Why is it required ?
For a clearer understanding of the performances of segments.
For General Purpose Financial Statements or
Consolidated Financial Statements.
If Financial report contains both, then on the basis of CFS.
1. Business Segment
Distinguishable component of an enterprise, engaged in providing an individual product or service or a group of related product or services and subject to risks and returns exclusive of other segments.
Factors to be considered for classifying related products and services
a. Nature of products and services
b. Nature of processing Class of customers Distribution system
c. Nature of domain (Banking,Insurance etc)
2. Geographical Segment
Distinguishable component of an enterprise, engaged in providing an individual product or service or a group of related product or services within a specific environment and subject to risks and returns exclusive of other segments.
Factors to be considered in identifying Geographical Segment
a. Similarity of economic and political scene
3. Enterprise Revenue
Sales revenue from external customers (excludes internal segment transfer)
4. Segment Revenue
Includes revenue of-
a. Specific segment
b. Reasonably allocable part of enterprise revenue
c. Internal segment transfer
If primarily a financial segment includes
a. Interest and dividend income
b. Interest and dividend income of advances and loans to other segments
c. Gains on sales of investment
d. Gains on writing off of debts
a. Extraordinary items (as per AS 5)
b. Non operational Interest and dividend income
c. Non operational Interest and dividend income of advances and loans to other segments
d. Non operational Gains on sales of investment
e. Non operational Gains on writing off of debts
5. Segment Expense
Includes expense of
a. Specific Segment
b. Reasonably allocable part of enterprise expense
c. Reasonably allocable operationally relevent part of administrative, head office and other expenses incurred on behalf of the segment
If primarily a financial segment includes-
a. Interest expense
b. Interest expense on advances and loans from other segments
c. Losses on sales of investment
d. Losses on writing off of debts
a. Extraordinary items (as per AS 5)
b. Non operational Interest expense
c. Non operational Interest expense on advances and loans from other segments
d, Non operational Losses on sales of investment
e. Non operational Losses on writing off of debts
f. Interest expense on overdrafts and operating liabilities of a specific segment
g. Income tax expense
h. Administrative, head office and other expenses relevant to whole enterprise
6. Segment Result
Segment Revenue ( minus ) Segment Expense
7. Segment Assets
Specific or reasonably allocable operating assets employed by segment in operating activities
If segment result includes interest or dividend income then segment assets include related receivables, loans, investments or other interest or dividend generating assets
Income tax assets are excluded in any case
Relevant allowances and provisions are deducted before balance sheet reporting
8. Segment Liabilities
Specific or reasonably allocable operating liabilities of segment from operating activities
If segment result includes interest expense then segment assets include related interest-bearing liabilities
Income tax liabilities are excluded in any case
9. Segment Accounting Policies
Accounting policies applicable to enterprise as well as specific segment policies.
How to ascertain if a segment is reportable ?
Revenue of segment (external customers + internal transfers) is atleast 10% of all segments.
b) Profit or Loss
Segment result ( higher of (combined result of all segments in profits or loss)) is atleast 10% of all segments.
c) Segment assets
Segment assets are atleast 10 % of all segments. If the segment becomes reportable in any one of the above tests then it becomes a reportable segment.
d) Preceeding data
If segment reportable in previous period, then reportable in current period also.
e) Total External revenue
If external revenue of reportable segments less than 75% of total enterprise revenue additional segments to be identified as reportable until 75% of external revenue is included.
f) Management Choice
How to determine primary and secondary reporting formats?
Dominant source Reporting Format
Differences in products and services
Geographic Differences in Geographic locations
Depending on risks and returns more relevant to the segment