Applicability & Nature
Applicable : 01-04-2001
Nature : Mandatory for Level I enterprises
Objective
AS 17 require disclosure of information relating to product and areas in which the company is involved. Information of products should be disclosed separately and information of areas should also be prepared separately only to improve the financial statement presentation and comparison.
Definitions
<!--[if !supportLists]-->(i) <!--[endif]-->Meaning of Segment Reporting: Segment reporting is a disclosure statement which is prepared to disclose two types of segments.
<!--[if !supportLists]-->(a) <!--[endif]-->Business Segment
<!--[if !supportLists]-->(b) <!--[endif]-->Geographical Segment
<!--[if !supportLists]-->(ii) <!--[endif]-->Meaning of Business Segment: Business Segment is the different product of the enterprise which is having different risk and returns from other products.
<!--[if !supportLists]-->(iii) <!--[endif]-->Meaning of Geographical Segment: Geographical Segment is the different area of the enterprise which is having different risk and returns from other areas.
Identifications of Segments
If risk and returns of products and areas are not helpful in classification of segment then following points can be considered.
Business Segment
<!--[if !supportLists]-->(a) <!--[endif]-->Nature of Products
<!--[if !supportLists]-->(b) <!--[endif]-->Production Process
<!--[if !supportLists]-->(c) <!--[endif]-->Class of customer
<!--[if !supportLists]-->(d) <!--[endif]-->Distribution system of goods
Geographical Segment
<!--[if !supportLists]-->(a) <!--[endif]-->Political Boundaries
<!--[if !supportLists]-->(b) <!--[endif]-->Foreign currency risk
<!--[if !supportLists]-->(c) <!--[endif]-->FEMA
<!--[if !supportLists]-->(d) <!--[endif]-->As per AS any area can be disclosed by the enterprise. If management wants to disclose any particular by ignoring the above points (On the basis of such explanation disclose can be made country wise, city wise, town wise, state wise or any other minor disclosure)
Reportable Segments
All the identified segments are not to be disclosed. The identified segment can be disclosed in segment reporting only if at least one condition out of 3 conditions is satisfied.
Condition 1: If segment sale is 10% or more of total sale then such segment should be included in segment reporting. Sale
OR
Condition 2: If segment assets are 10% or more of total assets.
OR
Condition 3: If Segment Result is 10% or more of Total Results in Profits or Total Results in Loss whichever is higher.
Ex. A B C D E
Profit (Loss) 1 Lakh (0.50 Lakh) 1 Lakh (2.50 Lakh) (0.50 Lakh)
Total Profit = A + C = 2 Lakh
Total Loss = B + D + E = 3.50 Lakh
Higher amount is Rs 3,50,000/-
% of Results 28.57% 14.27% 28.57% 71.43% 14.28%
On Loss (1L/3.50L) (0.50L/3.5L) (1L / 3.50L) (2.50L / 3.50L) (0.50L / 3.50L)
R R R R R
Important Points
<!--[if !supportLists]-->(1) <!--[endif]-->If any segment is not covered under conditions of reportable segment then such segment should be recognized as unreportable segment. Disclosure of such unreportable segments can be made if management desirous to include such segment in the report even if conditions are not fulfilled.
<!--[if !supportLists]-->(2) <!--[endif]-->75% of external sales of the enterprise should be covered by reportable segment. If disclosure of 75% of external sale is not covered by reportable then additional segment should be classified as reportable segment even if conditions of 10% are not satisfied.
Example
A
|
B
|
C
|
D
|
E
|
F
| |
10000
|
20000
|
50000
|
6000
|
7000
|
7000
| |
% of Total
|
10%
|
20%
|
50%
|
6%
|
7%
|
7%
|
R
|
R
|
R
|
Comment: In the above example 80% sale is covered by reportable segments and minimum disclosure is required of 75%. So condition of 75% is satisfied.
<!--[if !supportLists]-->(3) <!--[endif]-->If any segment is reportable in the current year but was unreportable segment in the previous year then segment reporting of previous year should be revised for comparison purpose.
<!--[if !supportLists]-->(4) <!--[endif]-->If any segment is unreportable in the current year but was reportable in the previous year then the disclosure of such unreportable segment should be read in the current year even if it is unreportable according to the conditions.
Ques1:
(In Lacs)
A
|
B
|
C
|
D
|
E
| |
Seg. Revenue
|
150
|
200
|
200
|
50
|
300
|
% of Total Rev.
|
16.67%
|
22.22%
|
22.22%
|
5.55%
|
33.33%
|
R
|
R
|
R
|
R
|
OR
A
|
B
|
C
|
D
|
E
| |
Segment Result
|
50
|
(70)
|
80
|
10
|
(25)
|
Total Profit = 50 + 80 + 10 = 140
Total Loss = 70 + 25 = 95
Higher Amount is 95.
Segment Result
|
35.70%
|
50%
|
57.14%
|
7.14%
|
17.86
|
R
|
R
|
R
|
R
|
OR
A
|
B
|
C
|
D
|
E
| |
Segment Assets
|
40
|
65
|
140
|
20
|
35
|
% of Total Assets
|
13.33%
|
21.66%
|
46.67%
|
6.66%
|
11.66%
|
R
|
R
|
R
|
R
|
Comments: All the segments are reportable segments except Segment D because Segment D has not fulfilled any conditions as specified in the provisions of AS – 17.
Ques4.
Statement showing Reportable Segment
( In Lacs)
Particulars
|
A
|
B
|
C
|
D
|
E
|
F
|
G
|
H
|
Seg.
|
200
|
630
|
90
|
30
|
30
|
100
|
50
|
70
|
%
|
16.67%
|
52.56%
|
7.50%
|
2.50%
|
2.50%
|
8.33%
|
4.17%
|
5.83%
|
R
|
R
|
OR
Particulars
|
A
|
B
|
C
|
D
|
E
|
F
|
G
|
H
|
Seg. Assets
|
45
|
141
|
15
|
33
|
9
|
15
|
15
|
27
|
%
|
15%
|
47%
|
5%
|
11%
|
3%
|
5%
|
5%
|
9%
|
R
|
R
|
R
|
OR
Particulars
|
A
|
B
|
C
|
D
|
E
|
F
|
G
|
H
|
Seg. Result
|
10
|
(180)
|
30
|
(10)
|
16
|
(10)
|
10
|
14
|
Total Profit = 10 + 30 + 16 + 10 + 14 = 80
Total Loss = (180) + (10) + (10) = 200
Higher amount is 200.
%
|
5%
|
90%
|
15%
|
5%
|
8%
|
5%
|
5%
|
7%
|
R
|
R
|
R
|
R
|
W.N. Calculation of External Sale
Total External Sale
Minimum Disclosure
Of Sale
= 600 Lacs
Total Sale
Reportable Segments = A + B + C + D + E
= 510 + 30 + 20 + 30
= 590 Lacs
Comment
<!--[if !supportLists]-->(1) <!--[endif]-->Segment A, B C and D are reportable segments becoz condition of 10% as specified by AS is satisfied from the point of view of sales, assets and profit or loss.
<!--[if !supportLists]-->(2) <!--[endif]-->Segment E is unreportable segment as per conditions of 10% as specified in the statement. Such segment should be disclosed even if it is unreportable becoz the specified segment was reported in the previous year.
<!--[if !supportLists]-->(3) <!--[endif]-->As per the statement 75% of external sale should be covered by segment reporting. As per specified conditions minimum disclosure of Rs 600 Lacs out of Rs 800 Lacs is required. But total of reportable external sale is of Rs 590 Lacs which is lower than 600 Lacs. So additional segment should be recognized for the purpose of segment reporting. For such purpose any segment out of F, G, and H can be disclosed.
Important Calculations
<!--[if !supportLists]-->(1) <!--[endif]-->Meaning of Segment Result
Segment Result = Segment Revenue – Segment Expenses
<!--[if !supportLists]-->(2) <!--[endif]-->Meaning of Segment Revenue
As per AS, calculation of segment revenue is very important. The following points should be considered in the calculation of segment revenue.
Items to be included:-
External
|
xxxx
|
Internal
|
xxxx
|
Share in Common Income*
|
xxxx
|
Segment Revenue
|
xxxxx
|
* Share in common income should be calculated on same reasonable basis. Selection of reasonable base is in the hands of management.
Items to be excluded:-
<!--[if !supportLists]-->(a) <!--[endif]-->Extraordinary items.
<!--[if !supportLists]-->(b) <!--[endif]-->Investment Income (Dividend, Interest and Rental)*
<!--[if !supportLists]-->(c) <!--[endif]-->Profit or Loss on sale of investment.
<!--[if !supportLists]-->(d) <!--[endif]-->If any common income can’t be divided between the segment in the absence of reasonable base then such income should not be included under the heading of segment revenue. Such income should be recognized as unallocated income or enterprise income.
* Investment income and Profit or loss on sale of investment can be included in the meaning of segment revenue if company is carrying the business as an investment company.
<!--[if !supportLists]-->(3) <!--[endif]-->Meaning of Segment Exp
Items to be Included:-
<!--[if !supportLists]-->(a) <!--[endif]-->Directly related with segment
<!--[if !supportLists]-->(b) <!--[endif]-->Share in common expense on reasonable basis
Items to be Included:-
<!--[if !supportLists]-->(a) <!--[endif]-->Extraordinary Expense
<!--[if !supportLists]-->(b) <!--[endif]-->Interest Expense
<!--[if !supportLists]-->(c) <!--[endif]-->Tax Provision
<!--[if !supportLists]-->(d) <!--[endif]-->Un allocated Expense
<!--[if !supportLists]-->(4) <!--[endif]-->Meaning of Segment Assets
<!--[if !supportLists]-->(a) <!--[endif]-->In the calculation of Segment Asset, all the asset should be included which are directly related with segment.
<!--[if !supportLists]-->(b) <!--[endif]-->If any asset is used on common basis for all the segments then such common asset should be divided between the segments on reasonable basis. If in case reasonable basis is not available then such assets should be recognized as unallocated or corporate assets.
<!--[if !supportLists]-->(c) <!--[endif]-->If any goodwill is available in the balance sheet then such goodwill should also be included in segment reporting by dividing such amount on some reasonable basis. In the absence of reasonable base amount of goodwill should also be recognized as business assets.
<!--[if !supportLists]-->(d) <!--[endif]-->If any deferred tax assets are available in the balance sheet then these assets should not be included in the meaning of segment assets.
<!--[if !supportLists]-->(e) <!--[endif]-->In the calculation of segment assets only the carrying amount should be used in place of original value.
<!--[if !supportLists]-->(5) <!--[endif]-->Meaning of Segment Liabilities
<!--[if !supportLists]-->(a) <!--[endif]-->If any liability is directly related or can be distributed on some reasonable basis between the segments then specified amount should be included in the meaning of segment liabilities.
<!--[if !supportLists]-->(b) <!--[endif]-->Income tax liabilities should not be included in the calculation of segment liabilities.
<!--[if !supportLists]-->(c) <!--[endif]-->If any liability can’t be distributed on some reasonable basis then such liability should be recognized as corporate liability.
SEGMENT REPORTING
1.
Particulars
|
Seg A
|
Seg B
|
Seg C
|
Inter Seg Sale
|
Total
|
External
|
xxx
|
xxx
|
xxx
|
-
|
xxxx
|
Inter Segment
|
xxx
|
xxx
|
xxx
|
xxx
|
-
|
Total
|
xxxx
|
xxxx
|
xxxx
|
xxxx
|
xxxxx
|
Less: Segment Exp
|
xx
|
xx
|
xx
|
xx
|
Xx
|
Segment Result
|
xxx
|
xxx
|
xxx
|
xxx
|
xxxx
|
Add: Corporate Income
|
xxxx
| ||||
Less: Corporate Expenses
|
xxxx
| ||||
Less: Income Tax
|
xxx
| ||||
Corporate Income
|
xxxx
|
2.
Segment Asset
|
xxx
|
xxx
|
xxx
|
-
|
xxxx
|
3.
Corporate Assets
|
-
|
-
|
-
|
-
|
xxxx
|
4.
Segment Liabilities
|
xxx
|
xxx
|
xxx
|
-
|
xxxx
|
5.
Corporate Liabilities
|
-
|
-
|
-
|
-
|
xxxx
|
Ques7.
Segment Reporting
Particulars
|
Seg A
|
Seg B
|
Seg C
|
Inter Seg Sale
|
Total
|
External
Export
Local
|
4090
60
|
200
-
|
180
-
|
-
-
|
4470
60
|
Total External
|
4150
|
200
|
180
|
-
|
4530
|
Internal
|
3050
|
30
|
-
|
3080
|
-
|
Total Sales
|
7200
|
230
|
180
|
3080
|
4530
|
Profit (Loss)
|
160
|
20
|
(8)
|
-
|
172
|
Less: Allocated Cost
|
(48)
|
(24)
|
(24)
|
-
|
(96)
|
Net Amount
|
112
|
(4)
|
(32)
|
-
|
(76)
|
Less: Interest cost
|
(10)
| ||||
Business / Corporate Profit
|
66
| ||||
Fixed Assets
|
200
|
40
|
120
|
-
|
360
|
Net Current Assets
|
120
|
40
|
90
|
-
|
250
|
Total
|
320
|
80
|
210
|
-
|
610
|
Corporate Assets
Fixed Assets
|
-
|
-
|
-
|
-
|
50
|
Net Current Assets
|
-
|
-
|
-
|
-
|
48
|
Total
|
-
|
-
|
-
|
-
|
98
|
Long Term Liabilities
|
20
|
10
|
120
|
-
|
150
|
Corporate Liabilities
|
-
|
-
|
-
|
-
|
38
|
Ques 9.
Segment Reporting
Particulars
|
Seg A
|
Seg B
|
Seg C
|
Seg D
|
Inter Seg Sale
|
Total
|
External
|
5595
|
553
|
324
|
155
|
-
|
6627
|
Internal
|
55
|
72
|
21
|
7
|
155
|
-
|
Total
|
5650
|
625
|
345
|
162
|
155
|
6627
|
Less: Segment Exp.
|
(3335)
|
(425)
|
(222)
|
(200)
|
(122)
|
(4060)
|
Profit (Loss)
|
2315
|
200
|
123
|
(38)
|
33
|
2567
|
Add: Income from Investment
|
-
|
132
| ||||
Less: General Exp
|
(562)
| |||||
Less: Interest
|
(65)
| |||||
Business / Corporate Profit
|
2072
| |||||
Segment Assets
|
7320
|
1320
|
1050
|
665
|
-
|
10355
|
Corporate Assets
|
-
|
-
|
-
|
-
|
-
|
722
|
ASI 20
As per Interpretation, no segment reporting will be required if any Level 1 enterprise is having one business segment or one geographical segment. In such case financial statements of the enterprise will be used as segment reporting.
Primary Segment & Secondary Segment
At the time of disclosure, business segment or geographical segment are to be disclosed in the sequence on the basis of principle as specified by the statements.
Disclosures P / S
Particulars Primary Segment Secondary Segment
(a) If product is dominant Source
of the enterprise Business Geographical
(b) If Ares is dominant Source Geographical Business
(c) If Product & Area both are
dominant Business Geographical
(d) If Product & Area both are
not dominant Business or Geographical - do -
Comment
Meaning of Dominant source is not explained in the provision of AS but the total responsibility to explain dominant source is on management.
Disclosures
<!--[if !supportLists]-->(a) <!--[endif]-->Disclosures for Primary Segment
<!--[if !supportLists]-->(i) <!--[endif]-->External Sale
<!--[if !supportLists]-->(ii) <!--[endif]-->Inter Segment Sale
<!--[if !supportLists]-->(iii) <!--[endif]-->Segment Expenses
<!--[if !supportLists]-->(iv) <!--[endif]-->Segment Profit or Losses
<!--[if !supportLists]-->(v) <!--[endif]-->Corporate Income
<!--[if !supportLists]-->(vi) <!--[endif]-->Corporate Expenses
<!--[if !supportLists]-->(vii) <!--[endif]-->Segment Assets
<!--[if !supportLists]-->(viii) <!--[endif]-->Segment Liabilities
<!--[if !supportLists]-->(ix) <!--[endif]-->Corporate Assets & Corporate Liabilities
<!--[if !supportLists]-->(x) <!--[endif]-->Depreciation (Segment wise & Corporate wise Fixed Assets)
<!--[if !supportLists]-->(xi) <!--[endif]-->Any other non-cash exp.
<!--[if !supportLists]-->(b) <!--[endif]-->Disclosures for Secondary Segment
<!--[if !supportLists]-->(i) <!--[endif]-->External Sale
<!--[if !supportLists]-->(ii) <!--[endif]-->Internal Sale
<!--[if !supportLists]-->(iii) <!--[endif]-->Segment Result
<!--[if !supportLists]-->(iv) <!--[endif]-->Segment Assets
Differences AS / IAS / US
<!--[if !supportLists]-->1. <!--[endif]-->Under US GAAP disclosure of 10 segments is assumed practical disclosure. In case reportable segment are higher than 10 segments then disclosure can be reduced by ignoring the provisions. No such provisions as specified above is given in the AS and IAS.
<!--[if !supportLists]-->2. <!--[endif]-->As per AS and IAS accounting policies should be same which are used for the preparation of financial statement and segment reporting. As per US GAAP these accounting policies may be different in the financial statement and segment reporting. It can be said that different accounting policies can be used for final accounts and segment reporting.
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