SEGMENT REPORTINGAccounting Standard 17

CONTENT Introduction Objectives Enterprises Covered Key Definitions Primary & Secondary Segments Reportable Segments Segment Accounting Policies

INTRODUCTION TO AS Formulated by AS Board of ICAI AS and Ind AS Rules to be Observed Objective

 To Remove Variations in the Treatment of several Accounting Aspects

To Bring about Standardization in Presentation

Add Reliability to the Financial Statements

INTRODUCTION

Also known as Segment Accounting

Issued by Institute of Chartered

Accountants of India

Commencing on or after 1.4.2001

OBJECTIVE To Inform about the different types of

Products and Services and the different Geographical Areas

To Better understand the Performance To Better Assess the Risk and Returns To Throw more light on Mergers and

Acquisition

ENTERPRISES COVERED Enterprises which are listed on Stock Exchange Enterprises which are in Process of Listing on

Stock Exchange Financial Institution Banks Insurance Business Enterprises whose Turnover exceeds 50 crore Enterprises whose Borrowing exceeds 10 crore Holding and Subsidiary Company of above

Enterprises As per RBI Guidelines, Retail and Corporate banks also require to disclose their segment reports

DEFINITIONS A Business Segment

A Distinguishable Component that is engaged in providing an Individual Product or Service

Subject to Risk and Returns different from other Segments

It can be Identify on the basis of:- Nature of Product Nature of Processes Nature of Customer Distribution Processes nature of the Regulatory Environment

A Geographical Segment A Distinguishable Component providing

Products or Services within a particular Economic Environment

Subject to Risks and Returns different from other Economic Environments

This segment further divided based on Location of Production Facility Location of Customer

Reportable Segment Identification of Business Segment or

Geographical Segment

Enterprise Revenue Revenue from Sales to External Customer

Segment Revenue is the aggregate of 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 Revenue from Transactions with other Segments

Segment Expense is the Aggregate of The Expense resulting from the Operating Activities of

a segment that is directly attributable to the Segment The Relevant Portion of Enterprise Expense that can

be allocated on a Reasonable basis Expense Relating to Transactions with other Segments It does not include:-

Extraordinary items as defined in AS 5 Interest Expense Losses on Sales of Investments Income Tax Expense General Administrative Expenses

Segment Result Difference between Segment Revenue and Segment

Expenses

Segment Assets Operating Assets that are employed by a

Segment in its Operating Activities Assets directly attributable to the segment or can

be allocated to the Segment on a Reasonable basis

Segment Assets do not include Income Tax Assets

Segment Liabilities Operating Liabilities that result from the

Operating Activities of a Segment Liabilities directly attributable to the segment

or can be allocated to the Segment on a Reasonable basis

Segment Liabilities do not include Income Tax Liabilities

Segment Accounting Policies The Accounting Policies adopted for

Preparation and Presentation of the Financial Statements

This policies help in indentifying Segments Method of pricing inter-segment transfers Basis for allocating Revenues and Expenses to

Segments

IDENTIFYING REPORTABLE SEGMENTS Primary and Secondary Segment

Reporting Formats The Dominant Source and Nature of Risks

and Returns will determine Primary Format for Reporting Segment

Example:- If Risk and Return is dominantly affected by

change in difference in product it produces then its Primary Format would be Business segment and Vice Versa

Matrix Approach If Risk and Return is dominantly affected

by both change in difference in product it

produces and Geographical Location in

which it Operates

REPORTABLE SEGMENT The Segment is Reportable if:-

Its Revenue from Sales to external customers and from transactions with other segments is 10% or more of the total revenue

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

Its segment assets are 10% or more of the total assets of all segments.

DISCLOSURE An Enterprise should Disclose the following for

each Reportable Segment Segment Revenue classified into Revenue from

Sales to external customers Transactions with other segments

Segment result Total carrying amount of segment assets Total amount of segment liabilities Cost incurred to acquire segment assets Expense included in the segment result for

depreciation and amortization Total amount of significant non-cash expenses

Secondary Segment Information If primary format for an enterprise is

Business Segments, It should report following information:-

Segment revenue from external customer classified on the basis of their Location

The total amount of Segment Assets based on Geographical Location of Asset

The total cost incurred to acquire Segment Asset for each Geographical segment

If primary format for an enterprise is Geographical Segments, It should report following information:-

Segment Revenue from external customer The Total carrying amount of Segment Assets

The Total cost incurred during the period to

acquire segment assets

Inter-segment transfers should be measured on actually price those transfers

Changes in Accounting Policies adopted for segment reporting

The Type of Products and Services included in each reported Business Segment

The Composition of each Reported Geographical Segment

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Presented by:-Tushar Rathi