In the situation where an entity has invested in segments that are diverse:
A) Segment information should enable the users of the financial statements to better predict the future profitability of the entity.
B) Segment information should enable the users of the financial statements to better predict the risk exposure of the entity.
C) Segment information is less useful because according to portfolio theory investments that are not correlated reduce the risk of an entity.
D) Segment information should enable the users of the financial statements to better predict the future profitability of the entity and enable the users of the financial statements to better predict the risk exposure of the entity.

Question

Quizplus · Accepted Answer

When an entity has invested in diverse segments, segment information becomes more important as it helps the users of financial statements to better predict both the future profitability and risk exposure of the entity. Segment information provides insights into the performance of individual business units, which is particularly relevant when the entity has diverse segments, and helps users to better understand the potential risks and returns associated with each segment.

In the Situation Where an Entity Has Invested in Segments