Accounting
Standard - 17
Segment Reporting
Objective of AS - 17
To establish principles for reporting financial information:
• About different types of products and services an enterprise
produces, and
• The different geographical areas in which it operates.
Concept & Relevance of Segment Reporting
• Diversified companies produces different products / group of
products & services, similarly there are enterprises which operates in
different geographical areas
• These different products / group of products and different
geographical areas are subject to different :
• Rate of returns
• Growth opportunities
• Future prospects
• Risks
• This information is useful in assessment of risk and returns of a
diversified / multi-locational enterprise.
Segment Information help user
• Better understanding of performance (i.e. profitability of the
enterprise)
• Better assessment of risk and returns of a diversified / multi-location
enterprise
• Make more informed judgment about the enterprise as a whole.
Applicability
Enterprise whose :
• Equity or Debt are list on a recognized stock exchange in India
• are in the process of issuing equity or debt securities that will be
listed on a recognized stock exchange in India.
• turnover for the accounting period exceeds Rs. 50 Crores.
Requirement of AS - 17
Identify business segment or geographical segment
Decide primary & secondary reporting format
Identify Reportable Segment based on “10% thresholds” criteria
Report segment information for reportable segment as per AS-17
If segment or part thereof satisfies the definition of discontinuing operation under AS 24, then AS-24 to be complied with
Business Segment is based on products &
services it provides
Individual or group of
Distinguishable Risk and returns are
related Product or
Component (AS-24) different
Service
• Separate line of • Nature of product or • Return refers to the
business services profitability of a
• Distinguishable • Nature of production product or service
component process • Risk is the variability of
operationally and • Type of customers return due to any
financially • Methods of distribution factor.
• Nature of regulatory
environment
Case Study
• A company manufactures two products – viz. cloth and
Q 1 ready-made garments. Are the products different business
segments or part of the same business segment?
• A newspaper publishing company is publishing an English
News paper & Hindi News paper. Are these products
Q 2
different business segment or part of same business
segment?
Answers
• In the above 2 products, the production process and type or class of
customers are different, however, method of distribution and regulatory
A 1 environment are same. In this case, greater weightage may be assigned
to production processes and type or class of customers and accordingly
should be treated as separate segment.
• In this case products are similar as to the nature of product, production
process, method of distribution and regulatory environment. However,
the customer differ. In this case one may assign greater weightage to the
A 2
nature of product, production process, methods of distribution and
regulatory environment. Accordingly, both the news papers – English &
Hindi will be part of same business segment.
Geographical Segment is the area or location in which
the products and services are manufactured or marketed
Engaged in providing Risk and Return differ from
Distinguishable Component product or services within a those components
(AS-24) particular economic operating in other
environment economic environments
• Separate area of • A single geographical • Return refers to the
operation segment should not profitability of a product
• Distinguishable include operations in or service
component operationally economic environments • Risk is the variability of
and financially with significantly differing return due to any factor.
risks and returns.
Identification of Geographical Segment
a. Similarity of economic and political conditions
b. Relationship between operations in different geographical areas
c. Proximity of Operations
d. Special risks involved in operations in particular area
e. Exchange control regulations
f. Currency risks
Case Study
• A Ltd. Which is incorporated in India and
has businesses in all the Indian States
treats Jammu & Kashmir as a separate
Q 1
geographical segment because of risks
involved due to terrorism and the rest of
India as a separate segment. Is this OK?
Answer
• Since the company operates in India and hence factors e & f
listed before are not relevant. Factor d deals with special
risk involved in operations in a particular area and hence
company may have treated J&K as a separate segment in
A 1
view of terrorism risk. If other regions of India are similar
with regards to factors a, b & c, it is appropriate to treat
them as one segment. The segmentation of the company is
appropriate in accordance with factors given above.
Identification of Business and Geographical
Segments for external reporting purposes:
Sr. System of internal financial Reporting How segments for external reporting purpose should be
No. prevailing in the enterprise identified.
1 Internal organization and management In this case, the business and geographical segment for
structure of an enterprise and system of external reporting purpose should be those
internal financial reporting to the Board of organizational units for which information is reported to
Director / CEO are based on individual the Board of Directors / CEO for evaluating the units
products or services or based on performance and for making divisions about future
geographical areas or both. allocation of resources.
2 If internal organization and management The directors and management of the enterprise should
structure and system of internal financial determine its business and geographical segments for
reporting are based on neither individual external reporting purposes based on the factors given
products or services nor on geographical above rather than on the basis of the enterprise’s system
areas. of internal financial reporting.
Identifying the Primary & Secondary Reporting
format
Sr. No. Situation Business Segment Geographical Segment
1 Risk and returns of the enterprise are pre- Primary Reporting Format Secondary Reporting
dominantly affected by differences in the Format
products or services that is produces.
2 Risk and returns of the enterprise are pre- Secondary Reporting Primary Reporting Format
dominantly affected by its operations in Format
different countries or other geographical
areas.
3 Risk and returns are strongly affected by Primary Reporting Format Secondary Reporting
both as evidenced by a matrix approach to Format, alternatively
managing the company and reporting matrix presentation with
internally to BOD & CEO full segment disclosures
may be adopted.
Important Definitions
• Enterprise revenue is revenue from sale to external customers as reported in the statement of profit and loss.
Enterprise
Revenue
• Segment revenue = portion of enterprise revenue that is directly attributable to a segment + relevant portion of
enterprise revenue that can be allocated on a reasonable basis + revenue from intersegment. It does not include
Segment extraordinary items, interest or dividend income and gains on sales of investment or on extinguishment of debt.
Revenue
• It is exactly opposite of segment revenue and it further does not include income tax expense and general
administrative expense, head office expense, and other expense that arise at the enterprise level and are related
Segment to enterprise as a whole.
Expense
• Segment Result = Segment Revenue – Segment Expense
Segment
Result
Important Definitions Continued
• Segment assets are those operating assets that are employed by a segment in its operating activities and are
directly attributable to the segment or can be allocated on a reasonable basis.
Segment • Interest or dividend, income tax assets, head office assets, depreciation or amortization, goodwill, revalued
Assets assets.
• Segment liabilities are operating liabilities that result from the operating activities of a segment and are either
Segment directly attributable to the segment or can be allocated on a reasonable basis.
Liabilities
• Are the accounting policies adopted for preparing and presenting the financial statements of the enterprise.
• Those accounting policies that relate specifically to segment reporting, e.g. identification of segments,
Segment A/c method of pricing inter-segment transfers, and basis for allocating revenues and expenses to segment.
Policy
Identification of Reportable Segments
Reportable segment are those which satisfy any of 10% criteria discussed below.
Those business segment or geographical segment designated by the management as reportable segments at
their discretion.
Additional segment identified as reportable segment even if they do not meet 10% criteria, If the reportable
segment constitute less than 75% of the total enterprise revenue
If the segment was identified as reportable segment in the proceeding period because it satisfied the 10%
criteria.
10% criteria / 10% thresholds
• If the following works out to 10 or more, it is a reportable segment:
• 10% revenue criteria:
Revenue of segment from sale to external customer +
inter segment sales *100 / Total Revenue of all segments ( incl. inter seg.)
• 10% of combined segments results criteria:
Segment profit / loss * 100 / Combined profit of all segments in profits or combined loss of
all segment in loss whichever is greater in absolute amount.
• 10% of total segment assets criteria:
Segment assets * 100 / Total segment assets of all segments.
Primary Reporting Format
Disclosure Remarks
Segment Revenue Classified into external revenue and inter-segment revenue.
Segment Result If an enterprise can compute segment net profit / loss or some other measure
of segment profitability other than segment result, without arbitrary
allocations, reporting of such amounts in addition segment result is
encouraged.
Segment Assets Total carrying amount of segment assets
Segment Liabilities Total amount of segment liabilities
Addition to Fixed Assets Total cost incurred during the period to acquire segment assets that are in the
nature of tangible or intangible fixed assets
Depreciation and Total amount of deprecation / amortization and non cash expenditure included
amortization and Non-cash in the expenses. This information need not be disclosed if enterprise provides
expenditure segment cash flow.
Reconciliations Reconciliation of Segment revenue with enterprise revenue
Reconciliation of Segment result should be done with enterprise net
profit/loss.
Reconciliation of Segment assets with enterprise assets
Reconciliation of Segment liabilities with enterprise liabilities
Other Disclosures
• Basis of Transfer Pricing : In measuring and reporting segment revenue, inter-
segment transfers should be measured on the basis that the 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 Segment Accounting policies
• Composition of each reported business / geographical segment
Secondary Reporting format
If primary Segment is Then Secondary Conditions and reporting by Secondary Segment
Segment will be
Geographical Segment revenue from customer is to be reported for those
Segment – customer segment whose external revenue is 10% or more of enterprise
revenue.
Business Segment Geographical Carrying amount of segment assets whose segment assets are
segment – assets 10% or more of total assets of all geographical segments.
Addition of fixed assets should also be reported.
Geographical Segment Business Segment Segment revenue from external Customer > 10% of enterprise
- customer or assets revenue, Segment assets > 10% of total segment assets of all
business segments. Segment revenue from external customers,
carrying amount of assets and addition to fixed assets to be
reported.
Geographical Segment Geographical Carrying amount of segment assets whose segment assets are
– location segment – assets 10% or more of total assets of all geographical segments.
Addition of fixed assets should also be reported.
Geographical Segment Geographical Segment revenue from customer is to be reported for those
- assets Segment – customer segment whose external revenue is 10% or more of enterprise
revenue.
Illustration for identification of Segment
Particulars A B C D E F G H Total
Segment Revenue
External Revenue 0 255 15 10 15 50 20 35 400
Inter-Segment Revenue 100 60 30 5 0 0 5 0 200
Segment Assets 15 47 5 11 3 5 5 9 100
Segment Results 5 -90 15 -5 8 -5 5 7 -60
Solution:
Total Revenue 100 315 45 15 15 50 20 35 600
% of Above 16.7 52.5 7.5 2.5 2.5 8.3 4.2 5.8
% of Segment Assets 15 47 5 11 3 5 5 9
Combined result of all 5 15 8 5 7 40
Profitable Segments
Combined Result of all -90 -5 -5 -100
Segments in Loss
% of Segment Result 5 90 15 5 8 5 5 7
Illustration for Disclosure
Particulars Food Plastic & Health & Others Total
Products Packaging Scientific
Sales 5000 620 345 182 6147
Expenses 3585 400 222 200 4407
General Corporate Expenses 548
Income from Investment 126
Interest Expenses 63
Assets 7548 2000 700 682 10930
General Corporate Assets 832
Intersegment sales included above 60 84 18 5
Operating profit on Intersegment sales 33
Liabilities 6000 1800 500 400 8700
Unallocated Corporate Liabilities 500
Capital Expenditure 100 50 25 25 200
Depreciation 754 200 70 68 1092
Non Cash Expenses Other than Depreciation 100 75 25 25 225
Solution to Illustration
Particulars Food Plastic & Health & Others Total
Products Packaging Scientific
Sales 5000 620 345 182 6147
Expenses 3585 400 222 200 4407
Segment Result 1415 180 123 -18 1700
% of Revenue 81.34 10.08 5.61 2.96
Absolute amount of profit 1718
Absolute amount of loss -18
% of Segment result 82.36 10.47 7.15 1.04
% of Segment Assets 69.05 18.29 6.40 6.24
Disclosure
Particulars Food Product Plastic & Others Elimination Total
Packaging
Revenue
External Sales 4940 536 504 5980
Intersegment sales 60 84 23 -
Total Revenue 5000 620 527 (167) 5980
Results
Segment Results 1415 180 105 (33) 1667
Unallocated Corporate Expenses 548
Operating Profit 1119
Interest Expense (63)
Income from Investment 126
Tax Expense -
Profit from Ordinary activity 1182
Segment Assets 7548 2000 1382 10930
Unallocated Assets 832
Total Assets 11762
Continue….
Particulars Food Product Plastic & Others Elimination Total
Packaging
Segment Liabilities 6000 1800 900 8700
Unallocated Corporate Liabilities 500
Total Liabilities 9200
Addition to Fixed Assets 100 50 50 200
Depreciation 754 200 138 1092
Non Cash Expenses Other than 100 75 50 225
Depreciation
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