Ind AS 108
Operating Segments
Agenda
Section 1 Scope
Section 2 Key Concepts
Section 3 Presentation & Disclosure
2
Scope
Scope
This Accounting Standard shall apply to companies to which Indian
Accounting Standards (Ind ASs) notified under the Companies Act apply.
If an entity that is not required to apply this Ind AS chooses to disclose
information about segments that does not comply with this Ind AS, it
shall not describe the information as segment information.
Key Concepts
Operating Segments
An operating segment is a component of an entity:
a. that engages in business activities from which it may earn
revenues and incur expenses,
b. whose operating results are regularly reviewed by the
entity's chief operating decision maker to make decisions
about resources to be allocated to the segment and assess
its performance, and
c. for which discrete financial information is available.
Chief Operating Decision Maker (CODM)
The term 'chief operating decision maker' identifies a function,
not necessarily a manager with a specific title.
That function is to allocate resources to and assess the
performance of the operating segments of an entity.
Often the chief operating decision maker of an entity is its chief
executive officer or chief operating officer but, for example, it
may be a group of executive directors or others.
A question for you : CODM (1)
Executive Committee of Company ABC comprises CEO, COO
and President
Committee assesses performance and makes resource
allocation decisions
Each Committee member has a single vote
Who is the CODM of Company ABC?
Executive committee
CEO
COO
President
Response : CODM (1)
The CODM is the Executive Committee because it is the highest
level of management that assesses performance and makes
resource allocation decisions.
A question for you : CODM (2)
(1) Same as previous slide, except that the President can
override a vote of the Committee
(2) Same as previous slide, except that a Supervisory Board
reviews the operation of the Committee.
In each case, can you identify the CODM?
Response : CODM (2)
In case 1, in our view the CODM is the President. This is on
the basis that the President essentially controls the Executive
Committee and therefore has control over the operating
decisions that the Executive Committee makes.
In case 2, in our view the CODM remains the Executive
Committee because the mere existence of the higher level
Supervisory Board does not necessarily mean that it is the
CODM. In this example there is no indication that the
Supervisory Board assesses performance and/or makes
resource allocation decisions. In practice this will be a matter
of judgement depending on the specific facts and
circumstances.
Reportable Segments
An entity shall report separately information about each
operating segment that:
a. has been identified or results from aggregating two or
more of those segments in accordance with aggregation
criteria, and
b. exceeds the quantitative thresholds
Quantitative thresholds
An entity shall report separately information about an
operating segment that meets any of the following
quantitative thresholds:
a. Its reported revenue, including both sales to
external customers and intersegment sales or
transfers, is 10 per cent or more of the combined
revenue, internal and external, of all operating
segments.
b. The absolute amount of its reported profit or loss
is 10 per cent or more of the greater, in absolute
amount, of (i) 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.
c. Its assets are 10 per cent or more of the combined
assets of all operating segments.
Quantitative thresholds
Note: If the total external revenue reported by operating
segments constitutes less than 75 per cent of the entity's
revenue, additional operating segments shall be identified as
reportable segments (even if they do not meet the criteria in
paragraph 13) until at least 75 per cent of the entity's
revenue is included in reportable segments
Quantitative thresholds-Example
Segments A, B, C and E clearly satisfy the revenue and assets test under Ind AS 108
and they are separate reportable segments. There is no need to consider profits test.
Aggregation criteria
Two or more operating segments may be aggregated into a
single operating segment if aggregation is consistent with the
core principle of this Ind AS, the segments have similar
economic characteristics, and the segments are similar in each
of the following respects:
the nature of the products and services;
the nature of the production processes;
the type or class of customer for their products and services;
the methods used to distribute their products or provide their
services; and
if applicable, the nature of the regulatory environment, for
example, banking, insurance or public utilities.
Steps for identifying Operating Segments
Step 1
Identify the CODM
Step 2
Can the component generate the
revenue and incur expenses from
its business activities
No
Yes
The component
is not a
operating Step 3
segment. Are the component’s operating
No results regularly reviewed by the
CODM as a basis for the
resource allocation and
performance assessment?
Yes
Step 4
Determine quantative thresholds
(10%)
Steps for identifying Operating Segments
Step 5
Does operating segment exceed
the 10% quantative thresholds
Yes
Yes /No
Step 6
These are Do the reportable segments
reportable identified account for 75% of
segments to consolidated revenue
be disclosed
No
Step 7
Identify additional operating
segments (and if appropriate,
aggregate with other reportable
segments), until external revenue
of reportable segments exceeds
75% of consolidated returns
Questions and answers
Question:
Is the CODM always viewed as the highest level of management at which
decisions are made?
Answer:
Typically, yes. In almost every organisation, decisions about the entity’s resource
allocation and the assessment of the performance of the entity’s businesses are
made at the highest level of management.
Question:
Does a component meet the definition of a segment if the CODM reviews
revenue-only information?
Answer:
In most cases, no. For most entities, the review of revenue-only data is not
sufficient for decision-making related to resource allocation or performance
evaluation of a segment.
Questions and answers
Question:
Is a segment balance sheet necessary to conclude that discrete financial
information is available?
Answer:
No. We believe that in many cases the requirement for discrete financial
information can be met with operating performance information only, such as
revenue and gross profit by product line.
Question:
Can a discontinued operation be an operating segment?
Answer:
Yes. A discontinued operation can meet the definition of an operating segment if:
• it continues to engage in business activities;
• the operating results are regularly reviewed by the CODM; and
• discrete financial information is available to facilitate the review.
Questions and answers
Question:
When applying the 75% test under Ind AS 108 para 15, should the next largest
operating segment always be selected?
Answer:
No. The entity should select the next most meaningful operating segment.
Question:
Is aggregation must if two or more segments meet all the aggregation criteria?
Answer:
No, Aggregation into a single reportable is permitted. But its not compulsory.
Disclosures
Disclosure
1.1 Adoption of Ind AS 108 Operating Segments
The Company has adopted Ind AS 108 Operating Segments with effect from 1 April 20XX. Ind
AS 108 requires operating segments to be identified on the basis of internal reports about
components of the Company that are regularly reviewed by the chief operating decision maker
in order to allocate resources to the segments and to assess their performance.
1.2 Segment revenues and results
The following is an analysis of the Company’s revenue and results from continuing operations
by reportable segment:
Segment Revenue Segment Profit
Year Ended Year Ended
31-Mar-XX 31-Mar-XX
INR Crores INR Crores
AA XXX XXX
BB XXX XXX
Others XXX XXX
Less: Inter Segment Revenue XXX -
Total for continuing operations XXX XXX
Central administration costs XXX
Profit before tax (continuing operations) XXXX
Disclosure
1.3 Segment assets and liabilities
As at
31-Mar-XX
Segment assets INR Crores
AA XXX
BB XXX
Others XXX
Total segment assets XXXX
Unallocated XXX
Consolidated assets XXXXX
Segment liabilities
As at
31-Mar-XX
INR Crores
AA XXX
BB XXX
Others XXX
Total segment liabilities XXXX
Unallocated XXX
Consolidated liabilities XXXXX
Disclosure
1.4 Other segment information
Depreciation and amortisation Additions to noncurrent
assets
Year Ended Year Ended
31-Mar-XX 31-Mar-XX
INR Crores INR Crores
AA XXX XXX
BB XXX XXX
Others XXX XXX
XXXX XXXX
1.5 Revenue from major products and services
Year Ended
31-Mar-XX
INR Crores
X1 XXX
X2 XXX
X3 XXX
X4 XXX
Others
Disclosure
1.6 Geographical information
The Company operates in two principal geographical areas – India (country of domicile) and
Outside India.
The Company’s revenue from continuing operations from external customers and information
about its non-current assets by geographical location are detailed below.
Revenue from Non-current assets*
external customers
Year Ended As at
31-Mar-XX 31-Mar-XX
INR Crores INR Crores
India XXX XXX
Outside India XXX XXX
1.7 Information about major customers
In respect of customers which accounts for more than 10% of the revenues
Thank You
