Ind AS 108, “Operating Segments,” prescribes the requirements for the disclosure of financial information about an entity’s operating segments. It is aimed at enhancing the transparency of financial reporting and helping users of financial statements to better understand the performance of an entity, assess its prospects for future net cash inflows, and make more informed judgments about the entity as a whole.
Objectives of Segment Reporting (IND AS 108):
1. Enabling Users to Evaluate Nature and Financial Effects of Business Activities
The core objective of Ind AS 108 is to require disclosure of information that enables users of financial statements to evaluate the nature and financial effects of the business activities in which an entity engages, and the economic environments in which it operates. Since diversified entities often operate across multiple product lines, services, or geographical regions with differing risks, growth prospects, and profitability profiles, aggregated entity-wide figures alone can obscure important variations. Segment-level disclosure allows users to look beyond consolidated totals and understand the distinct operational and economic drivers underlying an entity’s overall reported performance.
2. Adopting the Management Approach to Segment Identification
Ind AS 108 aims to identify operating segments based on the “management approach,” requiring segments to be reported consistent with the internal reporting structure used by the entity’s chief operating decision maker for allocating resources and assessing performance. This objective ensures that external segment disclosures mirror how management itself views and manages the business internally, rather than imposing an artificial, externally-mandated segmentation structure. By aligning external reporting with internal management information, the standard enhances the relevance and predictive value of segment disclosures, since they reflect genuine operational decision-making rather than a standardised, potentially less meaningful classification.
3. Enhancing Comparability and Consistency of Segment Information
The standard seeks to enhance comparability of segment information both across different periods for the same entity and, to the extent practicable, across different entities, by requiring consistent identification and measurement of reportable segments over time. This objective supports trend analysis and benchmarking, enabling users to track a segment’s performance trajectory and compare it against similarly structured segments of competitor entities. Consistency requirements also guard against entities arbitrarily reorganising segment structures between periods merely to obscure underperformance or otherwise present a more favourable, but less meaningful, comparative picture of segment-level results.
4. Providing Disaggregated Financial Information for Better Decision-Making
Ind AS 108 aims to provide disaggregated financial information about revenues, profit or loss, assets, and liabilities attributable to each reportable segment, supporting more informed investment, credit, and resource allocation decisions by external users. This granular breakdown allows investors and analysts to identify which segments are driving overall growth or decline, assess capital allocation efficiency across different business lines, and better forecast future consolidated performance based on segment-specific trends. Without such disaggregation, users would be forced to rely solely on aggregated entity-wide figures that may mask significant underlying variability in segment-level risk and return characteristics.
5. Requiring Reconciliation Between Segment and Entity-Wide Totals
A further objective of the standard is to require reconciliation of total reportable segment revenues, profit or loss, assets, liabilities, and other material items to corresponding entity totals reported in the financial statements. This objective ensures internal consistency and traceability between segment disclosures and the primary financial statements, allowing users to verify that segment information genuinely represents a disaggregation of the entity’s overall reported results rather than being prepared on an inconsistent or incompatible basis. Reconciliation disclosures also highlight unallocated items and inter-segment eliminations, providing further transparency regarding the entity’s overall reporting structure.
6. Providing Entity-Wide Disclosures Even for Single-Segment Entities
Ind AS 108 aims to ensure that even entities with a single reportable segment provide certain entity-wide disclosures, including information about products and services, geographical areas, and major customers, to the extent such information is not already provided as part of segment disclosures. This objective ensures a baseline level of disaggregated transparency is maintained across all entities applying the standard, preventing entities that operate as a single internally-managed segment from being entirely exempt from providing any disaggregated insight into the diversity of their revenue sources, customer concentration, or geographical exposure, which remains valuable to users regardless of internal segment structure.
Key Principles
Ind AS 108 requires entities to report financial and descriptive information about their reportable segments. Reportable segments are operating segments or aggregations of operating segments that meet specified criteria concerning their revenue, profit or loss, or assets.
Operating segments are components of an entity about which separate financial information is available that is evaluated regularly by the chief operating decision maker (CODM) in deciding how to allocate resources and in assessing performance. This approach is known as the ‘management approach’, where the identification of operating segments is based on the way that financial information is organized and reported to the CODM within the entity.
The standard requires entities to disclose specific information about each reportable segment, including revenue from external customers and intersegment revenue, a measure of segment profit or loss, segment assets, and the basis of segmentation and the types of products and services from which each reportable segment derives its revenues.
The amounts reported for each operating segment are measured on the same basis as those used by the CODM for making decisions about allocating resources to the segment and assessing its performance. The standard allows a certain degree of flexibility in measurement, acknowledging that the information reviewed by the CODM may not always be prepared in line with the accounting policies applied for the consolidated financial statements.
Besides segment information, Ind AS 108 also requires entity-wide disclosures that give information about the entity’s products and services, the geographical areas in which it operates, and its major customers. This is to ensure that even if entities have a single reportable segment or do not allocate some items to segments, users of the financial statements still receive a level of information about the entity’s different revenue streams, the geographical spread of its operations, and its reliance on major customers.
Ind AS 108’s requirements ensure that an entity discloses information about its operating segments in a manner that reflects the internal reports that are regularly reviewed by its CODM. This approach is intended to provide users of financial statements with information that is used by management to evaluate the performance of the entity’s business and make decisions about the allocation of resources.
Scope Inclusions:
The standard primarily targets entities with public accountability, defined by their engagement in trading equity or debt instruments in public markets or being in the process of issuing such securities. This includes companies listed on stock exchanges and companies in the process of going public.
It applies to entities that are required to, or choose to, prepare their financial statements according to Ind AS, providing a framework for segment reporting that aligns with international financial reporting standards.
Scope Exclusions:
While the standard is primarily aimed at publicly traded entities, non-public entities are not expressly excluded. However, the emphasis on public accountability means its requirements are most relevant to entities with securities traded in public markets. Non-public entities may still find the principles of segment reporting useful for internal management purposes and may voluntarily apply Ind AS 108 to their financial reporting.
The requirements of Ind AS 108 are applied in the context of consolidated financial statements of a group with a public accountability focus. However, the principles could also be informative for the separate financial statements of individual entities within a group, particularly if those entities have public accountability.
Entities not within the scope of Ind AS 108, such as private companies without public trading of their securities and not in the process of issuing such securities in public markets, are not required to apply the standard’s segment reporting requirements. However, adopting some of its principles could enhance the transparency and usefulness of financial information provided to owners and other stakeholders.
Recognition of Segment Reporting (IND AS 108):
1. Identification Based on Internal Organisational Structure
Operating segments are generally identified based on the internal organisational and management structure of the entity, and its internal financial reporting system, reflecting how the CODM actually views and manages the business. This “management approach” means segments are not defined by rigid external criteria such as legal entity structure or product classification alone, but by whichever internal components the CODM regularly reviews for resource allocation and performance evaluation. This ensures reported segments align genuinely with how the entity’s own management perceives and operates its distinct business activities, rather than an artificial or externally imposed segmentation.
2. Role of the Chief Operating Decision Maker
The chief operating decision maker is a function, not necessarily a specific title or individual, responsible for allocating resources to and assessing the performance of the operating segments of the entity. It may be identified as the entity’s chief executive officer, chief operating officer, or a group of executive directors, depending on how responsibility is structured within the organisation. Identifying the CODM function correctly is essential, since the operating segments reported externally must correspond precisely to the components regularly reviewed by whoever performs this resource allocation and performance assessment role within the entity’s actual management hierarchy.
3. Recognition of Reportable Segments – Quantitative Thresholds
An operating segment is recognised as a reportable segment requiring separate disclosure if it satisfies any of the specified quantitative thresholds: its reported revenue (including both external and inter-segment sales) is 10% or more of the combined revenue of all operating segments; the absolute amount of its reported profit or loss is 10% or more of the greater of the combined profit of profitable segments or combined loss of loss-making segments; or its assets are 10% or more of the combined assets of all operating segments. Meeting any single threshold triggers mandatory separate reportable segment disclosure.
4. Aggregation of Operating Segments
Two or more operating segments may be aggregated into a single reportable segment if aggregation is consistent with the core principle of the standard, the segments have similar economic characteristics, and the segments are similar in respect of the nature of products and services, nature of production processes, type or class of customer, methods of distribution, and nature of regulatory environment. This recognition flexibility prevents excessive fragmentation of disclosure into numerous minor segments with genuinely comparable risk and return profiles, while still preserving meaningful disaggregation where underlying economic characteristics differ substantially between components.
5. Recognition of Additional Segments to Meet 75% External Revenue Test
If the total external revenue reported by operating segments constitutes less than 75% of the entity’s total revenue, additional operating segments must be identified as reportable segments, even if they do not meet the quantitative thresholds individually, until at least 75% of total entity revenue is included within reportable segments. This recognition requirement ensures that a substantial majority of the entity’s revenue-generating activities are captured within disaggregated segment disclosures, preventing entities from disclosing only a few large segments while leaving a significant portion of their overall business activity unreported and effectively hidden within an “all other segments” category.
6. Recognition of “All Other Segments” Category
Information about operating segments that do not meet any of the quantitative thresholds and are not separately reported may be combined and disclosed in an “all other segments” category, separately from other reconciling items, with the sources of revenue included in this category described. This recognition treatment ensures immaterial or below-threshold segments are not entirely omitted from segment disclosures but are appropriately aggregated together, maintaining overall completeness of segment-level information while avoiding excessive disclosure granularity for individually insignificant components of the entity’s diversified business operations.
Measurement of Segment Reporting (IND AS 108):
1. General Measurement Principle
The amount of each segment item reported is the measure reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segment and assessing its performance. This means segment information is not necessarily measured in accordance with the accounting policies applied in preparing the entity’s general-purpose financial statements, but reflects whatever internal measurement basis management actually uses for decision-making purposes. This “management approach” to measurement ensures segment disclosures genuinely represent the financial information management relies upon internally, even if this differs from external financial reporting policies.
2. Explanation of Measurement Basis
An entity must provide an explanation of the measurements of segment profit or loss, segment assets, and segment liabilities for each reportable segment, including a description of the basis of accounting for any transactions between reportable segments, the nature of any differences between the measurements of reportable segments’ profit or loss and the entity’s profit or loss before tax and discontinued operations, and the nature of any differences between reportable segments’ assets and the entity’s assets. This disclosure ensures users understand precisely how segment figures relate to, and may diverge from, consolidated financial statement amounts.
3. Measurement of Segment Revenue and Expenses
Segment revenue includes revenue directly attributable to the segment, along with a relevant portion of entity revenue that can be allocated on a reasonable basis, including both revenue from transactions with external customers and inter-segment revenue. Similarly, segment expenses include directly attributable expenses and a reasonably allocable portion of common expenses. Since inter-segment transactions may be measured differently than external transactions (for instance, using transfer pricing methods), the amounts reported reflect whatever basis is actually used for internal management reporting, which the entity must appropriately explain in its segment disclosures.
4. Measurement Consistency and Asymmetrical Allocations
Measurement of segment items reported to the CODM may include asymmetrical allocations; for example, an entity may allocate depreciation expense to a segment without allocating the related depreciable asset to that segment. This reflects the reality that internal management reporting is not always constructed on a fully symmetrical or theoretically pure basis, and the standard permits reporting of such internally-used measures as they are, rather than requiring artificial adjustment to achieve symmetry that does not exist in the entity’s actual internal reporting and decision-making processes used by the chief operating decision maker.
5. Consistency of Measurement Basis Over Time
The measurement basis used for segment reporting purposes must be applied consistently over time, and any changes in the measurement basis used for determining reported segment profit or loss must be disclosed, along with corresponding adjustments to prior period segment information unless impracticable. This ensures comparability of segment performance across successive reporting periods, allowing users to reliably track trends in segment-level results without being misled by inconsistent internal measurement changes that could otherwise distort period-on-period comparisons of segment revenue, profit, assets, or liabilities without adequate disclosure of the underlying change.
6. Reconciliation Requirements Linking Segment Measures to Entity Totals
An entity must disclose reconciliations of total reportable segment revenues to entity revenue, total segment profit or loss to entity profit or loss before tax and discontinued operations, total segment assets to entity assets, total segment liabilities to entity liabilities (if reported), and total amounts for every other material segment item disclosed to the corresponding entity amount. All material reconciling items must be separately identified and described. This measurement reconciliation ensures segment totals are transparently traceable back to consolidated financial statement figures, allowing users to understand unallocated corporate items and inter-segment eliminations affecting the overall entity totals.
Disclosures of Segment Reporting (IND AS 108):
1. General Information about Operating Segments
An entity must disclose general information including factors used to identify the entity’s reportable segments, such as whether segments are organised around products and services, geographical areas, regulatory environments, or a combination of factors, and whether operating segments have been aggregated. It must also disclose the types of products and services from which each reportable segment derives its revenues. This foundational disclosure provides users with essential context for interpreting subsequent quantitative segment data, helping them understand the organisational logic underlying the entity’s segmentation structure before evaluating the detailed financial information presented for each reportable segment.
2. Segment Profit or Loss and Related Material Items
For each reportable segment, an entity must disclose a measure of profit or loss, and specified related items if included in the measure reviewed by the CODM or otherwise regularly provided to it, including revenues from external customers, inter-segment revenues, interest revenue and expense, depreciation and amortisation, material income and expense items, share of profit/loss of equity-accounted investees, income tax expense, and material non-cash items other than depreciation. This detailed breakdown allows users to understand the composition of each segment’s profitability and identify significant items driving segment-level performance variations across the entity’s diversified operations.
3. Segment Assets and Liabilities
An entity must disclose a measure of total assets and, if regularly provided to the CODM, total liabilities for each reportable segment. Additionally, specified amounts must be disclosed if included in the measure of segment assets reviewed by the CODM or otherwise regularly provided, including investments in equity-accounted associates and joint ventures, and amounts of additions to non-current assets other than financial instruments, deferred tax assets, and post-employment benefit assets. This disclosure enables users to assess the relative capital intensity, resource allocation, and balance sheet exposure attributable to each of the entity’s separately reportable business segments.
4. Measurement Explanations
Entities must explain the measurement of segment profit or loss, segment assets, and segment liabilities for each reportable segment, including the basis of accounting for transactions between reportable segments, the nature of differences between segment measurements and corresponding entity-wide amounts (such as accounting policy differences or allocation of centrally incurred costs), the nature of any changes in measurement basis from prior periods, and the nature and effect of any asymmetrical allocations to reportable segments. This explanatory disclosure ensures users can properly interpret segment figures in light of the specific internal measurement conventions applied by management.
5. Reconciliations to Entity Totals
An entity must disclose reconciliations of total reportable segment revenues to entity revenue, total segment profit or loss to entity profit or loss before tax expense and discontinued operations, total segment assets to entity assets, total segment liabilities (if reported) to entity liabilities, and total amounts for every other material segment item disclosed to the corresponding entity amount, with all material reconciling items separately identified and described. This ensures traceability between disaggregated segment data and the primary financial statements, highlighting unallocated corporate items and inter-segment eliminations affecting overall reported entity totals.
6. Restatement of Previously Reported Segment Information
If an entity changes the structure of its internal organisation in a manner that causes the composition of its reportable segments to change, corresponding information for earlier periods, including interim periods, must be restated unless the information is not available and the cost to develop it would be excessive, in which case this fact must be disclosed. This disclosure requirement preserves comparability of segment trends across periods despite internal reorganisations, while providing a practical exemption when restatement would be genuinely impracticable, alongside appropriate disclosure explaining why comparative segment figures could not be restated.
7. Entity-Wide Disclosures – Products and Services
Unless the information is already provided as part of the reportable segment disclosures, an entity must disclose, at an entity-wide level, revenues from external customers for each product and service, or each group of similar products and services. This entity-wide disclosure requirement ensures that even entities organised into broad or few reportable segments still provide users with meaningful insight into the diversity of their revenue-generating product and service lines, preventing significant product or service concentration from being obscured within aggregated segment-level revenue figures that do not separately identify individual product or service contributions.
8. Entity-Wide Disclosures – Geographical Areas and Major Customers
An entity must disclose, at an entity-wide level, revenues from external customers attributed to the entity’s country of domicile and to all foreign countries in total (with material individual country amounts separately disclosed), and similarly for non-current assets located in the country of domicile versus foreign countries. Additionally, if revenues from transactions with a single external customer amount to 10% or more of total entity revenue, this fact, the total revenue from each such customer, and the identity of the reportable segment(s) reporting the revenues must be disclosed, highlighting significant customer concentration risk.
Example of Segment Reporting (IND AS 108):
A company operates through three business segments: Telecom, Consumer Electronics and Software. The management reviews the performance of each segment separately and allocates resources based on their results. Therefore, these segments may qualify as reportable operating segments under Ind AS 108.
| Particulars |
Telecom |
Consumer Electronics |
Software |
| Revenue |
₹50 lakh |
₹30 lakh |
₹20 lakh |
| Segment Expenses |
₹40 lakh |
₹25 lakh |
₹12 lakh |
| Segment Profit |
₹10 lakh |
₹5 lakh |
₹8 lakh |
| Segment Assets |
₹80 lakh |
₹50 lakh |
₹40 lakh |
Journal Entry
Segment reporting itself does not require a separate journal entry, because it is a disclosure requirement.
The underlying revenue transaction may be recorded as:
| Particulars |
Debit |
Credit |
| Trade Receivables/Bank A/c Dr. |
₹50,00,000 |
|
| To Revenue from Operations A/c |
|
₹50,00,000 |
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