Ind AS-108 Operating Segments

What is Operating Segment?

An operating segment is a component of an entity:

1. 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),
2. 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
3. For which discrete financial information is available.

Core principle of Ind AS 108

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.

Reportable segments

An entity shall report separately information about each operating segment that:

1. has been identified “Operating Segment” OR
2. Results from aggregating two or more of segments in Aggregation criteria
   1. AND
   2. Exceeds the quantitative thresholds

Important point:

• Operating segments that do not meet any of the quantitative thresholds may be considered reportable, and separately disclosed, if management believes that information about the segment would be useful to users of the financial statements.
• 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 quantitative thresholds) until at least 75 per cent of the entity’s revenue is included in reportable segments.

Quantitative thresholds

An entity shall report separately information about an operating segment that meets any of the following quantitative thresholds:

• Its reported revenue, including both sales to external customers and inter segment sales or transfers, is 10 per cent or more of the combined revenue, internal and external, of all operating segments.
• 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.
• Its assets are 10 per cent or more of the combined assets of all operating segments.

Comparative of Reportable Segment

If an operating segment is identified as a reportable segment in the current period in accordance with the quantitative thresholds, segment data for a prior period presented for comparative purposes shall be restated to reflect the newly reportable segment as a separate segment, even if that segment did not satisfy quantitative threshold in the prior period, unless the necessary information is not available and the cost to develop it would be excessive.

Disclosure

An entity shall disclose

• General information like

1. Factors used to identify the entity’s reportable segments, including the basis of organisation
2. Judgements made by management in applying the aggregation criteria
3. Types of products and services from which each reportable segment derives its revenues.

• Information about profit or loss, assets and liabilities for each reportable segment
• Reconciliations

An entity shall provide reconciliations of all of the following:

1. The total of the reportable segments’ revenues to the entity’s revenue
2. The total of the reportable segments’ measures of profit or loss to the entity’s profit or loss before tax expense (tax income) and discontinued operations.
3. The total of the reportable segments’ assets to the entity’s assets
4. The total of the reportable segments’ liabilities to the entity’s liabilities
5. The total of the reportable segments’ amounts for every other material item of information disclosed to the corresponding amount for the entity.

All material reconciling items shall be separately identified and described.