IND AS 108: OPERATING SEGMENT

IND AS CERTIFICATION COURSE – BATCH 50 ; DAY 5

NOVEMBER 18, 2023

Faculty : CA Bhavesh M. Gondhiya

Ind AS Implementation Committee
The Institute of Chartered Accountants of India
New Delhi, India
Disclaimer: The views expressed herein are solely those of the Faculty/Presenter and not that of the ICAI or any of
its committees. The ICAI or the Faculty or Preparer of this material do not accept any responsibility for omission
or inadequacy of the contents in this document and also for loss caused to any person who acts or refrains from
acting in reliance on the contents of this document irrespective of the cause of / reason for the loss.
IND AS 108: OPERATING SEGMENT Ind AS Course
ICAI

Traditionally the statement of Profit

and Loss shows one single amount of
Profit but that was been contributed
by various segments which were
known to the Promoter/Management

This Information is translated to other

outside user to enable Transparency hence
Segment Reporting………
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AGENDA Ind AS Course
ICAI

Applicability : Necessity : Principle

Roadmap for Reporting Operating Segment

Identify Chief Operating Decision Maker (CODM)

Identification of Operating Segment

Determining Reportable Segment

Significant Disclosure and Key Differences

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APPLICABILITY : NECESSITY : PRINCIPLE Ind AS Course
ICAI

Product Location Applicability (Yes/No)

Single Single No (Profit and Loss itself is segment)
Single Multiple Yes (location)
Multiple Single Yes (Product)
Multiple Multiple Yes ( Dominating Factor Product/location)

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APPLICABILITY : NECESSITY : PRINCIPLE Ind AS Course
ICAI

Core Principle
An entity should 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.
An entity may be operating across multiple economic environments
include political and economic macro-systems, trade cycles, economic
resources, statutory environment, income levels, industrial growth
rates. In view of these complexities, Ind AS 108 requires disclosure of
information in a manner which enables users to make informed
decisions based on their assessment of the economic environments in
which the different businesses of an entity operate 5
 ROADMAP FOR REPORTING OPERATING SEGMENT Ind AS Course
ICAI

Step 2 Step 4
• Identify • Determine the
CODM • Identify Reportable • Present the
Operating Segment required
Segment information
Step1 Step 3

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STEP 1 : IDENTIFY CHIEF OPERATING DECISION MAKER (CODM)
Ind AS Course
ICAI

❑ A reporting entity can have only ONE CODM which might be Chief Executive
Officer – CEO or Chief Operating Officer - COO or it may also be a group of
executive directors or others.
❑ The term ‘Chief Operating Decision Maker’ (CODM) identifies a function
which allocates resources to and assesses the performance of operating segment. It
does not necessarily a manager with a specific title.
❑ Generally, CODM is the highest level of management who is responsible for making
strategic decisions about the entity’s segments.
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 CASE STUDY - (CODM) Ind AS Course
ICAI

Who is the CODM ?

CEO COO President Executive Committee
CEO
COO
President

Executive Committee of Company HRM Ltd

Executive Committee assesses performance and makes resource allocation
decisions and Each Committee member has a single vote.

The Executive Committee is the CODM because it is the highest level of

management that assesses performance and makes resource allocation
decisions. 8
 CASE STUDY - (CODM) Ind AS Course
ICAI

CASE 1 Who is the CODM ?

CEO COO President Executive Committee
CEO
COO
President

Executive Committee of Company HRM Ltd

Executive Committee assesses performance and makes resource allocation
decisions and President can override a vote of the Committee.
President is the CODM. This is on the basis that the President essentially
controls the Executive Committee and therefore has control over the
operating decisions that the Executive Committee makes. 9
 CASE STUDY - (CODM) Ind AS Course
ICAI

Who is the CODM ?

CASE 2
CEO COO President Executive Committee
CEO
COO
President
Supervisory Board

Executive Committee of Company HRM Ltd

Executive Committee assesses performance and makes resource allocation decisions
and Supervisory Board reviews the operation of the Executive Committee
Executive Committee is CODM because the mere existence of the higher level
Supervisory Board does not necessarily mean that it is the CODM. There is no
indication that the Supervisory Board assesses performance and/or makes resource
allocation decisions. 10
STEP 2 : IDENTIFY OPERATING SEGMENT Ind AS Course
ICAI

Operating Segment
Are the Individual Operations that
the CODM reviews for purposes
of assessing performance and
making resource allocation
decision. Operating segment could
be identified on different bases,
including : Products, Services,
Customers, Geographically,
Projects…..
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 CASE STUDY : IDENTIFY OPERATING SEGMENT Ind AS Course
ICAI

• A Co. and B Co. manufacture and sell automobile components in

India. A Co. is structured such that decisions are made and
performance is evaluated on a regional basis (eg. North, South,
East and West) whereas B Co. decisions and evaluates
performance on a product line basis (eg. Clutch, Engines, Seats
etc). The Management approach identifies operating segments
Non based on internal reports that are regularly reviewed by the
CODM to allocate resources to the segment and assess its
Comparable performance. Consequently, A Co. and B Co. will not report
Segments similar operating segments under IND AS 108. A Co. should
report operating segments based on regions and B Co. should
report operating segments based on product lines. Similarly, a
parent Co. and Its Subsidiary may not report similar segments
even when they undertake the same business because they may
have different CODM and the information provided to these
CODM may be organized and presented differently.
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 CASE STUDY : IDENTIFY OPERATING SEGMENT Ind AS Course
ICAI

• A Co. has two business components in India. Component A

manufactures and sells white goods and Component B is
involved in construction activity. The CODM assesses
performance, makes operating decisions and allocates
resources to these business components based on the
Multiple basis financial information presented for Component A and
for Component B. A Co. has the same operating component in
Segmentation UK. However, the CODM assesses performance, makes
presented for the UK Operation in aggregate. A Co. has
three operating segments: A and B in India which are
determined on a product line basis and a segment
representing the UK operation (comprising A and B in UK)
which is determined on a geographic basis.
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CASE STUDY : IDENTIFY OPERATING SEGMENT Ind AS Course
ICAI

• A Co. manufactures and sells air conditioners. It plans to

diversify into refrigerators. During April 2021, A Co. began
construction of a new plant for manufacturing refrigerators.
The plant will start producing in the first quarter of 2022
Start up
and in three years time will contribute at least 30% of total
Operation
revenue. Discrete financial information about the operation
is being provided to and used by the CODM. The
refrigeration business, even though it is in the start up stage
is an operating segment 14
STEP 2 : IDENTIFY OPERATING SEGMENT Ind AS Course
ICAI

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STEP 3 : DETERMINE THE REPORTABLE SEGMENT Ind AS Course
ICAI

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 AGGREGATION CRITERIA Ind AS Course
ICAI

Two or more operating segments may be aggregated into a single operating

segment if aggregation is consistent with the core principle of Ind AS 108,
the segments have similar economic characteristics, and the segments are
similar in each of the following respects

If applicable,
The methods the nature of
The type or
The nature of used to the regulatory
The nature of class of
the distribute environment,
the products customer for
production their products for example,
and services their products
processes or provide banking,
and services
their services insurance or
public utilities.
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CASE STUDY - AGGREGATION CRITERIA
Ind AS Course
ICAI

Identify whether aggregation criteria is applicable ??????

X Ltd. is engaged in the business of manufacturing and selling

papers. Varieties of paper like adhesive paper, anti-rust paper,
antique paper, art paper etc., are manufactured and sold by X Ltd.
Should X Ltd. classify these papers into different segments?

In case of X Ltd., so far as varieties of paper concerned, if all

factors such as nature of the product and production process,
type of customers, method of distribution and regulatory
requirement are common, there is no need to create different
segments for each type of paper.
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 QUANTITATIVE THRESHOLDS Ind AS Course
ICAI

Operating Segment is reported if it meets any of the following quantitative thresholds:

RevenueTest
10% or more of combined revenue (internal or external) for all segments

Profit or Loss Test

10% or more of absolute combined profit or combined loss (whichever is greater)

Asset Test
10% or more of combined assets for all operating segments
CHECK CONDITION Operating segments that do not meet any of
REPORT ADDITIONAL SEGMENTS, If the quantitative thresholds may be considered
external revenue of all reportable segments reportable if CODM believes that segment
is less than 75% of total “ external revenue” information is useful to users. 19
 PRACTICAL QUESTIONS – REPORTABLE SEGMENT Ind AS Course
ICAI

X Ltd. has identified 4 operating segments for which revenue data is given below:

External Sale (Rs.) Internal Sale (Rs.) Total (Rs.)

Segment A 30,00,000 Nil 30,00,000
Segment B 6,50,000 Nil 6,50,000
Segment C 8,50,000 1,00,000 9,50,000
Segment D 5,00,000 49,00,000 54,00,000
Total Sales 50,00,000 50,00,000 1,00,00,000

Which of the segments would be reportable under the criteria identified in Ind AS 108?
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 PRACTICAL QUESTIONS – REPORTABLE SEGMENT Ind AS Course
ICAI

Identify the reportable segment by profitability test is demonstrated as follows for XYZ Ltd.

Segment Profit/(Loss)
A 450
B 50
C (350)
D (40)
E (210)

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 PRACTICAL QUESTIONS – REPORTABLE SEGMENT Ind AS Course
ICAI

X Ltd. has identified the following business components.

Segment Revenue (Rs.) Profit (Rs.) Assets (Rs.)
External Internal
Pharma 97,00,000 Nil 20,00,000 55,00,000
FMCG Nil 4,00,000 2,50,000 25,00,000
Ayurveda 3,00,000 Nil 2,00,000 4,00,000
Others 8,00,000 41,00,000 5,50,000 6,00,000
Total for the entity 1,08,00,000 45,00,000 30,00,000 90,00,000

Which of the segments would be reportable under the criteria identified in Ind AS 108?
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PRESENTATION AND DISCLOSURE Ind AS Course
ICAI

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KEY DIFFERENCES – IND AS 108 AND AS 17 Ind AS Course
ICAI

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KEY DIFFERENCES – IND AS 108 AND AS 17 Ind AS Course
ICAI

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 Ind AS Course
ICAI

Faculty Contact Details: CA Bhavesh Gondhiya

ICAI Contact for more details : indascourse@icai.in
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 Ind AS Course
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