Ind-As 108: Operating Segments
Introduction : Ind-As 108 prescribes about the reporting requirement and identification of operating segments. It is important to know for giant corporate that how they are required to report about various segments to their stakeholders from viewpoint of management; In this article we will cover how entity will identify the segments; how entity will report financial information in relation to such identified segments; what if entity wants to voluntary provide such information. This article will cover all the requirement given under Ind-As 108.
Which are the entities to whom Ind-As 108 is applicable? What if were entity is exempted with applicability of such standard but wants to disclose information in relation to operating segments?
It has been specified under Ind-As 108, that it will be applicable to company to whom Indian Accounting Standards notified under the Companies Act, 2013 is applicable. In case if company is exempted from applicability of Ind-As 108 but wants to voluntary disclose information in relation to operating segments than in that case it shall disclose information only in accordance with this standard.
Whether segment information is required under Ind-As 108 is applicable to consolidated financial statements?
In case it may happen that requirement of presentation of segment wise information is applicable to parents’ financial statement and also to consolidated financial statement than in that case only consolidated financial statements will be required to provide information in relation to such segments.
What is operating segment?
In case if all the following conditions are satisfied than in that case a component will be determined as operating segment.
Revenue earned or expense incurred can also be due to internal transfer (branch transfer within the entity for internal consumption). Further it shall be noted that it is not necessary that an component is earning revenue or it is incurring expense; having potential to do that is enough for classifying component as an operating segment other conditions are satisfied.
Entity may identify a component as operating segment even if segment in current scenario is not satisfying the requirements to be classified as operating segment but in previous period which was identifiable as operating segment.
The information will be generated by management for its internal reporting and same will be reported to the external authorities and stakeholders so that they can see information through eyes of management.
How it is determined whether a segment is reportable segment or not after identification of operating segment?
Operating segment will be treated as reporting segment in case where following conditions are satisfied.
- When reported revenue (both external and internal sales) of an operating segment is 10% or more of the combined revenue of all operating segments. Or
- When the absolute amount of reported profit or loss is 10% or more of
Higher or below amount in absolute terms,
- the combined reported profit of all operating segments that did not report a loss and
- (ii) the combined reported loss of all operating segments that reported a loss. Or
- When assets are 10% or more of the combined assets of all operating segments. Or
- When management believes disclosure of information about such operating segment will be useful to the users of financial statements.
It shall be noted that in case any of the one condition is satisfied than also such segment will be treated as reportable segment and entity will be mandatorily will be required to report on such segment.
Whether two operating segments can be combined and treated as one segment?
In case when segment is satisfying any of the following conditions than in that case segment can be merged and be treated as a single segment.
- In case if such operating segments has similar economic characteristics
- In case if such operating segments have similar nature of the products, services or similar nature of the production processes, having similar type or class of customer for their products and services, and similar nature of the regulatory environment.
Whether there are any minimum criteria for number of reporting segments?
It shall be noted that External revenue of reportable segments must be ≥ 75% of total external revenue of the entity; i.e. reportable operating segment’s external revenue shall be more than or equal to 75% of entity’s total external revenue.
In second part we will cover the additional details in relation Ind-As 108.