management appreciated the integrated nature of the business, and production was transferred between divisions at standard cost. The management control system recognized the exploration, refining, and transportation divisions as cost centers and the marketing division as a revenue centre. While the exploration, refining, and transportation divisions did make external sales, historically none of these divisions’ external sales accounted for 10% of Ermine’s total sales. However, in the last fiscal year, due to unusual world market conditions, the transportation division’s sales accounted for 11% of Ermine’s total sales. Over 90% of Ermine’s sales were within Canada, with the balance spread over many countries worldwide. Ermine did not feel it was necessary to disclose segmented information in its annual financial statements.(.)

Required
Discuss how both Ermine and Beluga could report differently with respect to disclosure of segmented information, and yet be in accordance with generally accepted accounting principles.



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  • CreatedMarch 13, 2015
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