TMI BlogSegment ReportingX X X X Extracts X X X X X X X X Extracts X X X X ..... whole. Many enterprises provide groups of products and services or operate in geographical areas that are subject to differing rates of profitability, opportunities for growth, future prospects, and risks. Information about different types of products and services of an enterprise and its operations in different geographical areas - often called segment information - is relevant to assessing the risks and returns of a diversified or multi-locational enterprise but may not be determinable from the aggregated data. Therefore, reporting of segment information is widely regarded as necessary for meeting the needs of users of financial statements. Scope 1. This Standard should be applied in presenting general purpose financial statements. 2. The requirements of this Standard are also applicable in case of consolidated financial statements. 3. An enterprise should comply with the requirements of this Standard fully and not selectively. 4. If a single financial report contains both consolidated financial statements and the separate financial statements of the parent, segment information need be presented only on the basis of the consolidated financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on a reasonable basis to a segment, and (iii) revenue from transactions with other segments of the enterprise. Segment revenue does not include: (a) extraordinary items as defined in AS 5, Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies; (b) interest or dividend income, including interest earned on advances or loans to other segments unless the operations of the segment are primarily of a financial nature; and (c) gains on sales of investments or on extinguishment of debt unless the operations of the segment are primarily of a financial nature. 5.6 Segment expense is the aggregate of (i) the expense resulting from the operating activities of a segment that is directly attributable to the segment, and (ii) the relevant portion of enterprise expense that can be allocated on a reasonable basis to the segment, including expense relating to transactions with other segments of the enterprise. Segment expense does not include: (a) extraordinary items as defined in AS 5, Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies; (b) intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a segment and that either are directly attributable to the segment or can be allocated to the segment on a reasonable basis. If the segment result of a segment includes interest expense, its segment liabilities include the related interestbearing liabilities. Segment liabilities do not include income tax liabilities. 5.10 Segment accounting policies are the accounting policies adopted for preparing and presenting the financial statements of the enterprise as well as those accounting policies that relate specifically to segment reporting. 6. The factors in paragraph 5 for identifying business segments and geographical segments are not listed in any particular order. 7. A single business segment does not include products and services with significantly differing risks and returns. While there may be dissimilarities with respect to one or several of the factors listed in the definition of business segment, the products and services included in a single business segment are expected to be similar with respect to a majority of the factors. 8. Similarly, a single geographical segment does not include operations in economic environments with signifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of such items that can be allocated to a segment on a reasonable basis. An enterprise looks to its internal financial reporting system as the starting point for identifying those items that can be directly attributed, or reasonably allocated, to segments. There is thus a presumption that amounts that have been identified with segments for internal financial reporting purposes are directly attributable or reasonably allocable to segments for the purpose of measuring the segment revenue, segment expense, segment assets, and segment liabilities of reportable segments. 14. In some cases, however, a revenue, expense, asset or liability may have been allocated to segments for internal financial reporting purposes on a basis that is understood by enterprise management but that could be deemed arbitrary in the perception of external users of financial statements. Such an allocation would not constitute a reasonable basis under the definitions of segment revenue, segment expense, segment assets, and segment liabilities in this Standard. Conversely, an enterprise may choose not to allocate some item of revenue, expense, asset or liability for internal financial reporting purposes, even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that relate specifically to segment reporting, such as identification of segments, method of pricing inter - segment transfers, and basis for allocating revenues and expenses to segments. Identifying Reportable Segments Primary and Secondary Segment Reporting Formats 19. The dominant source and nature of risks and returns of an enterprise should govern whether its primary segment reporting format will be business segments or geographical segments. If the risks and returns of an enterprise are affected predominantly by differences in the products and services it produces, its primary format for reporting segment information should be business segments, with secondary information reported geographically. Similarly, if the risks and returns of the enterprise are affected predominantly by the fact that it operates in different countries or other geographical areas, its primary format for reporting segment information should be geographical segments, with secondary information reported for groups of related products and services. 20. Internal organisation and management structure of an enterprise and its system of internal financial reporting to the board of di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is will often provide useful information if risks and returns of an enterprise are strongly affected both by differences in the products and services it produces and by differences in the geographical areas in which it operates. Th . 23. In some cases, organisation and internal reporting of an enterprise may have developed along lines unrelated to both the types of products and services it produces, and the geographical areas in which it operates. In such cases, the internally reported segment data will not meet the objective of this Standard. Accordingly, paragraph 20(b) requires the directors and management of the enterprise to determine whether the risks and returns of the enterprise are more product/service driven or geographically driven and to accordingly choose business segments or geographical segments as the primary basis of segment reporting. The objective is to achieve a reasonable degree of comparability with other enterprises, enhance understandability of the resulting information, and meet the needs of investors, creditors, and others for information about product/service-related and geographically- related risks and returns. Business and Geographical Segments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... criteria in paragraph 27 for identifying reportable segments should be applied to that segment. 26. Under this Standard, most enterprises will identify their business and geographical segments as the organisational units for which information is reported to the board of the directors (particularly the non -executive directors, if any) and to the chief executive officer (the senior operating decision maker, which in some cases may be future allocations of resources. Even if an enterprise must apply paragraph 25 because its internal segments are not along product/service or geographical lines, it will consider the next lower level of internal segmentation that reports information along product and service lines or geographical lines rather than construct segments solely for external reporting purposes. This approach of looking to organisational and management structure of an enterprise and its internal financial reporting system to identify the business and geographical segments of the enterprise for external reporting purposes is sometimes called the management approach , and the organisational components for which information is reported internally are sometimes called ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... segment did not satisfy the 10 per cent thresholds in the preceding period. Segment Accounting Policies 33. Segment information should be prepared in conformity with the accounting policies adopted for preparing and presenting the financial statements of the enterprise as a whole. 34. There is a presumption that the accounting policies that the directors and management of an enterprise have chosen to use in preparing the financial statements of the enterprise as a whole are those that the directors and management believe are the most appropriate for external reporting purposes. Since the purpose of segment information is to help users of financial statements better understand and make more informed judgements about the enterprise as a whole, this Standard requires the use, in preparing segment information, of the accounting policies adopted for preparing and presenting the financial statements of the enterprise as a whole. That does not mean, however, that the enterprise accounting policies are to be applied to reportable segments as if the segments were separate stand-alone reporting entities. A detailed calculation done in applying a particular accounting poli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aphs 39-46 for each reportable secondary segment although paragraphs 47 -51 require considerably less disclosure on the secondary basis. Paragraphs 53-59 address several other segment disclosure matters. Illustration III attached to this Standard illustrates the application of these disclosure standards. Explanation: In case, by applying the definitions of business segment and geographical segment , it is concluded that there is neither more than one business segment nor more than one geographical segment, segment information as per this Standard is not required to be disclosed. However, the fact that there is only one business segment and geographical segment is disclosed by way of a note. Primary Reporting Format 39. The disclosure requirements in paragraphs 40-46 should be applied to each reportable segment based on primary reporting format of an enterprise. 40. An enterprise should disclose the following for each reportable segment: (a) segment revenue, classified into segment revenue from sales to external customers and segment revenue from transactions with other segments; (b) segment result; (c) total carrying amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue or expense from ordinary to extraordinary or to change the measurement of such items. The disclosure, however, does change the level at which the significance of such items is evaluated for disclosure purposes from the enterprise level to the segment level. 44. An enterprise that reports the amount of cash flows arising from operating, in vesting and financing activities of a segment need not disclose depreciation and amortisation expense and non -cash expenses of such segment pursuant to sub-paragraphs (f) and (g) of paragraph 40. 45. AS 3 Cash Flow Statements recommends that an enterprise present a cash flow statement that separately reports cash flows from operating, investing and financing activities. Disclosure of information regarding operating, investing and financing cash flows of each reportable segment is relevant to understanding financial position, liquidity, and cash flows. Disclosure of segment cash flow is, therefore, encouraged, though not required. An enterprise that provides segment cash flow disclosures need not disclose depreciation and amortisation expense and non-cash expenses pursuant to sub-paragraphs (f) and (g) of paragraph 40. 46. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal assets of all geographical segments. 49. If primary format of an enterprise for reporting segment information is geographical segments (whether based on location of assets or location of customers), it should also report the following segment information for each business segment whose revenue from sales to external customers is 10 per cent or more of enterprise revenue or whose segment assets are 10 per cent or more of the total assets of all business segments: (a) segment revenue from external customers; (b) the total carrying amount of segment assets; and (c) the total cost incurred during the period to acquire segment assets that are expected to be used during more than one period (tangible and intangible fixed assets). 50. If primary format of an enterprise for reporting segment information is geographical segments that are based on location of assets, and if the location of its customers is different from the location of its assets, then the enterprise should also report revenue from sales to external customers for each customer-based geographical segment whose revenue from sales to external customers is 10 per cent or more of enter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such change. Where the effect of such change is not ascertainable, wholly or in part, the fact should be indicated. If a change is made in the accounting policies which has no material effect on the financial statements for the current period but which is reasonably expected to have a material effect in later periods, the fact of such change should be appropriately disclosed in the period in which the change is adopted. 57. Some changes in accounting policies relate specifically to segment reporting. Examples include changes in identification of segments and changes in the basis for allocating revenues and expenses to segments. Such changes can have a significant impact on the segment information reported but will not change aggregate financial information reported for the enterprise. To enable users to understand the impact of such changes, this Standard requires the disclosure of the nature of the change and the financial effect of the change, if reasonably determinable. 58. An enterprise should indicate the types of products and services included in each reported business segment and indicate the composition of each reported geographical segment, both primary and seconda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total (Segments) Total (Enterprise) 3. SEGMENT RESULT [Profit/(Loss)] 5 (90) 15 (5) 8 (5) 5 7 4. Combined Result of all Segments in profits 5 15 8 5 7 40 5. Combined Result of all Segments in loss (90) (5) (5) (100) 6. Segment Result as a percentage of the greater of the totals arrived at 4 and 5 above in absolute amount(i.e., 100) 5 90 15 5 8 5 5 7 7. SEGMENT ASSETS 15 47 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to designate any one or more of the remaining segments as reportable segment(s) so that the external revenue of reportable segments is at least 75% of the total enterprise revenue. Suppose, the management designates Segment H for this purpose. Now the external revenue of reportable segments is more than 75% of the total enterprise revenue. Segments A, B, C, D, E and H are reportable segments. Segments F and G will be shown as reconciling items. Illustration III Illustrative Segment Disclosures This illustration does not form part of the Accounting Standard. Its purpose is to illustrate the application of paragraphs 38-59 of the Accounting Standard. This illustration illustrates the segment disclosures that this Standard would require for a diversified multilocational business enterprise. This example is intentionally complex to illustrate most of the provisions of this Standard. INFORMATION ABOUT BUSINESS SEGMENTS (NOTE xx) (All amounts in Rs. lakhs) Paper Products Office Products Publishing Other Operations Eliminations Cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) (1) 30 24 Unallocated corporate expenses (7) (9) Operating profit 23 15 Interest expense (4) (4) Interest income 2 3 Income taxes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 175 155 Segment Liabilities 25 15 8 11 8 8 1 1 42 35 Paper Products Office Products Publishing Other Operations Eliminations Consolidated Total Current Year Previous Year Current Year Previous Year Current Year Previous Year Current Year Previous Year Current Year Previous Year Current Year Previous Year Unallocated corporate liabilities 40 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sist of manufacturing papers and newsprint that are sold entirely within those two countries. Operations in Indonesia include the production of paper pulp and the manufacture of writing and publishing pape rs and office products, almost all of which is sold outside Indonesia, both to other segments of the company and to external customers. Sales by market: The following table shows the distribution of the Company s consolidated sales by geographical market, regardless of where the goods were produced: Sales Revenue by Geographical Market Current Year Previous Year India 19 22 European Union 30 31 Canada and the United States 28 21 Mexico and South America 6 2 Southeast Asia (principally Japan and Taiwan) 18 14 101 90 Assets and additions to tangible and intangible fixed asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers of the relevant paragraphs in the text. PRIMARY FORMAT IS BUSINESS SEGMENTS PRIMARY FORMAT IS GEOGRAPHICAL SEGMENTS BY LOCATION OF ASSETS PRIMARY FORMAT IS GEOGRAPHICAL SEGMENTS BY LOCATION OF CUSTOMERS Required Primary Disclosures Required Primary Disclosures Required Primary Disclosures Revenue from external customers by business segment [40(a)] Revenue from external customers by location of assets [40(a)] Revenue from external customers by location of customers [40(a)] Revenue from transactions with other segments by business segment [40(a)] Revenue from transactions with other segments by location of assets [40(a)] Revenue from transactions with other segments by location of customers [40(a)] Segment result by business segment [40(b)] Segment result by location of assets [40(b)] Segment result by location of customers [40(b)] Carrying amount of segment assets by business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to acquire tangible and intangible fixed assets by location of assets [48] Cost to acquire tangible and intangible fixed assets by business segment [49] Cost to acquire tangible and intangible fixed assets by business segment [49] Revenue from external customers by geographical customers if different from location of assets [50] Carrying amount of segment assets by location of assets if different from location of customers [51] Cost to acquire tangible and intangible fixed assets by location of assets if different from location of customers [51] Other Required Disclosures Other Required Disclosures Other Required Disclosures Basis of pricing inter- segment transfers and any change therein [53] Basis of pricing inter- segment transfers and any change therein [53] Basis of pricing inter- segment transfers and any change therein [53] Changes in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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