CA Intermediate · Advanced Accounting

AS 17 Segment Reporting: formula sheet

Full chapter guide

Key formulas

Segment result: Segment result = Segment revenue − Segment expense; Calculated before interest expense (other than for financial enterprises), income tax, extraordinary items and enterprise-level costs.
Segment revenue includes: External sales + Inter-segment sales/transfers + Allocable revenue; Excludes extraordinary items, and interest, dividend income and gains on sale of investments or on extinguishment of debt, unless the segment's operations are primarily of a financial nature.
Segment expense includes: Direct operating expenses + Reasonable share of common operating expenses + Inter-segment charges; Excludes extraordinary items, interest expense, losses on sale of investments or extinguishment of debt (unless financial in nature), income tax expense, and general administrative or head-office expenses relating to the enterprise as a whole.
Segment assets: Operating assets used by the segment in its operating activities, directly attributable or allocable on a reasonable basis; Shown net of related allowances/provisions that are reported as offsets in the balance sheet. Excludes income tax assets.
Segment liabilities: Operating liabilities directly attributable or reasonably allocable; Excludes borrowings and income tax liabilities, unless the segment is financial in nature or interest is included in its result.
Scope rule: Listed, or in process of listing, equity or debt securities → AS 17 applies; Other enterprises that voluntarily disclose segment information must comply with AS 17 in that disclosure.
Reportable segment thresholds (preview): A segment is reportable if its revenue, result or assets is 10% or more of the total; Revenue: segment revenue (external plus inter-segment) is 10% or more of the total revenue of all segments, internal and external. Result is compared with the greater of combined profit of profit-making segments or combined loss of loss-making segments, in absolute amount. Assets are compared with total segment assets.
Revenue test: Segment revenue (external + inter-segment) ≥ 10% × total revenue of all segments (external + inter-segment); The denominator is the sum of all segments' revenue before eliminating inter-segment sales.
Result test: |Segment result| ≥ 10% × the greater of (total of segments in profit) and (total of segments in loss, taken as a positive number); A loss-making segment is tested on its loss. Compare each result with 10% of the larger of the two totals.
Asset test: Segment assets ≥ 10% × total assets of all segments; The base is the total of segment assets of all segments. Unallocated corporate assets are excluded.
75% rule: External revenue of reportable segments ≥ 75% × total enterprise external revenue; If this fails, add further segments as reportable until the 75% level is met. AS 17 does not prescribe the order in which to add them. Adding the largest first is only a practical convention.
Segment result: Segment result = Segment revenue − Segment expense; Exclude interest, dividend income, gains on investments, extraordinary items, income tax and enterprise-level general expenses, unless they relate to the segment's operations.
Any one test is enough: Reportable if revenue test OR result test OR asset test is met; You do not need to pass all three.
Primary and secondary format: Dominant risks and returns from products/services → business primary, geographical secondary; from geography → geographical primary, business secondary; Primary format needs fuller disclosure than secondary.
Policy rule: Segment policies = policies used for the enterprise's financial statements; No separate segment-only policies. Segment information must reconcile to the enterprise's financial statements.
Segment expense: Segment expense = directly attributable expense + reasonable allocation of common expense; Allocate only on a reasonable basis that reflects the segment's use of the cost.
Segment revenue: Segment revenue = external sales + inter-segment sales + other directly attributable or allocable revenue; Inter-segment revenue is included in segment revenue and eliminated in the enterprise total.
Segment result: Segment result = segment revenue − segment expense; Calculated before extraordinary items, income tax and unallocable items. Interest and investment or debt items are also kept out, unless the segment is mainly financial.
Enterprise revenue reconciliation: Enterprise revenue = Σ segment revenue − inter-segment revenue + unallocated revenue; Unallocated revenue here means only revenue from operations not assigned to any segment. Interest and dividend income are not part of it; they are reconciled separately in the profit reconciliation. Present this reconciliation in the disclosure.
Enterprise profit reconciliation: Step 1: Profit from ordinary activities before tax = Σ segment results − unallocated expenses + unallocated income − interest expense + interest and dividend income + gains on sale of investments or extinguishment of debt − losses on sale of investments or extinguishment of debt. Step 2: Profit before tax = result of Step 1 + extraordinary gains − extraordinary losses (where applicable); Start from the total of segment results, which are stated before extraordinary items, and end at profit before tax. Show extraordinary items as separate reconciling lines after Step 1, so you can also read off profit from ordinary activities. Include each item only if it arises in the question. Add gains and deduct losses. Income tax is deducted afterward to reach net profit.
Items outside segment result: Excluded by definition: extraordinary items, interest and dividend income, gains or losses on sale of investments or extinguishment of debt, interest expense, income tax. Enterprise-level general administration expenses are also not segment expense.; The interest, dividend, investment and debt items are excluded unless the segment is mainly financial. Extraordinary items and income tax are excluded in every case. Show all of these as reconciling items, not within segment results.
Primary format disclosures (each reportable segment): Segment revenue (external and inter-segment separately) + Segment result + Segment assets + Segment liabilities + Capital expenditure + Depreciation/amortisation + Other significant non-cash expenses; These are the main items to disclose for each reportable segment: revenue, result, assets, liabilities, capex, depreciation/amortisation and other significant non-cash expenses. Also disclose the share of profit or loss and investment in associates or joint ventures where substantially all operations are in a single segment, the basis of pricing inter-segment transfers, any change in segment accounting policies, and the reconciliation to the financial statements.
Secondary format disclosures: business primary: Segment revenue from external customers by geographical area (based on location of customers) + Carrying amount of segment assets by location of assets + Capital expenditure by location of assets; Each item has its own 10% test (para 38). Disclose external revenue by geographical area for each area whose external revenue is 10% or more of enterprise revenue. Disclose segment assets and capital expenditure by location of assets for each area whose segment assets are 10% or more of total assets. There is no single combined test for all three items.
Secondary format disclosures: geographical primary: Segment revenue from external customers by business segment + Carrying amount of segment assets by business segment + Capital expenditure by business segment; Para 39 sets one test for the business segment. Disclose all three items for each business segment whose external revenue is 10% or more of enterprise revenue, or whose segment assets are 10% or more of total assets. Keep this distinct from the geographical case above, where each item has its own test.
Reconciliation: Segment revenue → Enterprise revenue; Total segment result ± unallocable items (corporate expenses, interest expense, interest/dividend income, etc.) = Profit before tax (profit from ordinary activities); Profit before tax − tax = Net profit; Segment assets → Enterprise assets; Segment liabilities → Enterprise liabilities; Deduct unallocable expenses and add unallocated income such as interest and dividend income. Tax is deducted only to move from profit before tax to net profit. Show eliminations and unallocated items as separate reconciling lines.
Segment result: Segment result = Segment revenue − Segment expense; Excludes interest and dividend income, interest expense, gains or losses on sale of investments, income tax and general corporate expense, unless the segment is a financial one.

Quick revision

A segment is reportable if it meets any one of the 10% tests, not all of them.
The three tests use revenue, result and assets. The revenue and asset tests compare against the totals of all segments, while the result test compares against the greater of combined profit or combined loss.
Segment revenue test (10%): segment revenue, from sales to external customers plus transactions with other segments, is 10% or more of the total revenue, external plus internal, of all segments.
Segment result test: absolute result is 10% or more of the greater of combined profit of profitable segments or combined loss of loss-making segments.
Segment asset test: segment assets are 10% or more of total assets of all segments.
The 75% rule uses a different base from the 10% revenue test. It compares only the external revenue of the reportable segments against total enterprise revenue. If that external revenue is less than 75% of enterprise revenue, identify additional segments as reportable, even if they do not meet the 10% thresholds, until at least 75% is covered.
Primary format is business or geographical, based on the dominant source and nature of risks and returns.
The other basis becomes the secondary format, with fewer disclosures.
Segment accounting policies follow those used for the enterprise financial statements.
Common costs that cannot be reasonably allocated stay as unallocated items and are reconciled to the totals.
A segment identified as reportable in the immediately preceding period, but which no longer meets the 10% thresholds, continues to be reported separately if management judges it to be of continuing significance.
Presentation: segment information is given alongside the financial statements.
Applicability: AS 17 applies to companies that are not Small and Medium Companies (SMCs), and to Level I non-corporate entities. Small and Medium Companies and Level II and Level III non-corporate entities are exempt. Level I non-corporate entities are those with listed or to-be-listed securities, banks, financial institutions and insurers, those with turnover (excluding other income) above ₹50 crore, those with borrowings (including public deposits) above ₹10 crore at any time during the year, and holding or subsidiary entities of any of these. An enterprise outside these conditions that voluntarily presents segment information must comply with AS 17.

Common mistakes

Saying AS 17 applies to every company above a certain size. Fix: Remember the AS 17 trigger: listed securities or securities in the process of being listed. Others may disclose voluntarily, and then must follow the standard.
Leaving out inter-segment transfers from segment revenue. Fix: Segment revenue includes revenue from external customers and from transactions with other segments.
Using only external revenue as the denominator or numerator in the revenue test. Fix: For the 10% revenue test, use external plus inter-segment revenue for both the segment and the total. Use external revenue only for the 75% rule.
Treating a loss-making segment as non-reportable. Fix: Test the size of the result, profit or loss. Compare it with 10% of the greater of total profits and total losses.
Allocating general corporate expenses or income tax to segments. Fix: Allocate only common costs for which a reasonable basis exists. Income tax is excluded by definition, and enterprise-level general administration expenses stay unallocated.
Leaving inter-segment sales out of segment revenue. Fix: Include inter-segment sales in segment revenue, then eliminate them in the reconciliation to enterprise revenue.
Listing the same disclosures for primary and secondary formats Fix: Primary needs revenue, result, assets, liabilities, capex, depreciation/amortisation and other significant non-cash expenses, plus items such as associates' share of profit, pricing basis for inter-segment transfers, policy changes and the reconciliation. Secondary needs a lighter set: external revenue, segment assets and capex, for areas or segments meeting the 10% thresholds.
Including interest, tax or corporate expenses in the segment result Fix: Segment result is segment revenue less segment expense. Keep unallocable items outside and show them in the reconciliation.

Exam tips

Learn the scope rule word for word: listed, or in the process of issuing securities to be listed. It is a favourite short question and a common MCQ.
Memorise the exclusions from segment revenue and expense as a short list. Questions often ask 'which item is not part of segment expense'.
In computation questions, show a mini-statement: revenue lines, expense lines, then result. Examiners give marks for each correct inclusion and exclusion.
When asked to distinguish business and geographical segments, give the factors for each and end with 'different risks and returns'.
Read the data carefully for hints like 'financial in nature'. They change whether interest is included.
In numericals, show the three 10% thresholds as figures before ticking segments. Step marks are given for each threshold.
Use the revenue test with external plus inter-segment revenue. Use external revenue only for the 75% rule. State this in one line in your answer.
For the result test, write the profit total and loss total separately, then say which is greater.