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    Accounting Standard 17: Segment Reporting

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    Richa Garg
    This document outlines accounting standards for segment reporting in India. There are two types of business segments: 1) based on differences in products/services and 2) based on geographical regions. Reportable segments are identified using revenue, profit, and asset tests to determine primary and secondary segments. Segments must meet thresholds of 10% of total amounts. Disclosure requirements include revenue, expenses, assets, and liabilities for each reportable segment. The purpose is to provide information on risks and returns of different components of a business.

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    Accounting Standard 17: Segment Reporting

    Uploaded by

    Richa Garg
    79 views15 pages
    This document outlines accounting standards for segment reporting in India. There are two types of business segments: 1) based on differences in products/services and 2) based on geographical regions. Reportable segments are identified using revenue, profit, and asset tests to determine primary and secondary segments. Segments must meet thresholds of 10% of total amounts. Disclosure requirements include revenue, expenses, assets, and liabilities for each reportable segment. The purpose is to provide information on risks and returns of different components of a business.

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    This document outlines accounting standards for segment reporting in India. There are two types of business segments: 1) based on differences in products/services and 2) based on geographical regions. Reportable segments are identified using revenue, profit, and asset tests to determine primary and secondary segments. Segments must meet thresholds of 10% of total amounts. Disclosure requirements include revenue, expenses, assets, and liabilities for each reportable segment. The purpose is to provide information on risks and returns of different components of a business.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    79 views15 pages

    Accounting Standard 17: Segment Reporting

    Uploaded by

    Richa Garg
    This document outlines accounting standards for segment reporting in India. There are two types of business segments: 1) based on differences in products/services and 2) based on geographical regions. Reportable segments are identified using revenue, profit, and asset tests to determine primary and secondary segments. Segments must meet thresholds of 10% of total amounts. Disclosure requirements include revenue, expenses, assets, and liabilities for each reportable segment. The purpose is to provide information on risks and returns of different components of a business.

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    ACCOUNTING STANDARD 17

    SEGMENT REPORTING
    SEGMENTS
    There are two types of segments:-
    • Business Segments & Geographical Segments
    BUSINESS SEGMENTS
    On the basis of products/ services which are exposed to different risks and returns. A Business
    segment in component of an enterprise which satisfies the following conditions;
    • Component of an enterprise
    • Engaged in providing an individual product or service or group of related products or services,
    • Subject to risks and returns that are different from those of other business segments.
    • E.g.: Himchal Futuristic Communications Limited, RIL
    GEOGRAPHICAL SEGMENT
    On the basis of its operation in different geographical areas, which are exposed to different risk
    and returns. A geographical segment of an enterprise should satisfy the following conditions:
    • Should be a Component of an enterprise
    • Should be engaged in providing product or service within a particular economic environment.
    The risk & return should be influenced by both geographical location of operation and
    customers.
    • EG: KFC
    Segment reporting is applicable for all enterprises.
    Apply only for Consolidated financial statements
    Both Business and Geographical segment should be reported.
    TYPES OF SEGMENT REPORTING
    For the purpose of disclosure, Reportable Segments are classified in to PRIMARY REPORTABLE
    SEGMENTS and SECONDARY REPORTABLE SEGMENTS.
    DETERMINING PRIMARY & SECONDARY REPORTABLE SEGMENT
    Conditions Primary Reportable Segment Secondary Reportable Segment
    1) If Risk & Return of a company is Business Segment Geographic Segment based on
    mainly affected by difference in location of customers.
    product/service.
    2) If Risk & Return of a company is Geographical Segment Business Segment
    mainly affected by its operations in
    different geographical area

    3) If Risk and Return of a company is Business Segment Geographical Segment


    mainly affected both by difference in
    product/service it produces and its
    operations in different geographical
    area

    • If the managers under CEO/CFO are divided on the basis of area then geographical segment is primary.
    • If the managers under CEO/CFO are divided on the basis of product then business segment is primary.
    IDENTIFICATION OF REPORTABLE SEGMENTS(SUB SEGMENTS)
    CONCEPT OF MATERIALITY:
    • The materiality concept refers to a situation where the financial information of a company is
    considered to be material from the point of view of the preparation of the financial statements
    if it has the potential to alter the view or opinion of a reasonable person. It is subjective in
    nature.
    Why it is used?
    • Say there are 150 business segments & 450 geographical segments, then it is impossible to
    present it , hence the data will be redundant.
    TO IDENTIFY REPORTABLE SEGMENTS WE CONDUCT THREE TEST(PARA 27):-
    1) REVENUE TEST:-
    SEGMENT REVENUE ≥ 10% OF TOTAL SEGMENT REVENUE
    SEGMENT REVENUE
    Segment revenue is the aggregate of –
    • Directly attributable revenue to the segment
    • Reasonably allocated revenue to the segment
    • Inter segment revenue(transaction between two segments)
    Excludes:
     Extra ordinary items(non-operating & non recurring)
     Interest & Dividend income
     Gain on sale of Assets or settlements
    But if Segment is of primarily financial in nature then Interest & dividend income, Gain on sale of assets
    or settlement of debt should be included.
    Total Segment Revenue ≠ Enterprise Revenue
    2) RESULT TEST :-
    SEGMENT RESULT ≥ 10% OF HIGHER OF ALL SEGMENT IN PROFIT OR LOSS(CONSIDER AS ABSOLUTE
    FIGURE)
    • SEGMENT RESULT = SEGMENT REVENUE – SEGMENT EXPENSE
    • Segment Expense is the aggregate of –
    • Directly attributable expenses
    • Reasonably allocated expenses
    • Inter segment expenses
    • Excludes
    • Extra ordinary items
    • Interest & dividend expenses*
    • Loss on sale of asset or settlement of debt
    • Administration & selling expense
    • Income tax expense
    3) ASSET TEST:-
    SEGMENT ASSETS ≥ 10% OF TOTAL SEGMENT ASSETS
    Segment Assets:
    • Are directly attributable to a Segment
    • Are reasonably allocable to the Segment (e.g. Current Asset, Tangible Asset, Intangible Fixed Asset)
    • If the Segment Result of a Segment includes Interest & Dividend Income, its Segment Assets include
    the Related Receivable, Loans, Investments Or Other Interest Or Dividend Generating Assets.
    • If a particular item of depreciation or amortization is included in Segment Expense, the related asset is
    also included in Segment Assets.
    • Operating Assets shared by two or more Segments if reasonable basis for allocation exits.
    • Good Will that is directly attribute to a Segment or that can be allocated to a Segment on a
    reasonable basis.
    • EXCLUDE:-
    • Income Tax assets
    • Assets used for general enterprise or head office purpose.
    OVERALL TEST
    REVENUE FROM EXTERNAL CUSTOMERS TO THE SEGMENTS IDENTIFIED AS REPORTABLE ≥ 75%
    OF ENTERPRISE REVENUE
    • If this criteria is not satisfied then the management can identify segments as reportable to satisfy the
    overall test, though such segments don't satisfy the criteria of para 27.
    E.G.

    A B C D E F EXTERNAL CUSTOMER REVENUE FOR ENTERPRISE


    60 40 20 15 15 10 160

    A & B are only reportable, then ?


    Other than these criteria,
    The enterprise can announce more segments as reportable
    by its discretion if:-
    • The Enterprise want to focus on particular Segment in the future, saying that the Segment’s
    revenue is going to increase in the future, even though the Segment did not satisfy criteria of
    para 27.
    • The Enterprise thinks that it is necessary for the user to know that they will be concentrating in
    this Segment, hence should know the position of today so as to compare in the future.
    A Segment should be reported in the current year even if it does not satisfy para 27, if it was
    identified a reportable in previous year by virtue of para 27.
    If a Segment is reported in previous year due to management discretion or overall test, then if it
    doesn’t satisfy para 27 in current year then it need no be reportable.
    If an enterprise has only Business Segment or if it have only one Geographical Segment then no
    Segment reporting required.
    DISCLOSURE:-
    • THE DISCLOSURE REQUIREMENTS OF PRIMARY SEGMENTS ARE :-
    • REVENUE FROM EXTERNAL SOURCES
    • REVENUE FROM TRANSACTIONS WITH OTHER SEGMENTS
    • SEGMENT RESULT
    • COST TO ACQUIRE TANGIBLE AND INTANGIBLE FIXED ASSETS
    • DEPRECIATION AND AMORTIZATION EXPENSES
    • CARRYING AMOUNT OF SEGMENT ASSETS
    • SEGMENT LIABILITIES
    • NON-CASH EXPENSES OTHER THAN DEPRECIATION AND AMORTIZATION
    • RECONCILIATION OF REVENUE, RESULT, ASSETS & LIABILITIES
    • DISCLOSURE OF SECONDARY SEGMENTS
    Revenue from external customers by location Revenue from external customers by business Revenue from external customers by business
    of customers segment segment
    Carrying amount of segment assets by Carrying amount of Carrying amount of segment assets by
    location of assets segment assets business segment
    Cost to acquire tangible and intangible fixed Cost to acquire tangible and intangible fixed Cost to acquire tangible and intangible fixed
    assets by location of assets assets by business segment assets by business segment
    Revenue from external customers by
    geographical customers if different from
    location of assets
    Required Secondary Disclosures Required Secondary Disclosures Required Secondary Disclosures
    Carrying amount of segment assets by
    location of assets if different from location of
    customers
    Cost to acquire tangible and intangible fixed
    assets by location of assets if different from
    location of customers
    Other Required Disclosures Other Required Disclosures Other Required Disclosures
    Basis of pricing inter- segment transfers and Basis of pricing inter- segment transfers and Basis of pricing inter- segment transfers and
    any change therein any change therein any change therein
    Changes in segment accounting policies Changes in segment accounting policies Changes in segment accounting policies
    Types of products and services in each business Types of products and services in each Types of products and services in each
    segment business segment business segment

    Composition of each geographical segment Composition of each geographical segment Composition of each geographical segment
    • INTEREST AND DIVIDEND EXPENSE:-
    • AS 2 says Interest & Financial Cost are excluded from cost of inventory
    • AS 16 says Interest & Financial Cost can be included in the inventory cost if the inventory is satisfying
    the definition of qualifying assets (means takes more than 12 months)
    So, if a segment includes inventory which satisfies the definition of qualifying asset(AS16), interest
    expense can be included in the cost of such inventory & subsequently include as segment expense.

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