What is the criterion for assets to constitute a reportable segment?

• A. Assets must be 15% of total assets
• B. Assets must be 10% or more of combined assets of all operating segments
• C. Assets must not exceed 20% of total liabilities
• D. Assets must be reported to external customers

Answer: (B)

The basis for determining if an asset contributes to a reportable segment relies on its materiality compared to the company’s overall asset composition. For an asset to qualify as part of a reportable segment, it must represent 10% or more of the combined assets of all operating segments. This percentage ensures that the segment's performance is significant enough to be reported separately, providing stakeholders with relevant information regarding the financial health and operational results of distinct areas of the business.

The focus on the 10% threshold is intended to flag segments that are material enough based on asset size, hence enabling users of financial statements to assess the impact and performance of various segments accurately. Segments meeting this criterion can reveal important insights into the company’s structure and profitability, ultimately allowing stakeholders to make better-informed decisions.

The other options either misrepresent the thresholds established by accounting standards or focus on less relevant criteria, such as percentage of liabilities or external reporting to customers, which do not determine the reporting of segment assets in the same way.