IND AS 108

33 IND AS 108 –
OPERATING SEGMENTS

Quote:
“Make Improvements, Not Excuses. Seek Respect, Not Attention”

1. SEGMENT REPORTS

This standard requires entity to prepare a Segment wise report of entire business so that the
stakeholders can understand and evaluate the performance of business on segment wise.

Segment report is not a part of Financial Statements. Also this Ind AS provides following
guidelines to prepare a segment report:
1. First of all, identify the operating segments of business
2. Make aggregation of similar operating segments
3. Identify Reportable Segments from operating segments (Quantitative Threshold)
4. Prepare segment reports

SEGMENT REPORT FOR CONSOLIDATION & SEPARATE FINANCIAL STATEMENTS

If a financial report contains both the consolidated financial statements of a parent that is within the
scope of Ind AS 108 as well as the parent’s separate financial statements, segment information is
required only in the consolidated financial statements.

STEP 1 - IDENTIFY OPERATING SEGMENTS

An operating segment is a component of an entity that should have following characteristics:

(a) It is engaged in business activities from which it may earn revenues and incur expenses;
(b) Whose operating results (Profits/Losses or sometimes revenues) are regularly reviewed by the
entity’s chief operating decision maker (CODM) to take decisions; and
(c) For which discrete financial information is available (like Incomes, Expenses, Assets, Liabilities
etc)

Note:
1. CODM can be a Managing Director (Single Person) or Group of Person (Board of Directors).
2. Non-executive directors cannot be CODM.
3. An operating segment may engage in business activities for which it has yet to earn revenues,
for example, start-up operations may be operating segments before earning revenues.
4. If the discontinued operation

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⮚ Continues to engage in business activities;

⮚ Whose operating results are reviewed by the CODM; and
⮚ There is discrete information available to support the review
Then, it would meet the definition of an operating segment.
5. Following are not Operating Segments:
a) Corporate Headquarters
b) Post Employment Benefits Plan
6. Research and Development function of an entity can be an operating segment provided discrete
financial information is available.

Example 1:
ABC Ltd. manufactures and sells healthcare products, and food and grocery products. Three products namely
A, B & C are manufactured. Product A is classified as healthcare product and product B & C are classified as
food and grocery products. Products B & C are similar products. Discrete financial information is available for
each manufacturing locations and for the selling activity of each product. There are two line managers
responsible for manufacturing activities of products A, B & C. Manager X manages product A and Manager B
manages products B & C. The operating results of health care products (product A) and food and grocery
products (products B & C) are regularly reviewed by the CODM. Identify reportable segments of ABC Ltd.
Solution:
In this situation both the healthcare, and food and grocery product line meet the criteria for operating
segments set out above. Therefore, it is likely that ABC Ltd.’s operating segments would be classified as being
(i) healthcare and (ii) food and grocery segments.

STEP 2 – AGGREGATION OF SIMILAR OPERATING SEGMENTS

Two or more operating segments may be aggregated into a single operating segment if the segments
have similar economic characteristics (i.e. similar profit margin), and the segments are similar in each
of the following respects:
(a) The nature of the products and services.
(b) The nature of the production processes.
(c) The type or class of customer for their products and services;
(d) The methods used to distribute their products or provide their services; and
(e) If applicable, the nature of the regulatory environment, for example, banking, insurance or public
utilities.

STEP 3 – REPORTABLE SEGMENTS

Those operating segments of entity for which separate financial information is required to be disclosed
separately along with the financial statements. Operating Segments will be considered as reportable
when any one of the following criteria is fulfilled:
(a) If Revenue (Sales) of a segment is equal to or more than 10% of the combined revenue (sales) of
all segments.
Revenue means both External Revenue from Outside Customers and Internal Revenue from inter
segment sales.

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(b) If profit or loss of that segment is equal to or more than 10% of the combined result of all
segments.
Combined Result means higher of:
(i) Combined Profit of all segments in Profits
(ii) Combined Loss of all segments in Losses

(c) If Assets of that segment are equal to or more than 10% of the combined Assets of all Segments.

Minimum 75% criteria:

If the total external revenue reported by operating segments constitutes less than 75% of
the entity’s revenue, additional operating segments should be identified as reportable
segments (even if they do not meet the criteria) until at least 75% of the entity’s revenue is
included in reportable segments.
(i.e. External revenue of reportable segments must be ≥ 75% of the total external revenue of
the entity)

Choice of Management:
Entity can report any additional segment as reportable segment even though it does not meet
the above criteria.

Non-reportable segments:
All remaining segments which are not reportable separately should be combined and disclosed
as “Other Segments” in Segment Report.

STEP 4 – PREPARE A SEGMENT REPORT (DISCLOSURES)

Particulars Segment 1 Segment 2 Other Total

(Reportable) (Reportable) Segments
1. Segment Profit or Loss:
Segment Revenue (Gross)
Domestic: XXX XXX XXX XXX
Exports: XXX XXX XXX XXX
Inter Segment Sales: XXX XXX XXX XXX
(-) GST (XX) (XX) (XX) (XX)
Segment Revenue (Net) XXXX XXXX XXXX XXXX
(+) Other Operating Incomes XXX XXX XXX XXX
Total Revenue XXXX XXXX XXXX XXXX
(-) Segment Expenses XXX XXX XXX XXX
Segment Profit/(loss) XXX XXX XXX XXX
(+) Unallocated Incomes less Expenses XXX

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Net Profit before Interest & Tax XXX

(-) Interest & Other Finance Cost XXX
Net Profit before Tax XXX
(-) Tax Expenses (Current +/- Deferred) (XX)
Profit After Tax (Entire) XXX
2. Segment Assets & Liabilities
(i) Assets:
Segment Assets XXXX XXXX XXXX XXXX
Unallocated Assets XXXX
Total Assets (Entire) XXXX

(ii) Equity and Liabilities:

Segment Liabilities XXXX XXXX XXXX XXXX
Unallocated Liabilities XXX
Share Capital XXXX
Reserves & Surplus XXXX
Total Equity and Liabilities (Entire) XXXX
3. Other Information:
Capital Expenditure During the Year XXX XXX XXX XXX
Depreciation & Amortisation XXX XXX XXX XXX

Geographical Information: Domestic Foreign Foreign Total

Country 1 Country 2
Total Revenue XXX XXX XXX XXX
Total Assets XXX XXX XXX XXX
Total Capital Expenditure During the Year XXX XXX XXX XXX

MEASUREMENT: How the items to be reported are measured?

1) Same measurement basis as used by CODM.
2) Reconciliation with financial statements will be required.
Example 2:
An entity uses the weighted average cost formula to assign costs to inventories and cost of goods sold for
financial reporting purposes, but the reports provided to the chief operating decision maker use the First-In,
First-Out (FIFO) method for evaluating the performance of segment operations. Which cost formula should
be used for Ind AS 108 disclosure purposes?
Solution:
The entity should use First-In, First-Out (FIFO) method for its Ind AS 108 disclosures, even though it uses
the weighted average cost formula for measuring inventories for inclusion in its financial statements. Where
chief operating decision maker uses only one measure of segment asset, same measure should be used to
report segment information. Accordingly, in the given case, the method used in preparing the financial
information for the chief operating decision maker should be used for reporting under Ind AS 108.
However, reconciliation between the segment results and results as per financial statements needs to be given
by the entity in its segment report.

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