Ind AS- 108: Operating Segments

An entity shall disclose information to enable users of its financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environments in which it operates.

Applicability

• Companies to which Ind AS are not applicable but voluntarily opts to disclose Segment information, in that case entity has two options: either comply with all the requirements of this Ind AS or provide selective disclosures without using the term Segment Information.
• Applicable to all companies to which Ind ASs notified under Companies Act apply.
• If a financial report contains both Parent’s consolidated financial statement and Parent’s standalone financial statement, Segment Information is required only in Parent’s consolidated financial statement.

The Standard requires an entity to report financial and descriptive information about its reportable segments. Reportable segments are operating segments or aggregations of operating segments that meet specified criteria. Operating segments are components of an entity about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Generally, financial information is required to be reported on the same basis as is used internally for evaluating operating segment performance and deciding how to allocate resources to operating segments.

The Standard requires an entity to report a measure of operating segment profit or loss and of segment assets. It also requires an entity to report a measure of segment liabilities and particular income and expense items if such measures are regularly provided to the chief operating decision maker. It requires reconciliations of total reportable segment revenues, total profit or loss, total assets, liabilities and other amounts disclosed for reportable segments to corresponding amounts in the entity’s financial statements

The Standard requires an entity to report information about the revenues derived from its products or services (or groups of similar products and services), about the countries in which it earns revenues and holds assets, and about major customers, regardless of whether that information is used by management in making operating decisions. However, the Standard does not require an entity to report information that is not prepared for internal use if the necessary information is not available and the cost to develop it would be excessive.

The Standard also requires an entity to give descriptive information about the way the operating segments were determined, the products and services provided by the segments, differences between the measurements used in reporting segment information and those used in the entity’s financial statements, and changes in the measurement of segment amounts from period to period.

Operating Segments (Para 5)

An Operating Segment is a component of an entity that satisfies all of the following conditions:

• Whose operating results are regularly reviewed by entity’s chief operating decision maker to make decisions about resources allocation to the segment and assess its performance.
• That engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity).
• For which discrete financial information is available.

Reportable Segments

Aggregation Criteria

Two or more Operating Segments may be aggregated into a single operating segment if the segments have similar economic characteristics and 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 e.g., banking, insurance or public utilities.

Quantitative Thresholds

Operating Segment’s Reported revenue (External customers sale + Intersegment sale) >=10% of combined revenue (internal + external) of all operating segments

OR

Operating Segment’s Reported profit/loss >=Greater of A) or B)

A) Combined reported PROFIT of all PROFITABLE operating segments

B) Combined reported LOSS of all operating segments reported LOSS

OR

Operating Segment’s Assets >=10% of combined assets of all operating assets

Operating Segments that do not meet any of the quantitative thresholds may be considered reportable, if management believes that segment information would be useful to users of the financial statement.

Para 14: Operating Segments that do not meet quantitative thresholds