SEGMENT REPORTING

OBJECTIVE
The objective of this standard is to establish principles for reporting
financial information, about the different types of products and
services an enterprise produces and the different geographical areas in
which it operates. such information helps users of financial statements:
(a) better understand the performance of the enterprise;
(b) better assess the risks and returns of the enterprise; and
(c) make more informed judgements about the enterprise as a whole.
 CONTENTS

• OBJECTIVES
• TYPES OF SEGMENTS
• BUSINESS SEGMENT
• GEOGRAPHIC SEGMENT
• PRIMARY AND SECONDARY SEGMENTS
• REPORTABLE SEGMENTS
• DISCLOSURES
 TYPES OF SEGMENTS

BUSINESS SEGMENT Geographical Segment

A distinguishable component of an A distinguishable component of an
enterprise- enterprise

- that is engaged in providing an -that is engaged in providing

individual product or service or a products or services within a
group of related products or services particular economic environment and
And
-that is subject to risks and returns
- that is subject to risks and returns that are different from those of
that are different from those of components operating in other
other business segments. economic environments.
 FACTORS

BUSINESS SEGMENT Geographical Segment

Factors that should be considered in
determining whether products or Factors that should be considered in
services are related include: determining whether products or
services are related include:
(a) the nature of the products or
services; (a) similarity of economic and political
(b) the nature of the production conditions;
processes; (b) relationships between operations in
(c) the type or class of customers for different geographical areas;
the products or services; (c) proximity of operations;
(d) the methods used to distribute the (d) special risks associated with
products or provide services; and operations in a particular area;
(e) if applicable, the nature of the (e) exchange control regulations; and
regulatory environment, for example, (f) the underlying currency risks
banking, insurance, or public utilities.
 PRIMARY AND SECONDARY
SEGMENT REPORTING
➢ The dominant source and nature of risks and returns of an enterprise should govern
whether its primary segment reporting format will be business segments or
geographical segments.
➢ If the risks and returns of an enterprise are affected predominantly by
differences in the products and services it produces, its primary format for
reporting segment information should be business segments, with secondary
information reported geographically.
➢ Similarly, if the risks and returns of an enterprise are affected by the fact that it
operates in different countries or other geographical areas, its primary format for
reporting segment information should be geographical segment.
 Segment revenue and Segment
expense

Segment revenue SEGMENT EXPENSE

Aggregate of- Aggregate of-

- The expense resulting from the
- the portion of enterprise operating activities of a segment that
revenue that is directly is directly attributable to the
attributable to segment, segment, and
- the relevant portion of - The relevant portion of enterprise
enterprise revenue that can be expense that can be allocated on a
allocated on a reasonable basis to reasonable basis to the segment, and
a segment, and - Expense relating to transactions
- revenue from transactions with with other segments of the
other segments of the enterprise enterprise.
 EXCLUSIONS

Segment revenue SEGMENT EXPENSE

Excludes- Excludes-
- extraordinary items as defined in - Extraordinary items as defined in AS
5
AS 5
- Interest, including interest on
- interest or dividend income, advances or loans from other segments
including interest earned on advances unless operations of segment are
or loans to other segments unless primarily of a financial nature
operations of segment are primarily
of a financial nature - Income tax expense
- Gains on sale of investment or on - General administrative expenses,
extinguishment of debt unless head-office expenses, and other
operations of segment are primarily expenses that arise at the enterprise
of a financial nature level and relate to the enterprise as a
whole.
 SEGMENT ASSETS AND SEGMENT
LIABILITIES

Segment Assets Segment Liabilities

Those operating assets that are Those operating liabilities that result
employed by a segment in its operating from the operating activities of a
activities and that- segment and that-
- either are directly attributable to - either are directly attributable to the
the segment or segment or
- can be allocated to the segment on a - can be allocated to the segment on a
reasonable basis.
reasonable basis.
Segment liabilities do not include income
Segment assets do not include income tax liabilities and borrowings and other
tax assets & assets used for general liabilities that are incurred for financing
enterprise or head office purposes rather than operating purposes
REPORTABLE SEGMENTS

Reportable
Segments

Identified on
basis of

Segment Segment Segment Result

Revenue Assets
Criterion Criterion Criterion
 SEGMENT REVENUE CRITERION
A business segment or geographical segment should be identified as a
reportable segment if its revenue from sales to external customers & from
transactions with other segments is 10% or more of total revenue, external &
internal, of all segments;
 SEGMENT ASSETS CRITERION
A business segment or geographical segment should be identified as a
reportable segment if the segment assets are 10% or more of the total
assets of all segments.

Segment Segment Assets

A 500

B 300

C 150
D 50
Total 1000
 SEGMENT RESULT CRITERION

A business segment or geographical segment should be identified

as a reportable segment if its segment result, whether profit or
loss, is 10 % or more of –
(i) the combined result of all segments in profit, or
(Ii) the combined result of all segments in loss,
Whichever is greater in absolute amount;
Greater?
 IMPORTANT POINTS
➢ A business segment or a geographical segment which is not a reportable segment may
be designated as a reportable segment despite its size at the discretion of the
management of the enterprise.
➢ If total external revenue attributable to reportable segments constitutes < 75% of
the total enterprise revenue, additional segments should be identified as reportable
segments, even if they do not meet the 10% thresholds until at least 75 % of total
enterprise revenue is included in reportable segments.
➢ A segment identified as a reportable segment in the immediately preceding period
because it satisfied the relevant 10% thresholds should continue to be a reportable
segment for the current period notwithstanding that its revenue, result, and assets
all no longer meet the 10% thresholds
 PRIMARY DISCLOSURES
➢ Segment revenue, classified into segment revenue from sales to external customers
and segment revenue from transactions with other segments;
➢ Segment result;
➢ Total carrying amount of segment assets;
➢ Total amount of segment liabilities;
➢ Total cost incurred during the period to acquire segment assets that are expected
to be used during more than one period (tangible and intangible fixed assets);
➢ Total amount of expense included in the segment result for depreciation and
amortization in respect of segment assets for the period;
➢ Total amount of significant non-cash expenses, other than depreciation and
amortization in respect of segment assets, that were included in segment expense &,
therefore, deducted in measuring segment result.
 SECONDARY DISCLOSURES
➢Segment revenue from sales to external customers
➢Total carrying amount of segment assets;
➢Total cost incurred during the period to acquire segment assets that are
expected to be used during more than one period (tangible and intangible
fixed assets);

There may be other disclosures like changes in accounting policies that needs
to be disclosed.
THANK YOU