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    Operating Segements

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    Himanshu Gaur
    The document outlines the requirements for identifying operating segments according to Ind AS 108, including defining an operating segment as a component regularly reviewed by management to assess performance and allocate resources. It describes the criteria for reportable segments, such as exceeding 10% thresholds for revenue, profit or loss, or assets. The disclosure section provides an example of how an entity would present segment revenues and results in the notes to the financial statements.

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    Operating Segements

    Uploaded by

    Himanshu Gaur
    39 views27 pages
    The document outlines the requirements for identifying operating segments according to Ind AS 108, including defining an operating segment as a component regularly reviewed by management to assess performance and allocate resources. It describes the criteria for reportable segments, such as exceeding 10% thresholds for revenue, profit or loss, or assets. The disclosure section provides an example of how an entity would present segment revenues and results in the notes to the financial statements.

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    The document outlines the requirements for identifying operating segments according to Ind AS 108, including defining an operating segment as a component regularly reviewed by management to assess performance and allocate resources. It describes the criteria for reportable segments, such as exceeding 10% thresholds for revenue, profit or loss, or assets. The disclosure section provides an example of how an entity would present segment revenues and results in the notes to the financial statements.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    39 views27 pages

    Operating Segements

    Uploaded by

    Himanshu Gaur
    The document outlines the requirements for identifying operating segments according to Ind AS 108, including defining an operating segment as a component regularly reviewed by management to assess performance and allocate resources. It describes the criteria for reportable segments, such as exceeding 10% thresholds for revenue, profit or loss, or assets. The disclosure section provides an example of how an entity would present segment revenues and results in the notes to the financial statements.

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    of 27

    Ind AS 108

    Operating Segments
    Agenda

    Section 1 Scope

    Section 2 Key Concepts

    Section 3 Presentation & Disclosure

    2
    Scope
    Scope

    This Accounting Standard shall apply to companies to which Indian


    Accounting Standards (Ind ASs) notified under the Companies Act apply.

    If an entity that is not required to apply this Ind AS chooses to disclose


    information about segments that does not comply with this Ind AS, it
    shall not describe the information as segment information.
    Key Concepts
    Operating Segments

    An operating segment is a component of an entity:

    a. that engages in business activities from which it may earn


    revenues and incur expenses,

    b. whose operating results are regularly reviewed by the


    entity's chief operating decision maker to make decisions
    about resources to be allocated to the segment and assess
    its performance, and

    c. for which discrete financial information is available.


    Chief Operating Decision Maker (CODM)

    The term 'chief operating decision maker' identifies a function,


    not necessarily a manager with a specific title.

    That function is to allocate resources to and assess the


    performance of the operating segments of an entity.

    Often the chief operating decision maker of an entity is its chief


    executive officer or chief operating officer but, for example, it
    may be a group of executive directors or others.
    A question for you : CODM (1)

     Executive Committee of Company ABC comprises CEO, COO


    and President
     Committee assesses performance and makes resource
    allocation decisions
     Each Committee member has a single vote

    Who is the CODM of Company ABC?


     Executive committee
     CEO
     COO
     President
    Response : CODM (1)

    The CODM is the Executive Committee because it is the highest


    level of management that assesses performance and makes
    resource allocation decisions.
    A question for you : CODM (2)

    (1) Same as previous slide, except that the President can


    override a vote of the Committee
    (2) Same as previous slide, except that a Supervisory Board
    reviews the operation of the Committee.

    In each case, can you identify the CODM?


    Response : CODM (2)

     In case 1, in our view the CODM is the President. This is on


    the basis that the President essentially controls the Executive
    Committee and therefore has control over the operating
    decisions that the Executive Committee makes.
     In case 2, in our view the CODM remains the Executive
    Committee because the mere existence of the higher level
    Supervisory Board does not necessarily mean that it is the
    CODM. In this example there is no indication that the
    Supervisory Board assesses performance and/or makes
    resource allocation decisions. In practice this will be a matter
    of judgement depending on the specific facts and
    circumstances.
    Reportable Segments

    An entity shall report separately information about each


    operating segment that:

    a. has been identified or results from aggregating two or


    more of those segments in accordance with aggregation
    criteria, and

    b. exceeds the quantitative thresholds


    Quantitative thresholds

    An entity shall report separately information about an


    operating segment that meets any of the following
    quantitative thresholds:
    a. Its reported revenue, including both sales to
    external customers and intersegment sales or
    transfers, is 10 per cent or more of the combined
    revenue, internal and external, of all operating
    segments.
    b. The absolute amount of its reported profit or loss
    is 10 per cent or more of the greater, in absolute
    amount, of (i) the combined reported profit of all
    operating segments that did not report a loss and
    (ii) the combined reported loss of all operating
    segments that reported a loss.
    c. Its assets are 10 per cent or more of the combined
    assets of all operating segments.
    Quantitative thresholds

    Note: If the total external revenue reported by operating


    segments constitutes less than 75 per cent of the entity's
    revenue, additional operating segments shall be identified as
    reportable segments (even if they do not meet the criteria in
    paragraph 13) until at least 75 per cent of the entity's
    revenue is included in reportable segments
    Quantitative thresholds-Example

    Segments A, B, C and E clearly satisfy the revenue and assets test under Ind AS 108
    and they are separate reportable segments. There is no need to consider profits test.
    Aggregation criteria

    Two or more operating segments may be aggregated into a


    single operating segment if aggregation is consistent with the
    core principle of this Ind AS, the segments have similar
    economic characteristics, and the segments are similar in each
    of the following respects:

     the nature of the products and services;


     the nature of the production processes;
     the type or class of customer for their products and services;
     the methods used to distribute their products or provide their
    services; and
     if applicable, the nature of the regulatory environment, for
    example, banking, insurance or public utilities.
    Steps for identifying Operating Segments

    Step 1
    Identify the CODM

    Step 2
    Can the component generate the
    revenue and incur expenses from
    its business activities
    No
    Yes
    The component
    is not a
    operating Step 3
    segment. Are the component’s operating
    No results regularly reviewed by the
    CODM as a basis for the
    resource allocation and
    performance assessment?

    Yes

    Step 4
    Determine quantative thresholds
    (10%)
    Steps for identifying Operating Segments

    Step 5
    Does operating segment exceed
    the 10% quantative thresholds
    Yes

    Yes /No

    Step 6
    These are Do the reportable segments
    reportable identified account for 75% of
    segments to consolidated revenue
    be disclosed
    No

    Step 7
    Identify additional operating
    segments (and if appropriate,
    aggregate with other reportable
    segments), until external revenue
    of reportable segments exceeds
    75% of consolidated returns
    Questions and answers

    Question:
    Is the CODM always viewed as the highest level of management at which
    decisions are made?

    Answer:
    Typically, yes. In almost every organisation, decisions about the entity’s resource
    allocation and the assessment of the performance of the entity’s businesses are
    made at the highest level of management.

    Question:
    Does a component meet the definition of a segment if the CODM reviews
    revenue-only information?

    Answer:
    In most cases, no. For most entities, the review of revenue-only data is not
    sufficient for decision-making related to resource allocation or performance
    evaluation of a segment.
    Questions and answers

    Question:
    Is a segment balance sheet necessary to conclude that discrete financial
    information is available?

    Answer:
    No. We believe that in many cases the requirement for discrete financial
    information can be met with operating performance information only, such as
    revenue and gross profit by product line.

    Question:
    Can a discontinued operation be an operating segment?

    Answer:
    Yes. A discontinued operation can meet the definition of an operating segment if:
    • it continues to engage in business activities;
    • the operating results are regularly reviewed by the CODM; and
    • discrete financial information is available to facilitate the review.
    Questions and answers

    Question:
    When applying the 75% test under Ind AS 108 para 15, should the next largest
    operating segment always be selected?

    Answer:
    No. The entity should select the next most meaningful operating segment.

    Question:
    Is aggregation must if two or more segments meet all the aggregation criteria?

    Answer:
    No, Aggregation into a single reportable is permitted. But its not compulsory.
    Disclosures
    Disclosure
    1.1 Adoption of Ind AS 108 Operating Segments

    The Company has adopted Ind AS 108 Operating Segments with effect from 1 April 20XX. Ind
    AS 108 requires operating segments to be identified on the basis of internal reports about
    components of the Company that are regularly reviewed by the chief operating decision maker
    in order to allocate resources to the segments and to assess their performance.

    1.2 Segment revenues and results

    The following is an analysis of the Company’s revenue and results from continuing operations
    by reportable segment:
    Segment Revenue Segment Profit
    Year Ended Year Ended
    31-Mar-XX 31-Mar-XX
    INR Crores INR Crores
    AA XXX XXX
    BB XXX XXX
    Others XXX XXX
    Less: Inter Segment Revenue XXX -
    Total for continuing operations XXX XXX

    Central administration costs XXX


    Profit before tax (continuing operations) XXXX
    Disclosure
    1.3 Segment assets and liabilities
    As at
    31-Mar-XX
    Segment assets INR Crores

    AA XXX
    BB XXX
    Others XXX
    Total segment assets XXXX

    Unallocated XXX
    Consolidated assets XXXXX

    Segment liabilities
    As at
    31-Mar-XX
    INR Crores
    AA XXX
    BB XXX
    Others XXX
    Total segment liabilities XXXX

    Unallocated XXX
    Consolidated liabilities XXXXX
    Disclosure
    1.4 Other segment information

    Depreciation and amortisation Additions to noncurrent


    assets
    Year Ended Year Ended
    31-Mar-XX 31-Mar-XX
    INR Crores INR Crores

    AA XXX XXX
    BB XXX XXX
    Others XXX XXX
    XXXX XXXX

    1.5 Revenue from major products and services


    Year Ended
    31-Mar-XX
    INR Crores
    X1 XXX
    X2 XXX
    X3 XXX
    X4 XXX
    Others
    Disclosure
    1.6 Geographical information

    The Company operates in two principal geographical areas – India (country of domicile) and
    Outside India.

    The Company’s revenue from continuing operations from external customers and information
    about its non-current assets by geographical location are detailed below.

    Revenue from Non-current assets*


    external customers
    Year Ended As at
    31-Mar-XX 31-Mar-XX
    INR Crores INR Crores
    India XXX XXX
    Outside India XXX XXX

    1.7 Information about major customers

    In respect of customers which accounts for more than 10% of the revenues
    Thank You

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