Final answer:
The '75% Reporting Sufficiency Test' is used to determine if a segment of a business should be reported separately. A segment is considered reportable if its revenue constitutes 75% or more of the combined revenue of all segments. The test also considers other factors such as segment profit, assets, and qualitative factors.
Step-by-step explanation:
The '75% Reporting Sufficiency Test' is a test used to determine whether a segment of a business should be reported separately in the company's financial statements. According to this test, a segment is considered reportable if its revenue constitutes 75% or more of the combined revenue of all operating segments. The test also takes into consideration other factors such as segment profit or loss, assets, and other qualitative factors like the nature of the business and the existence of any intersegment transactions.
For example, let's say a company has three operating segments - A, B, and C. The revenue of segment A is $100 million, segment B is $50 million, and segment C is $30 million. The combined revenue of all segments is $180 million. Since segment A's revenue ($100 million) constitutes more than 75% of the combined revenue ($180 million), segment A would be identified as a reportable segment in the company's financial statements.
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