CA.CS. Naveen. Rohatgi TYBMS: Special study in finance.

 Segment reporting under Indian GAAP

(Accounting Standard 17 – Segment Reporting)
 Segment reporting under International Financial Reporting Standards (IFRSs)
(IFRS 8 – Operating Segments)

Meaning & Objective

An enterprise deals in multiple product/ services and operates in different geographical areas. Multiple
products / services and its operations in different geographical areas are exposed to different risk and
return. Information about multiple products / service and its operation in different geographical areas is
called Segment information. Such information is used to assess the risk and return of multiple products/
services and its operation in different geographical areas. Disclosure of such information is called
segment reporting.

Segment reporting helps users of financial statement.

- To better understand the performance of the enterprise
- To better assess the Risk and Returns of the enterprise
- To make more informed judgments about the enterprise as whole.

Accounting is mandatory in the following cases:

 Enterprise whose equity or debt instrument is listed in India or outside India

 Enterprise whose equity or debt instrument is the process listing in India or outside India
 Banks including Co-operative banks
 Financial Institutions
 Insurance companies
 All commercial and business reporting enterprises having turnover exceeding Rs. 50 Crores.
 All commercial and business reporting enterprises having borrowings including public deposits
in excess of Rs. 10 Crore at any time during the accounting period.
 Holding and subsidiary companies of above.

Segment
There are two types of segments

Business Segment- Segment is made on the basis of product / services, which are exposed to different
risks and returns. A business segment is component of an enterprise, which satisfies the following
conditions-
 It is distinguishable component of an enterprise,
 It is engaged in providing an individual product or service or group of related products or services,
and
 It is subject to risks and returns that are different from those of other business segment.

Factors that should be considered in determining whether products or services are related include:
- The nature of products or services;
- The nature of the production processes:
- The methods used to distribute the products or provide the services and

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- If applicable the nature of the regulatory environment, i.e.. Banking insurance or public utilities.

Example : Segments can be categorised based on the line of business a company is into. This is
called reporting based on “business segments”. Take Hindustan Unilever. The company is
divided its segments based on the products it offers to customers. They are: Soaps and detergents,
personal products, beverages, foods, including culinary and branded staples, ice-creams, exports,
and others, including chemicals and agri-product

Example : Based on the guiding principles given in Accounting Standard on Segment Reporting
(AS-17), the NESTLE primary business segment is Food. The food business incorporates product
groups viz. Milk Products and Nutrition, Beverages, Prepared dishes and cooking aids,
Chocolatesand Confectionery, which mainly have similar risks and returns. As the Companys
business activity falls within a single primary business segment the disclosure requirements of AS
-17 in this regard are not applicable.

Example : Omax auto:The company is primarily engaged in the business of Auto Components
for Two Wheeler and Four wheeler industry, which are governed by the same set of risk and returns. As
the companys business activity falls within a single primary business segment, the disclosure
requirements of Accounting Standard ( AS-17) Segment Reporting issued by The Institute of Chartered
Accountants of India are not applicable. Exports being less than 10%, Geographical segment reporting is
also notrequired.

Geographical segment- Segment is made on the basis of its operation in different geographical
areas, which are exposed to different Risks and Return. A geographical segment is a component of an
enterprise, which satisfies the following conditions:
 It is distinguishable component of an enterprise;
 It is engaged in providing products or services within a particular economic environment. The
risks and return of an enterprise are influenced both by the geographical location of its operations
(where its products are products or where its services rendering activities are based) and also by
the location of its customers (where its products are sold or services are rendered). The definition
allows geographical segment to be based on either:
- The location of production or service facilities and other assets of an enterprise; or
- The location of its customers.

In process of identifying the predominant source of risk and returns of the company, internal
organization and management structure of company and system of internal reporting to Board of
Directors and chief executive officer provide the best evidence of predominant source of risks and return
of the company.
So, the reportable segment may be either a Business segment or Geographical segment.

Example : TCS identifies its revenues based on continents from which it earns. Therefore its
“Geographic segments” are Americas, Europe, India and others.

ISSUES

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What about a business that has a single product line or does not operate in different regions? These
companies usually make a disclosure in their annual report stating that, though the standard is applicable
to them, there is only one segment that can be reported that year.

Classic example is the automobiles industry. Maruti Suzuki, in its annual report, says that the only
reportable and primary segment is the passenger cars. NTPC and Hexaware may be a few more under
this category.

SEGMENT REPORTING FOR THE QUARTER / FULL YEAR ENDED 31ST MARCH, 2010 of BANK OF BARODA

Part A: Business Segments       Rs. in lacs

Quarter Quarter Year  Year
Ended Ended Ended Ended
Sr. No. Particulars
31.03.10 31.03.09 31.03.10 31.03.09
Audited Reviewed Audited Audited
1 Segment Revenue        

(a) Treasury Operations 117941 118779 459916 444229

(b) Wholesale Banking 190082 134717 732424 524737

(c) Retail Banking 143536 162978 495691 538310

(d) Other Banking Operations 68659 82767 262439 277648

Total Revenue 520218 499241 1950470 1784924

2 Segment Results      

(a) Treasury Operations 18784 38133 104770 101957

(b) Wholesale Banking 53859 35950 158536 84522

(c) Retail Banking 22560 9471 77865 140650

(d) Other Banking Operations 77564 65907 273242 176939

Total 172767 149461 614413 504068

Unallocated expenditure  47622 39987 190607 169774

Profit before Tax 125145 109474 423806 334294

Provision for Tax 34517 34205 117973 111574

Net Profit 90628 75269 305833 222720

3 Capital Employed        

(a) Treasury Operations 377089 347080 377089 347080

(b) Wholesale Banking 473105 322525 473105 322525

(c) Retail Banking 244292 280224 244292 280224

(d) Other Banking Operations 403346 317306 403346 317306

(e) Unallocated 12806 16419 12806 16419

Total Capital Employed 1510638 1283554 1510638 1283554

#Total revenue of "Other Banking Operations" is exclusive of inter segment revenue which is Rs.339989 lacs for the QE Dec-09 (Rs.293800 lacs for QE Dec-08).

Part- B : Geographic Segments         Rs. in lacs

Quarter Quarter Nine Months Nine Months Year
Sr. No. Particulars
Ended Ended Ended Ended Ended

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31.12.09 31.12.08 31.12.09 31.12.08 31.03.09

Reviewed Reviewed Reviewed Reviewed Audited
1 Revenue          

(a) Domestic  422375 433136 1243757 1112214 1546520

(b) International 61287 69220 186495 173468 238404

Total 483662 502356 1430252 1285682 1784924

2 Assets          

(a) Domestic  18934276 15981096 18934276 15981096 17710626

(b) International 6101122 4036204 6101122 4036204 5030047

Total 25035398 20017300 25035398 20017300 22740673

Notes on Segment Reporting:

1. As per guidelines of RBI on compliance with Accounting Standards, Bank has adopted "Treasury Operations", Wholesale, ", Retail and "Other Banking
Operations" as Primary business segments and "Domestic" and "International" "Domestic" and "International" as secondary / geographic segments for the purpose
of compliance with AS-17 on Segment Reporting issued by ICAI.
2. In determining the segment results, the funds transfer price mechanism followed by the bank has been used.
3. Segment revenue represents revenue from external customers.
4. Capital employed for each segment has been allocated proportionate to the assets of the segment.

Segment wise Revenue, Results and Capital Employed for the Quarter ended 31st March,
2007 OF NRE COKE LTD
(Rs. in crores)

QUARTER ENDED YEAR ENDED

S.N. PARTICULARS
31.03.2007 31.03.2007

1. Segment Revenue
(Net Sale/Income from Segment)
 

a) Coke Division 132.41 385.46

b) Steel Division 44.62 124.42

c) Unallocated 9.64 24.68

Net Sales/ Income from

186.67 534.56
Operations

2. Segment Results  
Profit/(Loss) Before Tax & Interest

  a) Coke Division 61.89 87.36

  b) Steel Division 2.97 4.03

c) Unallocated 2.92 7.05

Total 67.78 98.44

Less : Interest 7.33 23.69

Total Profit/ (Loss) Before Tax 60.45 74.75

3. Capital Employed  
  a) Coke Division (including captive windmills of
Rs.9.84 crores ) 372.26 372.26

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  b) Steel Division (including captive windmills of

Rs.115.97 crores) 211.84 211.84
  c) Unallocated / Others 831.64 831.64

  Total 1,415.74 1,415.74

Reportable segment is a ‘business segment or a geographical segment identified on the basis of their
definitions for which segment information is required to be disclosed by the statement.

Business segment or geographical segment which has been identified as reportable segment shall be
further dividend to include sub-segments based on the following conditions:

 If the total Revenue ( external customers and intersegment ) of a segment is 10% or more of all
revenue of all segments

Or
 10% or more of segment result
(Segment result means: if some segments are in loss then total of loss of all loss-making segments
or if some segment are in profit total profit of all profit-making segments. Whichever is higher i.e.
total profit or total loss figure in absolute term.)

Or
 Segment asset is 10% or more than total assets of all segments
 All the above three criteria must be applied first and-

-Further, Management may at its discretion choose any segment as reportable segment Even if
such segment does not fulfill the criteria stated above

- Ensure whether at least 75% of total external revenue should be in the reportable segment.
- If 75% of total external revenue is not in the reportable segment, then additional reportable
segment should be identified ignoring 10% threshold limits until at least 75% of total external
revenue is included in reportable segment.

Note: Any segment, which was reportable segment in the previous year on the fulfillment of 10%
threshold limit, should be reportable segment during current year even if 10% threshold limit in current
year is not fulfilled.

Example1: Identify the reportable segments and reconciling segment from the following details of
Induga Ltd.

REPORTABLE SEGMENTS

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 CA.CS. Naveen. Rohatgi TYBMS: Special study in finance.

S T U V W X Y Z Total Total
(Segment (Enterprise)
)
1.Segment Revenue
(a) External Sales - 255 15 10 15 50 20 35 400 .
(b) Inter-Segment 100 60 30 5 - - 5 - 200 .
Sales . . . . . . . . . .
(c) Total revenue 100 315 45 15 15 50 25 35 600 400
2. Total revenue of 16.7 52.5 7.5 2.5 2.5 8.3 4.2 5.8
each segment as a
percentage of total
revenue of all
segments
3. Segment Result 5 (90) 15 (5) 8 (5) 5 7
[Profit / Loss]
4. Combined Result of 5 15 8 5 7 40
all segment in profit
5. Combined result of (90) (5) (5) (100)
all segment in loss
6.Segment result as a 5 90 15 5 8 5 5 7
percentage of the
greater of the total
arrived at 4 and 5
above in absolute
amount (i.e., 100)
7. Segment Assets 15 47 5 11 3 5 5 9 100
8. Segment assets as a 15 47 5 11 3 5 5 9
percentage of total
percentage of total
assets of all segment
Solution
Steps for identification of sub-segments:
(a) 10% of total revenue- S (16.7%); T (52.5%) identified in term of sales criteria.
(b) 10% of absolute figure of profit (40) or loss (100) –segment T (90%) and U (15%) identified on
the basis of 10% of profit or loss.
(c) 10% of segment assets- segment S (15%); T (47%); V (11%) identified on the basis of asset.
(d) It is presumed that segment W is chosen by management.
(e) Now segment are S, T, U, V, W as identified in steps 1 to 4. But external sales revenue of these
segments only 73.75% (0+63.75+3.75+2.5+3.75=73.75%)
(f) Z is chosen as segment to make it 75% based on assets and asset and profit.
Thus segments S, T, V, U, W and Z are reportable segment.

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CA.CS. Naveen. Rohatgi TYBMS: Special study in finance.

Reportable Segments In addition, segments should be identified as primary and secondary segments.

The dominant source and nature of risks and returns of an enterprise will decide whether its segment
report should provide business 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 should be business segments. The report on
geographic segment will be secondary. The segment report should contain information on both primary
and secondary segments. Invariably, the popular choice for primary reporting will be the business
segment.

Reportable segment are classified in following two parts for the purpose of disclosure:
 Primary Reportable Segment.
 Secondary Reportable Segment

Disclosure
The disclosure requirements of primary segments are as under:-
 Revenue from external customers.
 Revenue from transaction with other segment
 Segment Asset
 Segment liabilities
 Segment result.
 Capital expenditure incurred during the year
 Depreciation and amortization expenses.
 Non- Cash expenses other than depreciation and amortization (for eg provision for bad and
doubtful debts, loss on sale of asset, writing of inventories to net realisable value) ``zA

ILLUSTRATION
Q.1 Hinduja Ltd. has three divisions A, B, and C. Details of their turnover results and net assets are
given below:

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CA.CS. Naveen. Rohatgi TYBMS: Special study in finance.

Rs. (000)
Division A.
Sales to B 3,050
Other sales (Home) 60
Export sales 4,090
7200
Division B.
Sales to C 30
Export sales to Europe 200
230
Division C
Export sales to America 180

Head Office. . Division

A B C
Operating Profit or 160 20 (8)
Loss before Tax
Re-allocated cost from 48 24 24
Head Office
Interest costs 4 5 1
Fixed assets 50 200 40 120
Net current assets 48 120 40 90
Long-term liabilities 38 20 10 120
Prepare a segment Report for publication in Induga Ltd.

Solution.
Induga Ltd.
Division Inter- Consolidated
segment Total
A B C Elimination
Segment Revenue
Sales
Domestic 60 - - - 60
Export 4,090 200 180 - 4,470
External sales 4,150 200 180 - 4,530
Inter –segment sales 3,050 30 - 3,080 -
Total revenue 7,200 230 180 3,080 4,530
Segment result (given) 160 20 (8) 172
Head office expenses (96)
Operating profit 76
Interest expenses (10)
Profit before tax 66
Other information
Fixed assets 200 40 120 360
Net current assets 120 40 90 250

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CA.CS. Naveen. Rohatgi TYBMS: Special study in finance.

Segment assets 320 80 210 610

Unallocated corporate 98
assets
Segment liabilities 20 10 120 150
Unallocated corporate 38
liabilities
Sales Revenue by
Geographical Market
Home Export sales Export to Export to Consolidated Total
Sales (by Division Europe America
A)
60 4,090 200 180 4,530

Q2: Following is the data regarding six segments of Z Ltd.

.
Particulars A B C D E F
Segment Revenue 150 310 40 30 40 30
Segment Result 25 (95) 5 5 (5) 15
Segment Assets 20 40 15 10 10 5

The Finance Director is of the view that is sufficient that segment A and B alone be reported. Advise.

Solution: According to AS-17 on “Segment Reporting” issued by the ICAI, a business segment or
geographical segment should be identified as a reportable segment if:
(a) Its revenue from sales to external customers and from transaction with other
segment is 10% or more of the total revenue, external and internal of all
segments; or
(b) Its segment result, whether profit or loss, is 10% or more of:
(1) The combined result of all segment in profit, or
(2) The combined result of all segment in loss

( c) Its segment assets are 10% or more of the total assets of all segment.

If total external revenue attributable to reportable segment constitute less than 75% of the total
enterprise revenue, additional segment should be identified as reportable segment, even if they do not
meet the 10% threshold until at least 75% of total enterprise revenue is included in reportable segment.
Based on the above criteria, following segments are reportable segment:
Basis Reportable segment
Segment Revenue A&B
Segment Result A, B & F
Segment Assets A, B,C, D & E

Hence, the contention of the Finance Director that only segment A and B need reporting is not
correct, as all the six segment are reportable segment.

Q 3. Following details are given for NDA Ltd. for the year ended 31st March 2004:

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CA.CS. Naveen. Rohatgi TYBMS: Special study in finance.

(Amt. in lacs) (Amt. in lacs)

Sales You are required to prepare

Food product 5650 a statement showing
Plastic and Packaging 625 financial information about
Health and Scientific 345 NDA Ltd. operations in
Other 162 6782 different industry segment.
Expenses
Food product 3335
Plastic and Packaging 425 Solution: Information about
Health and Scientific 222 NDA Ltd. operation
Other 2000 4182 different Industry segment is
furnished in the following
Other items:
table:
General Corporate Assets 562
Food Plastic & Health & others Inter Consolidated
Income from investment 132
Product Packaging Scientific segment
Interest expenses 65
Elimination
Identifiable assets:
External Sales 5595 553 324 155 - 6627
Food product 7320
Inter- segment 55 72 21 7 155 -
Plastic and Packaging 1320
Total 5650 625 345 162 155 6627
Health and Scientific 1050
Segment Expenses 3335 425 222 200 122 4060
Other 665 10355
Operating Profit 2315 2000 123 (38) 33 2567
General Corporate Assets 722
General Corporate (562)
Other Information
Expenses
(a) Inter-segment sales are as below:
Income from Investment 132
Food product 55
Interest (65)
Plastic and Packaging 72
Income from continuing 2072
Health and
operations Scientific 21
Other
Identifiable assets 230 1320 1050 7
665 10355
(b)Operating profit
Corporate assets includes Rs.33
- lakhs on
- inter-segment
- sales. - - 722
(c ) Information about inter-segment expenses are not available.
Total assets 11077

5. segment.

Segment wise Revenue, Results and Capital Employed for the Quarter ended 31st March,
2007
(Rs. in crores)

QUARTER ENDED YEAR ENDED

S.N. PARTICULARS
31.03.2007 31.03.2007

1. Segment Revenue
(Net Sale/Income from Segment)
 

a) Coke Division 132.41 385.46

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CA.CS. Naveen. Rohatgi TYBMS: Special study in finance.

b) Steel Division 44.62 124.42

c) Unallocated 9.64 24.68

Net Sales/ Income from

186.67 534.56
Operations

2. Segment Results  
Profit/(Loss) Before Tax & Interest

  a) Coke Division 61.89 87.36

  b) Steel Division 2.97 4.03

c) Unallocated 2.92 7.05

Total 67.78 98.44

Less : Interest 7.33 23.69

Total Profit/ (Loss) Before Tax 60.45 74.75

3. Capital Employed  
  a) Coke Division (including captive windmills of
Rs.9.84 crores ) 372.26 372.26

  b) Steel Division (including captive windmills of

Rs.115.97 crores) 211.84 211.84
  c) Unallocated / Others 831.64 831.64

  Total 1,415.74 1,415.74

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