CA Final · Financial Reporting

Ind AS 108 Operating Segments: formula sheet

Full chapter guide

Key formulas

Scope test: Ind AS 108 applies if: (debt or equity instruments traded in a public market) OR (filing, or in process of filing, financial statements with a regulator to issue instruments in a public market); Either limb is enough. An unlisted company with no listing plans is outside the standard's mandatory scope.
Consolidated and separate statements: Parent with consolidated + separate FS → segment information only in consolidated FS; Do not give it in the separate statements in the same report.
Core principle: Segments = components reviewed regularly by the CODM to allocate resources and assess performance; This is the management approach. Internal reporting drives external disclosure.
Voluntary disclosure: Entity outside scope that discloses segment information described as 'segment information' → must comply with Ind AS 108; Do not label partial or non-compliant disclosure as segment information.
Operating segment: three tests: Business activities (revenue and expenses) + regular review by CODM for resource allocation and performance + discrete financial information available; All three must be met. Failing any one means the component is not an operating segment.
CODM: CODM = function that allocates resources to, and assesses the performance of, the operating segments; Identify by function, not by designation. It can be an individual or a group.
Components that are not operating segments: Corporate HQ functions, post-employment benefit plans, and units with only incidental revenue are generally not operating segments; A corporate function that earns revenue only incidentally does not qualify.
Sequence of work: Identify operating segments → aggregate if criteria met → apply quantitative thresholds → disclose reportable segments; This page covers only the first step.
Revenue test: Segment revenue (external + inter-segment) ≥ 10% × total revenue of all operating segments; Total is the sum of segment revenues including inter-segment, before eliminations.
Profit or loss test: |Segment profit or loss| ≥ 10% × greater of (total profit of profitable segments, total loss of loss-making segments in absolute terms); Compute both totals, pick the larger, then take 10%. Treat losses as positive numbers.
Asset test: Segment assets ≥ 10% × total assets of all operating segments; Use the same asset measure the CODM reviews.
75% external revenue test: External revenue of reportable segments ≥ 75% × entity revenue; Entity revenue is after eliminating inter-segment revenue. If short, add segments until the test is met.
Aggregation conditions: Consistent with core principle + similar economic characteristics + similar in products/services, production processes, customers, distribution methods, regulatory environment; Aggregation is permitted, not compulsory.
Segment profit or loss: Reported measure = the measure used by the CODM (not necessarily Ind AS profit); Disclose it for each reportable segment. Explain how it is measured.
Segment assets and liabilities: Disclose total assets and total liabilities only if regularly provided to the CODM; Also disclose the amount of investment in associates and JVs and additions to non-current assets if included in the measure of segment assets reviewed by the CODM or otherwise regularly provided to the CODM.
Revenue reconciliation: Entity revenue = Total reportable segment revenue + Gross revenue of other segments − All inter-segment revenue (including that of other segments) ± Other reconciling items; Add other segments' revenue gross, including any inter-segment sales in it. Then eliminate all inter-segment revenue once, so nothing is deducted twice or missed. Show each material reconciling item separately.
Profit reconciliation: Entity profit before tax = Total segment profit + Other segments' profit − Unallocated corporate expenses ± Eliminations ± Other reconciling items; Reconcile to the entity's profit or loss before tax expense and discontinued operations, unless the entity allocates items such as income tax to segments, in which case reconcile after those items.
Asset and liability reconciliation: Entity assets = Total segment assets + Unallocated assets − Eliminations; Entity liabilities likewise; Unallocated items typically include corporate assets, deferred tax and tax balances.
Restatement rule: Change in reportable segments → restate prior-period segment data unless information is unavailable and excessive in cost; If you do not restate comparatives, you disclose, in the year of change, segment information for the current period under both the old and the new basis of segmentation, unless the information is unavailable and the cost to develop it would be excessive.
Major customer test: Revenue from a single customer ≥ 10% of entity revenue → disclose; Disclose the fact, total revenue from each such customer and the segment(s) reporting it. The customer's name is not required. Entities known to be under common control, and a government with entities it controls, count as one customer.
Products and services disclosure: Revenue from external customers for each product/service or group of similar ones; Required only if not already given in reportable segment information, and unless the cost is excessive.
Geographical disclosure: Revenue (external customers) and non-current assets: country of domicile + all foreign countries in total; Show an individual foreign country separately if material. State the basis of attributing revenue to countries.
Non-current assets excluded: Exclude: financial instruments, deferred tax assets, post-employment benefit assets, insurance contract rights; Use the remaining non-current assets, such as PPE and intangibles, for geography.
Restatement on change of segments: Restate prior periods (including interim) for the new segment structure, unless information is unavailable and cost is excessive; If not restated, disclose current period segment data on both old and new bases, unless excessive cost.

Quick revision

Ind AS 108 applies to entities with publicly traded debt or equity, or those in the process of issuing them.
Management approach: segments follow internal reporting to the CODM.
CODM is a function, not necessarily a person; it allocates resources and assesses performance.
An operating segment earns revenue, has results reviewed by the CODM and has discrete financial information.
Start-up operations can be operating segments even before they earn revenue.
Corporate headquarters and post-employment benefit plans are generally not operating segments.
Aggregation is allowed only if it is consistent with the core principle, the segments have similar economic characteristics, and they are similar in all five areas: products and services, production processes, customers, distribution methods and regulatory environment (if applicable).
A segment is reportable if revenue, profit or loss, or assets is at least 10% of the combined total; for profit or loss, compare absolute amounts of the larger of combined profit and combined loss.
Reportable segments must cover at least 75% of total external revenue; if not, add more segments.
Reconcile total segment revenues, profit or loss, assets and other material items to entity amounts. Segment liabilities are disclosed and reconciled only if they are regularly provided to the CODM.
Entity-wide disclosures cover products and services, geographical areas and major customers (10% or more of entity revenue).
If segment structure changes, restate prior period information unless the information is not available AND the cost to develop it would be excessive. Both conditions must be met. If you do not restate, disclose segment data for the current period on both the old and the new bases, unless that is impracticable.

Common mistakes

Saying every company must apply Ind AS 108. Fix: Remember Ind AS 108 has its own scope: public market trading or filing to issue instruments publicly.
Limiting scope to listed equity shares only. Fix: Include debt instruments as well as equity, and include entities in the process of filing for issue.
Treating every legal entity, product or geography as an operating segment. Fix: Segments follow what the CODM reviews. If the CODM does not review separate results for a component, it is not an operating segment.
Naming the CODM by designation, such as always the CEO or always the board. Fix: CODM is a function. Identify who actually allocates resources and assesses performance, which may be a group of executives.
Using only external revenue for the 10% revenue test. Fix: For the 10% revenue test include inter-segment revenue; for the 75% test use only external revenue.
Taking 10% of total net profit for the profit test. Fix: Compare the combined profit of profitable segments with the combined loss of loss-making segments, take the greater in absolute terms, then 10%.
Measuring segment profit using Ind AS figures when the CODM reviews a different measure. Fix: Report the CODM's measure and reconcile the difference to the entity amount.
Disclosing segment assets and liabilities in all cases. Fix: Disclose total assets and total liabilities only if regularly provided to the CODM.
Thinking entity-wide disclosures apply only when there are several segments. Fix: Remember they apply to all entities in scope, including single-segment ones.
Testing the 10% customer rule against segment revenue or a total including inter-segment revenue. Fix: Compare revenue from the customer with the entity's revenue as reported in the financial statements, excluding inter-segment sales.

Exam tips

Start every scope answer with the two limbs: public market trading, or filing to issue instruments publicly.
In case questions, look for clues such as debt-only listing, an IPO filing under way, or a parent with two sets of statements.
Write the CODM as a function, not a designation, and tie segments to what is reviewed for resource allocation.
On IFRS 8, say the standard is substantially aligned and avoid inventing differences.
MCQs have no negative marking, so attempt all of them.
In case scenarios, find the CODM first. Most of the facts that decide the answer are about who reviews and who allocates.
Write the three tests by name and give pass or fail for each component. This pattern earns application marks.
For MCQs, scan for traps: corporate HQ, benefit plans, a start-up with no revenue, or the board named as CODM without allocating resources.