AS 17 Segment Reporting

Short questions:
1. List down the enterprises for
which AS 17 are mandatory?

a. Listing criteria: Enterprises whose equity or debt

securities are listed on a recognized stock
exchange and enterprises that are in the process of
issuing equity or debt securities that will be listed
on a recognized stock exchange in India as
evidenced by the BOD’s resolution in this regard.

b. Turnover criteria: All other commercial industrial

and business reporting enterprises, whose turnover
for the accounting period exceeds Rs. 50 crores.
 2. What is the objective of AS 17?

a. Objective of this statement is to establish

the principles for reporting financial
information about the different types of
products and services an enterprises
produces and different geographical areas
in which it operates
3. What are the advantages of segment
information?
a. Segment information helps users of
financial statements:
- Better understand the performance of
the enterprise
- Better access the risks and returns of
the enterprise
- Make more informed judgments about
the enterprise as a whole
4. How the segment information need to be
presented?

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
statements.
5. Define business segment?
A business segment is a distinguishable
component of an enterprise:
- That is engaged in providing an
individual product or service or a
group of related products or
services, and
- That is subject to risks and returns that
are different from those of other
business segments.
6. Define geographical segment?
A distinguishable component of a enterprise:

- That is engaged in providing products

or services within a particular economic
environment and,

- That is subject to risks and returns that

are different from those of components
operating in other economic
environments.
7. Define reportable segment?
- Reportable segment is a business
segment or a geographical segment
- Identified on the basis of foregoing
definitions
- For which segment information is
required to be disclosed by this
statement.
8. What are the factors that should be considered in
determining whether products or services are related?

- The nature of the products or services

- The nature of the production processes

- The type or class of customers for the products

or services

- The method used to distribute the products or

provide the services; and

- If applicable, the nature of the regulatory

environment eg. Banking, insurance or public
utilities
9. What are the factors that should be
considered in identifying geographical
segments?

- Similarity of economic, political

conditions
- The relationship between operations
in different geographical areas
- Proximity of operations
- Special risks associated with
operations in a particular area
- Exchange control regulations
- The underlying currency risks
10. Define enterprise revenue?
Revenue from sales to external customers
as reported in the statement of Profit and
Loss
11. Define segment revenue?
- Segment revenue is the aggregate of:
- The portion of enterprise revenue that is
directly attributable to a segment
- The relevant portion of enterprise revenue
that can be allocated on a reasonable
basis to a segment, and
- Revenue from transactions with other
segment of the enterprise.
12. Define segment expense?
- Segment expense is the aggregate of:
- The expense resulting from the operating
activities of a segment that is directly
attributable to the segment, and
- The relevant portion of enterprise expenses
that can be allocated on a reasonable basis to
a segment,
- Including expenses relating to transactions
with other segments of the enterprise.
13. What are the items excluded from
segment revenue?

a. Extra ordinary 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
c. Gains on sale of investments
14. What are the items excluded from
segment expenses?
a. Extra ordinary items as defined in AS
5, Net profit or loss for the period,
prior period items and changes in
accounting policies.
b. Interest expense
c. Losses on sale of investments
d. Income tax expenses
e. General administrative expenses, HO
expenses and other expenses
15. Define segment assets?
Segment assets are those operating assets
that are employed by a segment in its
operating activities and that either are
directly attributable to the segment or can
be allocated to the segment on a
reasonable basis.
16. Define segment liabilities?

Segment liabilities are those operating

liabilities that results from the operating
activities of a segment and that either are
directly attributable to the segment or can
be allocated to the segment on a
reasonable basis.
17. What are the factors that influence
the risks and returns of an
enterprise?

- Geographical location of its

operations and
- By the location of its customers.
18. How to identify reportable segments as
primary and secondary segments?
If 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.
19. What should be the basis for identifying
the predominant source and nature of
risks and differing rates of return facing
the enterprise?

- Internal organizations and

management structure of an
enterprise, and
- Its system of internal financial
reporting to the BOD and the chief
executive officer.
20. What are the exceptions to the general
classification of segments as primary and
secondary segment reporting format?

- 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, then the
enterprise should use business segments
as its primary segment reporting format
and geographical segments as its
secondary reporting format; and
- If the internal organization and management
structure of an enterprise and its system of
internal financial reporting to the BOD and the
chief executive officer are based neither on
individual products or services or groups or
related products or services nor on
geographical areas, the directors and
management of the enterprise should
determine whether the risks and returns of
the enterprises are related more to the
products and services it produces or
to the geographical areas in which it
operates and should, accordingly, choose
business segment or geographical
segment as the primary segment reporting
format of the enterprise, with the other as
its secondary reporting format.
21. When does a business segment or a geographical
segment become a reportable segment?

- A business segment or a geographical segment

should be identified as a reportable segment if;
a. Its revenue from sales to external customers
and from other transactions with other
segments is 10% or more of the total revenue,
external or internal, of all segments; or
b. Its segment result, whether profit or loss, is
10% or more of –
- The combined result of all segments in
profits; or
- The combined result of all segments in
loss,
Whichever is greater in
absolute amount or
c. Its segment assets are
10% or more of the total
assets of all segments
22. List down the principles involved in the
identification of reportable segments?
a. Management discretion:- A
business segment or a
geographical segment which is
not a reportable segment may be
designated as a reportable
segment despite its size at the
discretion of the management of
the enterprise. If that segment is
not designated as a reportable
segment, it should be included as
an unallocated reconciling item.
b. Revenue criteria:- if the total
external revenue attributable to
the reportable segment
constitute less than 75% of the
total enterprise revenue,
additional segments should be
identified as reportable segments,
even if they do not meet the 10%
thresholds until at least 75% of
the total enterprise revenue is
included in reportable segments.
c. A segment identified as a reportable segment in
the immediately preceding period because it
satisfied the relevant 10% thresholds should
continue to be a reportable segment for the
current period not withstanding that its
revenue, results and assets all no longer meet
the 10% thresholds.
d. If a segment is identified as a reportable
segment in the current period because it
satisfies the relevant 10% thresholds,
preceding – period segment data that is
presented for comparative purposes should,
unless it is impracticable to do so, be restated to
reflect the newly reportable segment as a
separate segment, even if that segment did not
satisfy the 10% thresholds in the preceding
period.
23. What are the accounting policies followed
in segment reporting?
- 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.
- A detailed calculation done in
applying a particular accounting
policy at the enterprise-wide level
may be allocated to segments if
there is a reasonable basis for
doing so.
- It does not prohibit the disclosure of
additional segment information that is
prepared on a basis other than the
accounting policies adopted for the
enterprise financial statements provided
that;
a. The information is reported internally
to the BOD and the chief executive
officer for purposes of making
decisions about allocating resources
to the segment and assessing its
performance, and
b. The basis of measurement for this
additional information is clearly
described.
24. What are the disclosure requirements
for primary reporting format?

- 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 segment assets
d. Total amount of segment liabilities
e. Total cost incurred during the period to acquire
segment assets that are expected to be used
during more than one period ( tangible and
intangible assets)
f. Total amount of expense included in the
segment result for depreciation and
amortization in respect of segment assets for
the period.
g. Total amount of significant non-cash expenses,
other than depreciation and amortization in
respect of segment assets, that were included in
segment expense and, therefore, deducted in
measuring segment result.
25. List down the principles involved in the
disclosure of segment information in
primary reporting format?
a. If an enterprise can compute segment net
profit or loss or some other measure of
segment profitability other than segment
result without arbitrary allocations, disclose
such amounts in addition to segment result.
If that measure is prepared on a basis other
than the accounting policies adopted for
the financial statements of the enterprise,
the enterprise will include in its financial
statements a clear description of the basis
of measurement
b. AS 5, Net profit or loss for the period,
prior period items and changes in
accounting policies requires that
“when items of income and expense
within profit or loss from ordinary
activities are of such size, nature or
incidence that their disclosure is
relevant to explain the performance
of the enterprise for the period, the
nature and amount of such items
should be disclosed separately”.
c. An enterprise that reports
amounts of cash flows arising
from operating, investing and
financing activities of a
segment need not disclose
depreciation and amortization
expense and non-cash expense
of such segment.
- Segment revenue should
be reconciled to enterprise
revenue;
d. An enterprise should present a
reconciliation between the
information disclosed for reportable
segments and the aggregated
information in the enterprise financial
statements. In presenting the
reconciliation,
- Segment result should be
reconciled to enterprise net
profit or loss;
- Segment asset should be
reconciled to enterprise assets,
and
- Segment liabilities should be
reconciled to enterprise liabilities.
26. What are the disclosure requirements for secondary
reporting format?

1. If primary format of an enterprise for reporting

segment information is business segment, it
should report the following information:
a. Segment revenue from external
customers by geographical area based on
the geographical location of its
customers, for each geographical
segment whose revenue from sales to
external customers is 10% or more of
the enterprise revenue.
b. The total carrying amount of segment
assets by geographical location of assets
for each geographical segment whose
segment assets are 10% or more of the
total assets of all geographical segments,
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) by geographical location of
assets, for each geographical segment
whose segment assets are 10% or more
of the total assets of all geographical
segments.
2. If primary format of an enterprise for reporting
segment information is geographical segments
it should report the following information for
each business segment whose revenue from
sales to external customers is 10% or more of
enterprise revenue whose segment assets are
10% or more of the total assets of all business
segments:
- Segment revenue from external
customers;
- Total carrying amount of segment
assets; and
- 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)
3. If primary format of an enterprise for
reporting segment information is
geographical segment 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% or
more of enterprise revenue.
4. If primary format of an enterprise for
reporting segment information is
geographical segment that are based on
location of customers, and if the assets
of the enterprise are located in
different geographical areas from its
customers, then the enterprise should
also report the following segment
information for each asset based
geographical segment whose revenue
from sales to external customers or
segment assets are 10% or more of
total enterprise amounts:
a. Total carrying amount of
segment assets by
geographical location of the
assets; and
b. 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) by location of
the assets.
27. List down other disclosure requirements?
a. Inter-segment transfers should be
measured on the basis that the
enterprise actually used to price
those transfers. The basis of
pricing and any change therein
should be disclosed in the
financial statements.
b. Changes in accounting policies
adopted for segment reporting that
have a material affect on segment
information should be disclosed.
c. Reporting of changes in accounting
policies should be in accordance with
AS 5.
d. Some changes in accounting policies
relate specifically to segment
reporting. Such changes can have a
significant impact on the segment
information report but will not change
aggregate financial information
reported for the enterprise. To enable
users to understand the impact of such
changes, this statement requires the
disclosure of the nature of the change
and the financial effect of the change if
reasonably determinable.
e. 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 secondary, if not
otherwise disclosed in the financial
statements.
f. Miscellaneous: shifts in demand,
changes in prices of inputs, other
factors of production, development of
alternative products, the impact of
changes in the economic and political
environment on the risks and returns
of a geographical segment etc. should
be reported.