In the Measure of Segment Profit or Loss Reviewed by the Chief
Applicability (Para 2 – Para 4)
♣ Applicable to all companies to which Ind Donkey notified under Companies Act apply.
♣ Companies to which Ind AS are not applicable simply voluntarily opts to disembalm Segment information, in that case entity has two options: either comply with all the requirements of this Ind AS or provide selective disclosures without using the term Segment Data.
♣ If a financial report contains both Parent's consolidated fiscal statement and Parent's standalone financial statement, Segment Information is required simply in Parent'southward consolidated financial argument.
However, Segment Data tin can optionally be disclosed in Parent's Standalone financial statement.
Operating Segments (Para 5)
An Operating Segment is a component of an entity that satisfies all of the post-obit weather condition:
- that engages in concern activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity);
- whose operating results are regularly reviewed by entity'south main operating decision maker (CODM) to make decisions about resource allocation to the segment and assess its performance ; and
- for which discrete financial information is available.
Explanations:-
Para 6: Every business action is not necessarily an operating segment and clarifies that corporate headquarters or some functional departments which do not earn revenues / may earn revenues that are simply incidental to the activities of the entity would not be operating segments. Examples:- Hire, Interest, Dividend etc.
Entities may incur expenses on centrally managed initiatives which are attributable to entity every bit a whole and not attributable to any operating segment. Instance: – CSR, Management expense of make, exploratory costs relating to new business opportunities, etc. An entity may elect to report such expenses under 'Unallocated corporate expenses' with an appropriate disclosure note and so long every bit such reporting is consistent with the manner in which operating results are reviewed by its CODM.
Explanation on Condition I:
It is not necessary for a component to earn revenue to authorize as an operating segment if other atmospheric condition are fulfilled, such as, the costs incurred are reviewed by CODM to make conclusion about resources resource allotment and detached fiscal data is available. Case: first-up operations may be operating segments before earning revenues.
Further, where acquirement data is representative of operating results and the cost involved is insignificant or where review of revenue just may be sufficient for CODM to allocate the resource and operation assessment. In such cases, business concern activeness can exist treated every bit Operating Segment.
Explanation on Condition III:
Discrete financial Information – level of details required by CODM to allocate resources to segments and to assess the functioning. A segment residue canvas is non ever necessary to conclude that discrete financial data is available. Requirement of discrete financial information can be met with operating performance information only where CODM needs but that much data, such as Revenue and Operating Profit.
However, in many cases, a specific component of business (east.k., R&D unit of measurement) may not have a discrete financial data and hence would not qualify as an Operating Segment.
CODM:
Para seven: CODM identifies a function, non necessarily a manager with specific title. CODM functions (resources allocation and assessing functioning) may be carried out by Entity's CEO, chief operating officer, CFO, senior management, BOD.
Para 10:
Management arroyo required identification of Operating Segments on the basis of criteria mentioned in Para 5 (i.e., how CODM reviews to classify the resources and appraise the performance). Two industries in the same industry can take very dissimilar operating segments because each will determine how their operating segments based on how its CODM reviews. Example: – In ABC Ltd (BPO and IT industry provides services to Republic of india, UAE and Rest of the world), CODM reviews for different products and services worldwide, whereas in XYZ Ltd (BPO and IT manufacture provides services to India, UAE and Rest of the world), CODM reviews for specific geographical areas. In that situation, ABC Ltd volition disclose Segment Information 'BPO and IT' as two Operating Segments and XYZ Ltd volition disembalm Segment Information 'India, UAE and Balance of the world' as iii Operating Segments.
Reportable Segments
Para 12: Aggregation Criteria
Ii or more Operating Segments may be aggregated into a unmarried operating segment if the segments accept similar economical characteristics and segments are similar in each of the post-obit respects:
- the nature of the products and services;
- the nature of the product processes;
- the type or course of client for their products and services;
- the methods used to distribute their products or provide their services; and
- if applicable, the nature of the regulatory surroundings, for east.g., banking, insurance or public utilities.
Explanation:-
It is non mandatory to apply aggregation criteria. Entity can still disembalm separately Information well-nigh Segments that meet all the criteria of Para 12.
Standard does not define "similar" and therefore whether 2 operating segments are similar or not is dependent on the facts and circumstances and is subject to the judgement.
While the standard does not define "economic characteristics" it states 'operating segments often exhibit similar long-term financial performance if they have like economic characteristics'. Example: similar long term average gross margins for 2 operating segments would be expected if their economic characteristics are similar.
Similar economic characteristics may too be indicated by metrics such equally sales growth, return on assets, return on capital employed in a long term perspective Or other valuation metrics that embed in the market'due south perception of competitive and financial risks and opportunities related to such industries. If operating segments are located in different geographical areas, entity needs to further evaluate whether economic characteristics across such geographies are similar or otherwise.
The nature of the products and services
An entity with a relatively narrow production line may not consider ii products to be like, while an entity with a wide product line may consider the 2 products to be similar. Case: a highly diversified entity may consider all consumer products to exist like if information technology has other businesses such as financial services and road structure.
Nature of the product process
Similar degrees of labour or capital intensiveness may indicate a similarity in the product process.
Blazon of class of customer
This criteria may be evaluated based on how CODM views the customer, viz., similar market and promotional efforts, common or interchangeable sales forces. Example: customer of entity A engaged in product of material – different from – entity B whose customers are engaged in manufacture of branded wearing apparel.
Methods used to distribute their products or provide their services
This criteria may exist evaluated based nature of the distribution channels (east.one thousand., retail outlets, mail order, spider web site) and the nature of the products sold (due east.g., component parts, finished appurtenances).
Para thirteen: Quantitative Thresholds
- Operating Segment's Reported revenue (External customers auction + Intersegment sale) >=x% of combined revenue (internal + external) of all operating segments
OR
Operating Segment's Reported profit/loss >=Greater of A) or B)
A) Combined reported PROFIT of all PROFITABLE operating segments
B) Combined reported LOSS of all operating segments reported LOSS
OR
- Operating Segment's Assets >=x% of combined assets of all operating assets
Operating Segments that practise not meet any of the quantitative thresholds may be considered reportable, if management believes that segment information would be useful to users of the financial statement.
Para fourteen: Operating Segments that do not see quantitative thresholds
⇓
Entity may combine those operating segments with other operating segments ONLY IF Para 12 weather are met
To Produce a Reportable Segment
Para 15:
If Total EXTERNAL Revenue reported by Operating Segments < Entity's Revenue, then boosted operating segments SHALL be identified equally reportable segments (even if Para thirteen criteria non met) until at least 75% of Entity'south Revenue included in Reportable segments.
Para 16:
Information about all other business organisation activities and operating segments that are not reportable shall exist disclosed under "All Other Segments" category separately from other reconciling items required by Para 28.
Para 17:
If Operating Segment identified as Reportable Segment in the immediately preceding menstruation is of continuing significance, that Segment Information shall be reported in the electric current period even if Para 13 criteria no longer meets.
Para 18:
If Operating Segment is Reportable in the current period, segment data for prior catamenia presented for comparatives shall exist restated, even if Para 13 criteria not satisfied for the prior period, unless necessary data is not available and the cost to develop is excessive.
Para nineteen:
There may exist a applied limit to the number of reportable segments beyond which segment information become also detailed. Although no precise limit has defined, as no. of reportable segments increases above 10, entity should consider whether a practical limit has reached.
Explanations:
Example on Para 13: ABC has 5 operating segments with post-obit information:
| Segment | Profit / (Loss) (in Rs. Crores) | As Absolute % of Rs. 8,280 crores | Reportable |
| A | 780 | ix% | No |
| B | 1,580 | 18% | Yes |
| C | (two,300) | 28% | Yes |
| D | (4,500) | 54% | Yes |
| E | 6,000 | 72% | Yes |
| Total | 1,480 |
Working:
All segments in profit i.east., A, B and E – Total Profit Rs. viii,280 crores
All segments in loss i.e., C and D – Total Loss Rs. half dozen,800 crores
Greater = Rs. 8,280 crores
Ind Every bit 108 does non deal specifically with such a situation where segments report unlike measures of segment profitability, assets and liabilities. However, in such a situation a consistent basis of measurement should be developed by the entity to perform 10 per cent examination.
Standing from in a higher place example: Profitability of Segment A and B are measured and reported to CODM on Earnings before Interest and Tax (EBIT) ground whereas Profitability of Segment C, D and E are measured and reported on Earnings afterward Tax (EAT) basis.
In this case, EBIT is the everyman measure out of profitability that is provided to CODM for all the segments. This should be the mensurate used to perform ten% test in such a case.
Standing Significance under Para 17: While no specific guidance provided in this regard, educational activity material on Ind AS 108 says – Operating segment would be regarded is of standing significance when, for example : reject below 10% is considered temporary, direction considers the segment to be of strategic importance, etc.
Disclosure Requirements (Para 22 to Para 30)
Para 22: General Information
i. Factors used to determine reportable segments (example: on what basis management has chosen to organise the entity – deviation in products and services, geographical areas, regulatory environment, and whether segment accept been aggregated)
Judgements made by direction in applying the aggregation criteria in Para 12 (includes brief description of the operating segments that have been aggregated and economic indicators & similar economic characteristics that have been assessed in determining aggregation.
ii. Types of products and services from which each reportable segment derives its revenues
(The sources of the revenue included in "All Other Segments" category shall be described).
Para 23: Info about Profit/ Loss, Assets and Liabilities
one. Measure out of Profit or Loss for each reportable segment (fifty-fifty if not provided to CODM)
2. Measure of full Assets and Liabilities for each reportable segment IF such amounts are regularly provided to CODM
3. Following shall disembalm about each reportable segment if the specified amounts are included in Segment Profit or Loss reviewed by CODM OR provided regularly to CODM fifty-fifty if not included in Segment Profit or Loss:
a) Revenue from external customers;
b) Revenue from intersegment sales;
c) Involvement revenue;
d) Interest expense;
eastward) Depreciation and amortisation;
f) cloth items of income and expense disclosed in accordance with Para 97 of Ind As 1, Presentation of Fiscal Statements;
thou) Entity' interest in Turn a profit or Loss of Assembly or JV accounted for by Equity method;
h) Income tax expense or income;
i) Cloth non-cash items other than depreciation and amortisation;
Note: Segment's interest revenue net of its involvement expense may be reported Merely IF CODM relies primarily on internet interest revenue to assess the functioning of the segment and brand decisions about resources allocation.
Para 24: Following shall disclose about each reportable segment if the specified amounts are included in Segment Profit or Loss reviewed by CODM OR provided regularly to CODM fifty-fifty if not included in Segment Profit or Loss:
a) Corporeality of investment in associates or JV accounted for by Equity method; and
b) Amount of additions to Non-current assets other than financial instruments, deferred taxation assets, internet defined do good assets (see Ind Every bit 19: Employee benefits) and rights arising under insurance contracts.
Para 26: If CODM uses more than than one measure out of an operating segment'southward profit or loss, segment's assets, segment'south liabilities – reported measures shall be those which are almost consistent with corresponding amounts in the entity'southward financial statements.
Para 27: Explanation of the measurements of segment profit or loss, segment avails and segment liabilities for each reportable segment.
a) Basis of accounting for transactions between reportable segments;
b) Nature of differences betwixt the measurements of segment's each disclosure item, viz., expense/income/avails/liabilities etc. and comparable items in entity's financial statements. Example: bookkeeping policy differences, policies for allocation of jointly used assets – provided these differences are not credible from reconciliations nether Para 28.
c) Nature of changes from the previous year in measurement methods used to make up one's mind Segment's Profit/Loss and the effect of those changes on Segment's Turn a profit/Loss.
d) Nature and Effect of Asymmetrical allocations to reportable segments
Example: Depreciation expense has allocated without allocating related depreciable assets.
Para 28: Reconciliations
a) Full of Reportable segment'southward Revenue, Profit/Loss, Assets, Liabilities and other material items to Entity's respective amounts in fiscal statements
b) Material reconciling items shall be separately identified and described.
Example: Entity use weighted average cost formula for inventory valuation for its financial statements only reports provided to CODM utilise FIFO method. In this case, FIFO method (used for reporting to CODM) should be used for reporting under Ind AS 108. All the same, reconciliation between segment results and results in entity's financials shall be given in Segment Information.
Para 29 and Para thirty: Entity changes structure of its internal organisation
⇓
Results in change of composition of its reportable segments
⇓
Respective information for earlier periods shall be restated unless info is non available and cost to develop it would exist excessive however Entity shall disembalm the fact whether earlier period info restated or not
⇓
If info for earlier periods non restated
⇓
Disclose segment information on both former ground and new basis for the Current Year unless info is not bachelor and cost to develop it would be excessive.
Entity-broad disclosures
Para 31: Para 32 to 34 applies to all entities including single reportable segment. Information required past Para 32 – 34 shall be provided ONLY IF it is not provided equally part of the reportable segment information required by this Ind AS.
Para 32: Info virtually products and services
a) Revenue from external customer for each production or service;
Para 33: Info well-nigh geographical areas
a) Revenue from external customers (disembalm the basis for attributing revenue to individual countries) attributed to :
b) Non-electric current avails other than financial instruments, deferred revenue enhancement assets, post-employment benefit assets, and rights arising under insurance contracts located in :
- Entity'south country of domicile and
- All the strange countries (if fabric, disclose individual foreign country)
Note for Para 32 and Para 33 :
- Should exist based on financial statements
- Need non be provided if info is not available and cost to develop information technology would be excessive. (THE FACT SHOULD BE DISCLOSED)
Country of abode: where it has a legal address, registered office, centre of its corporate affairs. (Example: Principal activities of an entity non located in its country of domicile and in other example, principal activities of an entity located in its country of habitation, disclosure requirement would exist aforementioned in both of the situations)
Para 34: Info about major customers (extent of entity's reliance on its major customers)
Revenue from Single External customer >= ten% of Entity'southward revenue, fact shall disclose alongwith total amount of revenues from each such customer and the segment to which it relates.
No need to disclose: identity of the customer or the amount of revenues that each segment reports from that customer.
Example: Revenues from one client of company'south Information technology sector represents approx. Rs. 50 million (10% of the company's total revenue.
General points
1) If activities conducted through JV or associates are reviewed separately by CODM for taking decisions about the group and the criteria for identifying operating segments are met, JV operations or associates may qualify as Operating segments for the purpose of Consolidated Financial Statements.
2) Terms such as Segment turn a profit/loss, segment avails and segment liabilities are not defined in Ind AS 108. Ind Every bit 108 follows the direction approach to segment reporting. It allows whatever measure of the to a higher place terms equally long as that measure is what is reported to and reviewed past CODM for the purposes of making decisions about allocating resources and assessing performances.
3) At the time of grooming of consolidated accounts, segment should exist adamant based on how CODM of parent company views the group every bit a whole.
4) The Standard provides no guidance on when the cost to develop information is excessive. The entity volition have to weigh the benefits of disclosing segmental information and the cost that will be incurred in developing the data. If it is time-consuming to prepare and the benefits to nigh of the users of financial statement are insufficient to justify the cost, such information need non be presented.
5) Summary:
6 ) Summary:
Place CODM
↓
Identification of documents and level of info reviewed by CODM
↓
Identify Operating Segments
↓
Apply Aggregation criteria to identified Operating Segments
↓
Place operating segments who meets Quantitative Threshold
↓
Remaining Operating Segments who does not run across Quantitative Threshold – Utilize aggregation criteria on those segments
↓
Now identified operating segments are Reportable Segments
↓
Confirm if identified Reportable Segments business relationship for 75% of the Entity'south Revenue, if non study additional other operating segments
↓
Prepare Disclosures for identified reportable segments
vii) Key differences between As 17 and Ind Equally 108
| S. No. | AS 17: Segment Reporting | Ind AS 108: Operating Segments |
| 1 | Ii sets of segments: Business Segment and Geographical Segment. One set is regarded as Primary Segment and other as Secondary Segment. | Ind AS 108 is based on management arroyo. Operating segments are identified based on reports reviewed by CODM. Operating segments tin either be based on products/services or on geographical basis. |
| 2 | Segment data is prepared in conformity with the accounting policies adopted for financial statements. As 17 defines segment revenue, segment expense, segment assets and segment liabilities. | Amounts reported for each operating segment shall be measured on the same basis used by CODM. And further reconciliation to exist given. Ind AS 108 does not define the mentioned terms, it works on the management approach. |
| three | No concept of aggregation criteria. | Deals with aggregation of two or more segments. |
| 4 | No disclosure in case of single reportable segment, however the fact should be disclosed. | Ind As 108 required certain disclosures even in instance of unmarried reportable segment. |
| 5 | Interest expense related to overdrafts and other operating liabilities identified to a particular segment should non be included as office of segment expense. However, if involvement expense is part of inventory and those inventories are part of segment assets, and then such interest should be considered as segment expense. | Requires separate disclosure for involvement revenue and interest expense of each reportable segment if these are included in reports reviewed past CODM. |
| 6 | Disclosures are based on nomenclature of primary or secondary segments. Disclosures for primary segments are more detailed. | Disclosures:
|
8) Extract of reconciliations ( taken from educational activity material on Ind AS 108 )
| Profit or Loss Total profit/loss for reportable segments
Income before income revenue enhancement expense | Rs. |
| Avails Total assets for reportable segments | Rs. |
Source: https://taxguru.in/chartered-accountant/ind-as-108-operating-segments.html
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