Epsilon is a listed entity. You are the financial controller of the entity and its consolidated financial statements for the year ended 31 March 2009 are being prepared. The board of directors is responsible for all key financial and operating decisions, including the allocation of resources.
Your assistant is preparing the first draft of the statements. He has a reasonable general accounting knowledge but is not familiar with the detailed requirements of all relevant financial reporting standards. There are two issues on which he requires your advice and he has sent you a note as shown below:
Issue 1
We intend to apply IFRS 8 €“ Operating Segments €“ in this year€™s financial statements. I am aware that this standard has attracted a reasonable amount of critical comment since it was issued in November 2006.
The board of directors receives a monthly report on the activities of the five significant operational areas of our business. Relevant financial information relating to the five operations for the year to 31 March 2009, and in respect of our Head office, is as follows:

I am unsure of the following matters regarding the reporting of operating segments:
— How do we decide on what our operating segments should be?
— Should we report segment information relating to head office?
— Which of our operational areas should report separate information? Operational areas A, B and C exhibit very distinct economic characteristics but the economic characteristics of operational areas D and E are very similar.
— Why has IFRS8 attracted such critical comment?

Issue 2
I note that on 31 January 2009 the board of directors decided to discontinue the activities of a number of our subsidiaries. This decision was made, I believe, because these subsidiaries did not fit into the long-term plans of the group and the board did not consider it likely that the subsidiaries could be sold. This decision was communicated to the employees on 28 February 2009 and the activities of the subsidiaries affected were gradually cur tailed star ting on 1 May 2009, with an expected completion date of 30 September 2009. I have the following information regarding the closure programme:
(a) All the employees in affected subsidiaries were offered redundancy packages and some of the employees were offered employment in other parts of the group. These offers had to be accepted or rejected by 30 April 2009. On 31 March 2009 the directors estimated that the cost of redundancies would be $20 million and the cost of relocation of employees who accepted alternative employment would be $10 million. Following 30 April 2009 these estimates were revised to $22 million and $9 million respectively.
(b) Latest estimates are that the operating losses of the affected subsidiaries for the six months to 30 September 2009 will total $15 million.
(c) A number of the subsidiaries are leasing properties under non-cancellable operating leases. I believe that at 31 March 2009 the present value of the future lease payments relating to these properties totaled $6 million. The cost of immediate termination of these lease obligations would be $5 million.
(d) The carrying values of the freehold properties owned by the affected subsidiaries at 31 March 2008 totaled $25 million. The estimated net disposal proceeds of the properties are $29 million and all properties should realise a profit.
(e) The carrying value of the plant and equipment owned by the affected subsidiaries at 31 March 2008 was $18 million. The estimated current disposal proceeds of this plant and equipment is $2 million and its estimated value in use (including the proceeds from ultimate disposal) is $8 million.

I am unsure regarding a number of aspects of accounting for this decision by the board. Please tell me how the decision to curtail the activities of the three subsidiaries affects the financial statements.

Required:
Draft a reply to the questions raised by yourassistant.

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Operational area Revenue for year to 31 March 2009 Profit(loss) for year to 31 March 2009 March 2009 Sub-total Head office Entity total 2