CA NITIN GOEL AS 17 CH 10N

SEGMENT REPORTING

Objective To establish principles for reporting financial information, about the

different types of products and services an enterprise produces and the
different geographical areas in which it operates.
Such information helps users of financial statements:
(a) better understand the performance of the enterprise;
(b) better assess the risks and returns of the enterprise; and
(c) make more informed judgements about the enterprise as a whole

Business A distinguishable component of an enterprise that is engaged in providing

segment an individual product or service or a group of related products or services
and that is subject to risks and returns that are different from those of
other business segments.
Factors that should be considered in determining whether products or
services are related include:
(a) the nature of the products or services;
(b) the nature of the production processes;
(c) the type or class of customers for the products or services;
(d) the methods used to distribute the products or provide services; and
(e) if applicable, the nature of the regulatory environment, for example,
banking, insurance, or public utilities.

Geographical A distinguishable component of an enterprise that is engaged in providing

segment products or services within a particular economic environment and that is
subject to risks and returns that are different from those of components
operating in other economic environments.
Factors that should be considered in identifying geographical segments
include:
(a) similarity of economic and political conditions;
(b) relationships between operations in different geographical areas;
(c) proximity of operations;
(d) special risks associated with operations in a particular area;
(e) exchange control regulations; and
(f) the underlying currency risks

Reportable A business or a geographical segment identified on the basis of foregoing

segment definitions for which segment information is required to be disclosed by
this Standard.

Segment Aggregate of
revenue ✓ the portion of enterprise revenue that is directly attributable to a
segment,
✓ the relevant portion of enterprise revenue that can be allocated on a
reasonable basis to a segment, and
✓ revenue from transactions with other segments of the enterprise.

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Segment revenue does not include:

 extraordinary items as defined in AS 5
 interest or dividend income, including interest earned on advances or
loans to other segments unless operations of segment are primarily of
a financial nature
 Gains on sale of investment or on extinguishment of debt unless
operations of segment are primarily of a financial nature
Segment Aggregate of
expense ✓ the expense resulting from the operating activities of a segment that is
directly attributable to the segment, and
✓ the relevant portion of enterprise expense that can be allocated on a
reasonable basis to the segment, and
✓ expense relating to transactions with other segments of the enterprise.
Segment expense does not include:
 extraordinary items as defined in AS 5
 interest expense, including interest incurred on advances or loans from
other segments, unless operations of the segment are primarily of a
financial nature;
 income tax expense; and
 general administrative expenses, head-office expenses, and other
expenses that arise at the enterprise level and relate to the enterprise
as a whole.

Segment Segment revenue less Segment expense.

result
Segment Those operating assets that are employed by a segment in its operating
assets activities and that either are directly attributable to the segment or can be
allocated to the segment on a reasonable basis.
Segment assets do not include income tax assets & assets used for
general enterprise or head office purposes
Segment Those operating liabilities that result from the operating activities of a
liabilities segment and that either are directly attributable to the segment or can be
allocated to the segment on a reasonable basis.
Segment liabilities do not include income tax liabilities and borrowings and
other liabilities that are incurred for financing rather than operating
purposes
Identifying Primary and Secondary Segment Reporting Formats
Reportable ➢ The dominant source and nature of risks and returns of an enterprise
Segments should govern whether its primary segment reporting format will be
business segments or geographical segments.
➢ If the risks and returns of an enterprise are affected predominantly by
differences in the products and services it produces, its primary format
for reporting segment information should be business segments, with
secondary information reported geographically & vice versa.
Organizational and management structure of an enterprise and its internal
financial reporting system normally provide the best evidence of the
predominant source of risks and returns of the enterprise for the purpose
of its segment reporting

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Identifying A business segment or geographical segment should be identified as a

Reportable reportable segment if:
Segments ➢ its revenue from sales to external customers & from transactions with
(Quantitative other segments is 10% or more of total revenue, external & internal, of
Threshold) all segments; or
(Materiality ➢ its segment result, whether profit or loss, is 10 % or more of –
Test) (i) the combined result of all segments in profit, or
(ii) the combined result of all segments in loss,
whichever is greater in absolute amount; or
➢ its segment assets are 10% or more of the total assets of all segments.
Points to ❖ A business segment or a geographical segment which is not a reportable
remember segment may be designated as a reportable segment despite its size at
the discretion of the management of the enterprise. If that segment is
not designated as a reportable segment, it should be included as an
unallocated reconciling item.
❖ If total external revenue attributable to reportable segments constitutes
< 75% of the total enterprise revenue, additional segments should be
identified as reportable segments, even if they do not meet the 10%
thresholds until at least 75 % of total enterprise revenue is included in
reportable segments. (Overall Test)
❖ A segment identified as a reportable segment in the immediately
preceding period because it satisfied the relevant 10% thresholds should
continue to be a reportable segment for the current period
notwithstanding that its revenue, result, and assets all no longer meet
the 10% thresholds

Primary An enterprise should disclose the following for each reportable segment:
Reporting ➢ segment revenue, classified into segment revenue from sales to
Format external customers and segment revenue from transactions with other
segments;
➢ segment result;
➢ total carrying amount of segment assets;
➢ total amount of segment liabilities;
➢ total cost incurred during the period to acquire segment assets that are
expected to be used during more than one period (tangible and
intangible fixed assets);
➢ total amount of expense included in the segment result for depreciation
and amortization in respect of segment assets for the period; and
➢ total amount of significant non-cash expenses, other than depreciation
and amortization in respect of segment assets, that were included in
segment expense &, therefore, deducted in measuring segment result.

Secondary An enterprise should disclose the following for each reportable segment:
Reporting ➢ segment revenue from sales to external customers
Format ➢ total carrying amount of segment assets;
➢ total cost incurred during the period to acquire segment assets that are
expected to be used during more than one period (tangible and
intangible fixed assets);
Reporting of only those segments is required which fulfill the 10%
criterion.
(Means reportable segments only)

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Other In measuring and reporting segment revenue from transactions with other
Disclosures segments, inter-segment transfers should be measured on the basis that
enterprise actually used to price those transfers. The basis of pricing inter-
segment transfers and any change therein should be disclosed in the
financial statements.

Changes in accounting policies adopted for segment reporting that have a

material effect on segment information should be disclosed. Such
disclosure should include a description of the nature of the change, and
the financial effect of the change if it is reasonably determinable.

An enterprise should comply with the requirements of this Standard fully

and not selectively. If a single financial report contains both consolidated
financial statements and separate financial statements of the parent,
segment information need be presented only on the basis of the
consolidated financial statements.

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ASSIGNMENT QUESTIONS
Question 1 (ICAI Study Material) Pg no._____
The Chief Accountant of Sports Ltd. gives the following data regarding its six segments:
₹ in lakhs
Particulars M N O P Q R Total
Segment Assets 40 80 30 20 20 10 200
Segment Results 50 (190) 10 10 (10) 30 (100)
Segment Revenue 300 620 80 60 80 60 1,200
The Chief accountant is of the opinion that segments “M” and “N” alone should be reported. Is
he justified in his view? Discuss.

Question 2 (ICAI Study Material) Pg no._____

ABC Limited has 5 segments namely A, B, C, D and E. The profit/loss of each segment for
the year ended March 31st, 20X2 is as follows:
Segment Profit/(Loss) (₹ in crore)
A 780
B 1,500
C (2,300)
D (4,500)
E 6,000
Total 1,480
Identify the Reportable segments.

Question 3 (ICAI Study Material) Pg no._____

Microtech Ltd. produces batteries for scooters, cars, trucks, and specialised batteries for
invertors and UPS. How many segments should it have and why?

Solution
In case of Microtech Ltd., the basic product is the batteries, but the risks and returns of the
batteries for automobiles (scooters, cars and trucks) and batteries for invertors and UPS are
affected by different set of factors. In case of automobile batteries, the risks and returns are
affected by the Government policy, road conditions, quality of automobiles, etc. whereas in
case of batteries for invertors and UPS, the risks and returns are affected by power condition,
standard of living, etc. Therefore, it can be said that Microtech Ltd. has two business
segments viz- ‘Automobile batteries’ and ‘batteries for Invertors and UPS’

Question 4 (ICAI Study Material) Pg no._____

M/s XYZ Ltd. has three segments namely X, Y, Z. The total Assets of the Company are ₹ 10.00
crores. Segment X has ₹2.00 crores, segment Y has ₹ 3.00 crores and segment Z has ₹ 5.00
crores. Deferred tax assets included in the assets of each segments are X- ₹ 0.50 crores,
Y— ₹ 0.40 crores and Z— ₹ 0.30 crores. The accountant contends that all the three segments
are reportable segments. Comment.

Solution
According to AS 17 “Segment Reporting”, segment assets do not include income tax assets.
Therefore, the revised total assets are ₹ 8.8 crores [₹ 10 crores – (₹ 0.5 + ₹ 0.4 + ₹ 0.3)].
Segment X holds total assets of ₹ 1.5 crores (₹ 2 crores – ₹ 0.5 crores);
Segment Y holds ₹ 2.6 crores (₹ 3 crores – ₹ 0.4 crores); and

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Segment Z holds ₹ 4.7 crores (₹ 5 crores – ₹ 0.3 crores).

Thus all the three segments hold more than 10% of the total assets, all segments are
reportable segments.

Question 5 (RTP May 2018/Nov 2019/Nov 2020/May 2021/May/Nov 2022 (Sim.)/ICAI Study Material) Pg no._____
A Company has an inter-segment transfer pricing policy of charging at cost less 10%. The
market prices are generally 25% above cost. Is the policy adopted by the company correct?

Solution
AS 17 ‘Segment Reporting’ requires that inter-segment transfers should be measured on the
basis that the enterprise actually used to price these transfers. The basis of pricing inter-
segment transfers and any change therein should be disclosed in the financial statements.
Hence, the enterprise can have its own policy for pricing intersegment transfers and hence,
inter-segment transfers may be based on cost, below cost or market price.
However, whichever policy is followed, the same should be disclosed and applied
consistently. Therefore, in the given case inter-segment transfer pricing policy adopted by the
company is correct if, followed consistently.

Question 6 (ICAI Study Material) Pg no._____

Prepare a segmental report for publication in Diversifiers Ltd. from the following details of
the company’s three divisions and the head office:
₹ (‘000)
Forging Shop Division
Sales to Bright Bar Division 4,575
Other Domestic Sales 90
Export Sales 6,135
10,800
Bright Bar Division
Sales to Fitting Division 45
Export Sales to Rwanda 300
345
Fitting Division
Export Sales to Maldives 270

Particulars Head Office ₹ Forging Shop Bright Bar Fitting

(‘000) Division Division Division
₹ (‘000) ₹ (‘000) ₹ (‘000)
Pre-tax operating result 240 30 (12)
Head office cost reallocated 72 36 36
Interest costs 6 8 2
Fixed assets 75 300 60 180
Net current assets 72 180 60 135
Long-term liabilities 57 30 15 180

Question 7 (RTP Nov 2018) / (ICAI Study Material) Pg no._____

Calculate segment results of a manufacturing organization from the following information:
Segments A B C Total
Directly attributed revenue 5,00,000 3,00,000 1,00,000 9,00,000
Enterprise revenue 1,10,000
(allocated in 5 : 4 : 2 basis)

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Revenue from transactions with

other segments
Transaction from B 1,00,000 50,000 1,50,000
Transaction from C 10,000 50,000 60,000
Transaction from A 25,000 1,00,000 1,25,000
Operating expenses 3,00,000 1,50,000 75,000 5,25,000
Enterprise expenses 77,000
(allocated in 5 : 4 : 2 basis)
Expenses on transactions with
other segments
Transaction from B 75,000 30,000 1,05,000
Transaction from C 6,000 40,000 46,000
Transaction from A 18,000 82,000 1,00,000

Question 8 (RTP May 2019) / (ICAI Study Material) Pg no._____

PK Ltd. has identified business segment as its primary reporting format. It has identified India,
USA and UK as three geographical segments. It sells its products in the Indian market, which
constitutes 70 percent of the Company’s sales. 25 per cent is sold in USA and the balance is
sold in UK. Is PK Ltd. as part of its geographical secondary segment information, required to
disclose segment revenue from export sales, where such sales are not significant?
Solution
As per AS 17 if primary format of an enterprise for reporting segment information is business
segments, it should also report segment revenue from external customers by geographical
area based on the geographical location of its customers, for each geographical segment
whose revenue from sales to external customers is 10 per cent or more of enterprise revenue.
Accordingly, for the purposes of disclosing secondary segment information, PK Ltd is
not required to disclose segment revenue from export sales to UK, since that segment does
not meet the 10 per cent or more of enterprise revenue threshold. However, other secondary
segment information as per AS 17 should be disclosed in respect of this segment if the
thresholds prescribed in the AS 17 are met.

Question 9 (RTP Nov 2021) Pg no._____

(a) Company A is engaged in the manufacture of chemicals. The company manufactures five
types of chemicals that have different applications. Can this company include more than
one type of chemical in a single business segment? Comment.
(b) Is an enterprise required to disclose changes in the basis of allocation of revenue and
expenses to segments? Explain.
Solution
(a) As per AS 17, “A business segment is a distinguishable component of an enterprise that
is engaged in providing an individual product or service or a group of related products of
services and that is subject to risks and returns that are different from those of other
business segments. Factors that should be considered in determining whether products
or services are related include:
(a) the nature of the products of services;
(b) the nature of the productions processes;
(c) the type of class of customers for the products or services;
(d) the methods use to distribute the products or provide the services; and
(e) if applicable, the nature of the regulatory environment, for example, banking,
insurance, or public utilities.”

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As per provisions of the standard, a single business segment does not include products
and services with significantly differing risks and returns. Products and services included
in a single business segment may be dissimilar with respect to one or several factors
listed above but are expected to be similar with respect to majority of the factors.
In the present case, the Company should consider whether the chemicals with different
applications, have similar risks end returns. For this purpose, the Company should
ascertain whether one or more types of chemicals are related keeping in view the
relevant factors including those given in the definition of business segment. Chemicals
having different applications can be included in a single business segment if majority of
the relevant factors including those listed above are similar. This would ensure that the
chemicals having significantly different risks and returns are not included in a single
business segment.

(b) As per AS 17, “Changes in accounting policies adopted for segment reporting that have a
material effect on segment information should be disclosed. Such disclosure should
include a description of the nature of the change, and the financial effect of the change if
it is reasonably determinable.” It also states that “some changes in accounting policies
relate specifically to segment reporting. Examples include changes in identification of
segments and changes in the basis for allocating revenues and expenses to segments.
Such changes can have a significant impact on the segment information reported but will
not change aggregate financial information reported for the enterprise. To enable users
to understand and impact of such changes, this Statement requires the disclosure of the
nature of change and the financial effect of the change, if reasonably determinable”.
In view of the above, a change in the basis of allocation of revenue and expenses to
segments is a change in the accounting policy adopted for segment reporting.
Accordingly, if the change has a material financial effect on the segment information, a
description of the nature of the change, and the financial effect of the change, if it is
reasonably determinable, should be disclosed.

Question 10 (RTP May 2022) / (ICAI Study Material) Pg no._____

Company A is engaged in the manufacture and sale of products, which constitute two distinct
business segments. The products of the Company are sold in the domestic market only. The
management information system of the Company is organized to reflect operating information
by two broad market segments, rural and urban. Besides the two business segments, how
should Company A identify geographical segments? Do geographical segments exist within
the same country? Explain in line with the provisions of AS 17.

Solution
AS 17 explains that, “a single geographical segment does not include operations in economic
environments with significantly differing risks and returns. A geographical segment may be
a single country, a group of two or more countries, or a region within a country”.
Accordingly, to identity geographical segments, Company A needs to evaluate whether the
segments reflected in the management information system function in environments that are
subject to significantly differing risks and returns irrespective of the fact whether they are
within the same country.
The Standard recognizes that, “Determining the composition of a business or geographical
segment involves a certain amount of judgement…”. Accordingly, while the management
information system of the Company provides segment information for rural and urban
geographical segments for the purpose of internal reporting, judgement is required to
determine whether these segments are subject to significantly differing risks and returns
based on the definition of geographical segment. In making such a judgement, aspect like

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different pricing and other policies, e.g., credit policies, deployment of resources between
different regions etc., may be considered for the purpose identifying ‘urban and ‘rural’ as
separate geographical segment.
Company A, in making judgment for identifying geographical segments, should also consider
the relevance, reliability and comparability over time of segment information that will be
reported. The Standard, explains that, “In making that judgement, enterprise management
takes into account the objective of reporting financial information by segment as set forth in
the standard and the qualitative characteristics of financial statements. The qualitative
characteristics include the relevance, reliability and comparability over time of financial
information that is reported about the different groups of products and services of an
enterprise and about its operations in particular geographical areas, and the usefulness of
that information for assessing the risks and returns of the enterprise.”

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PRACTICE QUESTIONS
Question 1 (Inter Nov 2019) (5 Marks) Pg no._____
Mac Ltd. gives the following data regarding its six segments:
₹ in lakhs
Particulars A B C D E A Total
Segment Assets 80 160 60 40 40 20 400
Segment Results 100 (380) 20 20 (20) 60 (200)
Segment Revenue 600 1240 160 120 160 120 2,400
The accountant contends that segments 'A' and 'B' alone are reportable segments. Is he
justified in his view? Discuss in the context of AS-17 'Segment Reporting'.

Solution
As per AS 17 ‘Segment Reporting’, a business segment or geographical segment should be
identified as a reportable segment if:
(i) Its revenue from sales to external customers and from other transactions with other
segments is 10% or more of the total revenue- external and internal of all segments; or
(ii) Its segment result whether profit or loss is 10% or more of:
(1) The combined result of all segments in profit; or
(2) The combined result of all segments in loss, whichever is greater in absolute amount;
or
(iii) Its segment assets are 10% or more of the total assets of all segments.
Further, if the total external revenue attributable to reportable segments constitutes less
than 75% of total enterprise revenue, additional segments should be identified as reportable
segments even if they do not meet the 10% thresholds until at least 75% of total enterprise
revenue is included in reportable segments.

Accordingly,
On the basis of turnover criteria segments A and B are reportable segments.
On the basis of the result criteria, segments A, B and F are reportable segments (since their
results in absolute amount are 10% or more of ₹ 400 lakhs).
On the basis of asset criteria, all segments except F are reportable segments.
Since all the segments are covered in at least one of the above criteria all segments have to
be reported upon in accordance with Accounting Standard (AS) 17. Hence, the opinion of
accountant is wrong.

Question 2 (RTP May 2020) / (RTP May 2023) (Similar) Pg no._____

The Chief Accountant of Cotton Garments Ltd. gives the following data regarding its five
segments:
₹ in crore
Particulars A B C D E Total
Segment Assets 40 15 10 10 5 80
Segment Results (95) 5 5 (5) 15 (75)
Segment Revenue 310 40 30 40 30 450
The Chief accountant is of the opinion that segment “A” alone should be reported. Is he justified
in his view? Examine his opinion in the light of provisions of AS 17 'Segment Reporting'.

Solution
As per AS 17 ‘Segment Reporting’, a business segment or geographical segment should be
identified as a reportable segment if:

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(i) Its revenue from sales to external customers and from other transactions with other
segments is 10% or more of the total revenue- external and internal of all segments; or
(ii) Its segment result whether profit or loss is 10% or more of:
(1) The combined result of all segments in profit; or
(2) The combined result of all segments in loss, whichever is greater in absolute amount;
or
(iii) Its segment assets are 10% or more of the total assets of all segments.
Further, if the total external revenue attributable to reportable segments constitutes less
than 75% of total enterprise revenue, additional segments should be identified as reportable
segments even if they do not meet the 10% thresholds until at least 75% of total enterprise
revenue is included in reportable segments.

Accordingly,
(a) On the basis of revenue from sales criteria, segment A is a reportable segment.
(b) On the basis of the result criteria, segments A & E are reportable segments (since their
results in absolute amount is 10% or more of ₹ 100 crore).
(c) On the basis of asset criteria, all segments except E are reportable segments.
Since all the segments are covered in atleast one of the above criteria, all segments have to
be reported upon in accordance with AS 17. Hence, the opinion of chief accountant that only
segment ‘A’ is reportable is wrong.

Question 3 (Inter Nov 2020) (5 Marks) Pg no._____

The accountant of Parag Limited has furnished you with the following data related to its
Business Divisions:
Division A B C D Total
Segment Revenue 100 300 200 400 1,000
Segment Result 45 -70 80 -10 45
Segment Assets 39 51 48 12 150
You are requested to identify the reportable segments in accordance with the criteria laid
down in AS 17.

Solution
As per AS 17 ‘Segment Reporting’, a business segment or geographical segment should be
identified as a reportable segment if:
a) Its revenue from sales to external customers and from other transactions with other
segments is 10% or more of the total revenue- external and internal of all segments;
or
b) Its segment result whether profit or loss is 10% or more of:
The combined result of all segments in profit; or
The combined result of all segments in loss, whichever is greater in absolute amount;
or
c) Its segment assets are 10% or more of the total assets of all segments.
On the basis of revenue criteria, segments A, B, C and D - all are reportable segments.
On the basis of the result criteria, segments A, B and C are reportable segments (since their
results in absolute amount is 10% or more of 125 Lakhs).
On the basis of asset criteria, all segments except D are reportable segments.
Since all the segments are covered in at least one of the above criteria, all segments have to
be reported upon in accordance with Accounting Standard (AS) 17.

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Question 4 (Inter Jan 2021) (5 Marks) Pg no._____

The Senior Accountant of AMF Ltd. gives the following data regarding its five segments:
Division P Q R S T Total
Segment Assets 80 30 20 20 10 160
Segment Result (190) 10 10 (10) 30 (150)
Segment Revenue 620 80 60 80 60 900
The Senior Accountant is of the opinion that segment "P" alone should be reported. Is he
justified in his view? Examine his opinion in the light of provision of AS-17 'Segment Reporting'.

Solution
As per AS 17 ‘Segment Reporting’, a business segment or geographical segment should be
identified as a reportable segment if:
a) Its revenue from sales to external customers and from other transactions with other
segments is 10% or more of the total revenue- external and internal of all segments;
or
b) Its segment result whether profit or loss is 10% or more of:
The combined result of all segments in profit; or
The combined result of all segments in loss, whichever is greater in absolute amount;
or
c) Its segment assets are 10% or more of the total assets of all segments.
Accordingly,
(a) On the basis of revenue from sales criteria, segment P is a reportable segment.
(b) On the basis of the result criteria, segments P & T are reportable segments (since their
results in absolute amount is 10% or more of 200 Lakhs).
(c) On the basis of asset criteria, all segments except T are reportable segments.
Since all the segments are covered in at least one of the above criteria, all segments have to
be reported upon in accordance with AS 17. Hence, the opinion of chief accountant that only
segment ‘P’ is reportable is wrong.

Question 5 (Inter May 2022) (5 Marks) / (ICAI Study Material) Pg no._____

XYZ Ltd. has 5 business segments. Profit / Loss of each of the segments for the year ended
31st March,2022 has been provided below. You are required to identify from the following
whether reportable segments or not reportable segments, on the basis of "profitability test"
as per AS-17.
Segment Profit (Loss) ₹ in lakhs
A 225
B 25
C (175)
D (20)
E (105)

Solution
As per AS 17 ‘Segment Reporting’, a business segment or geographical segment should be
identified as a reportable segment if:
Its segment results whether profit or loss is 10% or more of:
(i) The combined result of all segments in profit; i.e. ₹ 250 Lakhs or
(ii) The combined result of all segments in loss; i.e. ₹ 300 Lakhs
whichever is greater in absolute amount i.e. ₹ 300 Lakhs.

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Operating Absolute amount of Profit or Loss Reportable Segment

Segment (₹ In lakhs) Yes or No
A 225 Yes
B 25 No
C 175 Yes
D 20 No
E 105 Yes
On the basis of the profitability test (result criteria), segments A, C and E are reportable
segments (since their results in absolute amount is 10% or more of ₹ 300 lakhs i.e. 30 lakhs).

Question 6 (Inter May 2018) (5 Marks)/(ICAI Study Material) Pg no._____

M/s Nathan Limited has three segments namely P, Q and R. The assets of the company are ₹
15 crores. Segment P has 4 crores, Segment Q has 6 crores and Segment R has 5 crores.
Deferred tax assets included in the assets of each segment are P - ₹ 1 crore, Q - ₹ 0.90 crores
and R - ₹ 0.80 crores. The accountant contends all these three segments are reportable
segments. Comment.

Solution
According to AS 17 “Segment Reporting”, segment Assets do not include income tax assets.
Therefore, the revised total assets are 12.3 crores [₹ 15 – (₹ 1 + 0.9 + 0.8).
Details of Segment wise assets
Segment P holds total assets of ₹ 3 crores (₹ 4 crores – ₹ 1 crores);
Segment Q holds ₹ 5.1 crores (₹ 6 crores – 0.9 crores);
Segment R holds ₹ 4.2 crores (₹ 5 crores – ₹ 0.8 crores).
Thus, all the three segments hold more than 10% of the total assets, all segments are
reportable segments. Hence, the contention of the Accountant that all three segments are
reportable segments is correct.

Question 7 (ICAI Study Material) Pg no._____

Heavy Goods Ltd. has 6 segments namely L-Q (below). The total revenues (internal and
external), profits or losses and assets are set out below:
Segment Inter Segment External Profit/ Total
Sales Sales (Loss) Assets
L 4,200 12,300 3,000 37,500
M 3,500 7,750 1,500 23,250
N 1,000 3,500 (1,500) 15,750
O 0 5,250 (750) 10,500
P 500 5,500 900 10,500
Q 1,200 1,050 600 5,250
10,400 35,350 3,750 1,02,750
Heavy Goods Ltd. needs to determine how many reportable segments it has. You are required
to advice Heavy Goods Ltd. as per the criteria defined in AS 17.
Solution
Quantitative Threshold Test:
Revenue Test:
Combined total sales of all the segment = ₹ 10,400 + ₹ 35,350 = ₹ 45,750.
10% thresholds = 45,750 x 10% = 4,575.

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Profitability Test:
In the given situation, combined reported profit = ₹ 6,000 and combined reported loss (₹
2,250). Hence, for 10% thresholds ₹ 6,000 will be considered.
10% thresholds = ₹ 6,000 x 10% = ₹ 60

Asset Test:
Combined total assets of all the segment = ₹ 1,02,750
10% thresholds = ₹ 1,02,750 x 10% = 10,275

Accordingly, quantitative thresholds are calculated below:

Segment L M N O P Q Reportable
Segments
% segment 36.66% 24.59% 9.84% 11.48% 13.11% 4.92% L,M,O,P
sales to total
sales
% segment 50% 25% 25% 12.5% 15% 10% L,M,N,O,P,Q
profit to total
profits
% segment 36.50% 22.63% 15.33% 10.22% 10.22% 5.11% L,M,N,O,P
assets to
total assets
Conclusion:
Segments L, M, O and P clearly satisfy the revenue and assets tests and they are separate
reportable segments. Segment N does not satisfy the revenue test, but it does satisfy the
asset test and it is a reportable segment. Segment Q does not satisfy the revenue or the
assets test but is does satisfy the profits test. Therefore, Segment Q is also a reportable
segment.
Hence all segments i.e. L, M, N, O, P and Q are reportable segments

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