Operating Segments Identification and Reporting under IND AS 108
This article by Harshad B. Bhudia delves into the detailed concepts of IND AS 108 focusing on identifying the Chief Officer Decision Maker, aggregating segments, and determining reportable segments based on revenue criteria. The article provides a peaceful explanation of operating segments and the essential requirements for reporting, serving as a valuable resource for financial reporting professionals.
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IND AS : 108 OPERATING SEGMENTS BY HARSHAD .B. BHUDIA (ARTICLE ASSISSTANT)
IND AS 108 APLLICATION SUMMARY IDENTIFY THE C.O.D.M. IDENTIFY THE OPERATING SEGMENTS DETERMINE THE REPORTABLE SEGMENTS DISCLOSE THE REQUIRED INFORMATION
*THERE ARE THE FIVE CONCEPTS WHICH ARE EXPLAINED THE IND AS 108 IN DETAIL IN PEACEFUL MANNER ARE AS FOLLOWS:- 1. CONCEPT 1 :- MEANING OF OPERATING SEGMENTS As per the provision of IND AS 108, operating segment may be a product/ services which is sold/ rendered by a company OR an area in which company operates it business. There is no specific definition on business segments (product/services) OR geographical segment (Areas) in IND AS 108 as it is given AS=17. Under IND AS= 108, A segment may be an operating segment if the following 3 condition are satisfied :- Condition I :-It should have capacity to generate revenues. Condition II :- It should be reviewed by C.O.D.M. ( Chief Officer Decision Maker) Condition III :- We have financial information to present for segment. a. b. c.
*C.O.D.M ( Chief Officer Decision Maker) As per the provision of INS AS : 108, CODM may be a person OR team of directors. If any segment is to be indentified as an operating segment then it should be in the CODM report for decision making . It can be also said that segment report is prepared from management eyes.
2. CONCEPT 2 :- AGGREGATION OF SEGMENTS If any entity wants to aggregate some similar segments to report as a single segment then we should consider the following factors before Aggregating different segments:- a) Production process should be same OR b) Class of customer should be same OR c) Method to distributr the services should be same OR d) Regulatory environment should be same.
3. CONCEPT 3 :- REPORTABLE SEGMENTS As per the provisions, all the identified segments are not to be reported . We will report only those segments that would satisfy at least one condition out of the following specified condition :- Condition I:- If segment revenue (Internal OR External) is 10% OR More of Total Segment Revenue. SEGMENT A B C D E TOTAL REVENUE EXTERNAL 10,000 20,000 60,000 1,20,000 5,000 2,15,000 INTERNAL - - 25,000 10,000 - 35,000 TOTAL 10,000 20,000 85,000 1,30,000 5,000 2,50,000 % of Revenue 4% 8% 34% 52% 2% 100% STATUS UR UR R R UN - SEGMENT C and D are Reportable on the basis of Revenue. OR
Condition II:- If segment Result are 10% OR More of Total Segment Result. SEGMENT A B C D E TOTAL ASSETS 2,00,000 10,00,000 5,00,000 1,00,000 1,00,000 19,00,000 % of Asset 10.52% 52.6% 26.32% 5.26% 5.26% 100% STATUS R R R R UN - OR
Condition III:- If segment Result are 10% OR More of Total Segment Result. SEGMENT A B C D E TOTAL RESULTS 10,000 10,000 1,000 (20,000) (25,000) (24,000) SEGMENT IN PROFIT 21,000 WHICHEVER IS HIGHER 45,000 SEGMENT IN LOSSES 45,000 % OF Results 22.22% 22.22% 2.22% 44.44% 55.55% 100% (10,000/ 45,000) (10,000/ 45,000) (1,000/45, 000) (20,000/45 ,000) (25,000/ 45,000) STATUS R R R R R Conclusion:- Therefore, All segments are the Reportable.
* ADDITIONAL CONDITIONS TO BE CONSIDERED :- 1) If any segment becomes Unreportable in current year but it was reportable in previous year, then we will include such segment in current year report for comparision purpose even if it is reportable. 2) If any segment reportable in current year, but it was unreportable in previous year then we should revise previous year segment Reportby including such segment for comparision purpose. 3) As per provision of IND AS-108 ,reportable segment should cover 75% or more ofTotal External sales in segment report otherwise, additional segments should be included in segment report. It can be also be said that unreportable segments will become Reportable to cover 75% sales. 4) As per the provisions of IND- AS:108 , any segment can be included in segment report upon managements choice but up to practical limit.
4. CONCEPT 4 :- TREATMENT OF UNREPORTABLE SEGMENTS All the unreportable segments can be disclosed in segment report in Total under the heading of OTHERS . It can be also said that we can aggregate all unreportable segments under the heading of OTHERS .
5. CONCEPT 5 :- DISCLOSURES IN SEGMENT REPORT As per the provisions of IND AS108, the following 3 contents should in included in segment report. 1) GENERAL INFORMATION :- a. The management has to explain basis to organize its different products or services. b. The management has to explain basis to aggregate the similar product or services. c. Name of all different products or services d. None of all different Areas.
2. MEASUREMENT OF SEGMENT INFORMATION :- a. Measurement :- We will not measure the required segment information seperately. But we will use same measurement as done in CODM Report. b. Required segment information :- Segment revenue *EXPLANATION ON OTHER MATERIAL ITEMS a) Interest income b) Interest expenses External Sales Internal Sales c) Net interest revenue (a-b) d) Depreciation and amortization expenses Segment results e) Other non cash items like impairment loss etc. f) Capital expenditure on asset during the year. Segment assets Segment liability Other material items
3. RECONCILATION :- ENTITY INFORMATION SEGMENT INFORMATION + ,- ADDJUSTMENTS As per the provision of IND AS 108, segment information should be reconciled with entity information with regard to Results ,Assets , and Liabilities.
