Skip to content

Financial Reporting · Ind AS 108 Operating Segments

Identifying Operating Segments under Ind AS 108

Updated 5 October 2026 · Fact-checked

An operating segment under Ind AS 108 is a component of an entity that earns revenues and incurs expenses, whose results the chief operating decision maker (CODM) regularly reviews to allocate resources and assess performance, and for which separate financial information is available. Test each component against these three conditions.

Understand Identifying Operating Segments

Ind AS 108 asks you to report segments the way management sees the business. This is the management approach. The segments in your financial statements are the same units the top decision maker uses internally. They are not defined by product, geography or legal entity unless management itself uses that basis.

A component is an operating segment only if it meets all three tests:

  • It engages in business activities from which it may earn revenues and incur expenses (including inter-segment revenues and expenses with other components of the same entity).
  • Its operating results are regularly reviewed by the CODM to make decisions about resources to be allocated to it and to assess its performance.
  • Discrete financial information is available for it.

The CODM is a function, not a title. It is the person or group that allocates resources to and assesses the performance of the segments. It may be the CEO, the COO, or a group of executive directors. It is usually not the board acting only as a supervisor, and not a segment manager who reports upward. Always ask: who actually decides on resource allocation and reviews performance?

Some components do not qualify. A part of an entity that earns revenue only incidentally to its activities is not an operating segment. Corporate headquarters and similar functions are generally not operating segments. Post-employment benefit plans (and other benefit plans) are also not operating segments. A start-up operation may be an operating segment before it earns revenue, if the three tests are met.

A segment manager is the person directly accountable to the CODM for the segment's operating activities and results. Where the CODM reviews more than one set of components and segment managers exist for more than one set (a matrix organisation), the entity determines the operating segments by reference to the core principle of the standard. Segment identification comes first. Aggregation and the 10% quantitative thresholds come after it.

Key rules to remember

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.

How to solve Identifying Operating Segments questions

Use this order for any case question on identifying operating segments. Write each step with the facts from the case.

  1. 1List every component of the entity mentioned in the case: divisions, product lines, regions, subsidiaries, corporate functions.
  2. 2Identify the CODM from the facts. Look for who allocates resources and reviews performance. Do not pick by designation alone.
  3. 3Check what discrete financial information the CODM regularly reviews, and for which components.
  4. 4For each component, apply the three tests: revenue-earning activities, regular CODM review, discrete information available. State pass or fail for each.
  5. 5Exclude components that fail, such as corporate HQ, a post-employment benefit plan, or a unit with only incidental revenue. Give the reason.
  6. 6If the CODM reviews more than one set of components, apply the core principle of the standard (and the nature of the business activities) to decide which set forms the operating segments.
  7. 7Conclude with the list of operating segments. Mention that aggregation and the quantitative thresholds are applied next to decide which are reportable.

Quickest way: CODM first, then three-test checklist

When to use it: Use in MCQs and in short written answers where you must decide quickly whether a component is an operating segment.

  1. Find the CODM in the case in one line: who allocates resources and reviews results.
  2. Ask: does this person regularly receive separate results for this component? If no, it is not a segment.
  3. Ask: does the component earn or can it earn revenue, other than incidentally? If no, drop it.
  4. Scan for the usual exclusions: corporate office, employee benefit plan.
  5. Write the answer as: provision, facts, conclusion.

Common mistakes in Identifying Operating Segments

  • Treating every legal entity, product or geography as an operating segment.

    Students think segments are fixed by the nature of the business, as in the old approach.

    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.

    The word 'officer' in the name suggests a particular post.

    Fix: CODM is a function. Identify who actually allocates resources and assesses performance, which may be a group of executives.

  • Treating corporate headquarters as an operating segment.

    HQ incurs large expenses and appears in internal reports.

    Fix: Corporate functions that earn revenue only incidentally are generally not operating segments. Show them as reconciling items.

  • Ignoring that a component with no revenue yet can still qualify.

    Students read 'earns revenue' literally.

    Fix: The test is that it engages in activities from which it may earn revenue. A start-up unit reviewed by the CODM can be an operating segment.

  • Applying the 10% thresholds before identifying segments.

    Numerical tests feel more familiar and score-able.

    Fix: Always identify operating segments first. Thresholds only decide which of them are reportable.

  • Writing a conclusion without the facts of the case.

    Students recall the rule but skip application in case-scenario answers.

    Fix: Quote the facts for each test, then conclude. Marks are given for application.

Worked examples

Example 1

Kaveri Industries Ltd has three divisions: Textiles, Chemicals and Logistics. The Managing Director and two Executive Directors meet monthly, review separate profit reports for each division, and decide the capital budget for each. The board of directors meets quarterly only to approve results. The company also has a Corporate Office that incurs administrative costs and earns no external revenue, and a gratuity trust fund for employees. Identify the CODM and the operating segments.

Show the solution
  1. CODM: the Managing Director and the two Executive Directors allocate capital and review division results every month. They act as the CODM as a group. The board only approves results, so it is not the CODM.
  2. Textiles: earns revenue, results regularly reviewed by the CODM for resource allocation, separate profit report is available. All three tests are met.
  3. Chemicals: same facts. All three tests are met.
  4. Logistics: same facts. All three tests are met.
  5. Corporate Office: it incurs costs but earns no external revenue and is a corporate function. It is generally not an operating segment. It is a reconciling item.
  6. Gratuity trust fund: a post-employment benefit plan. It is not an operating segment.

Answer: The CODM is the group of the Managing Director and the two Executive Directors. The operating segments are Textiles, Chemicals and Logistics. The Corporate Office and the gratuity trust fund are not operating segments.

Example 2

Meera Pharma Ltd has two business lines: Generic Drugs and a newly set up Biotech Research unit that has not yet earned any revenue. The CEO allocates resources and reviews monthly results, and receives a separate expense and progress report for each. The Biotech unit is expected to earn revenue from licensing in future. The company also has a Treasury department which earns interest on surplus funds, only incidentally to the main business. Which components are operating segments?

Show the solution
  1. CODM: the CEO allocates resources and reviews monthly results.
  2. Generic Drugs: earns revenue, is reviewed regularly by the CEO, and has separate information. It is an operating segment.
  3. Biotech Research: it has not earned revenue yet, but it engages in activities from which it may earn revenue (licensing). The CEO reviews it regularly to allocate resources, and a separate report exists. All three tests are met, so it is an operating segment even without revenue.
  4. Treasury: it earns interest only incidentally to the main activities and functions as a corporate-type function. It is not an operating segment.

Answer: Generic Drugs and Biotech Research are operating segments. Treasury is not an operating segment.

Exam tips

  • 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.
  • Do not jump to the 10% thresholds or aggregation unless the question asks. Say that these follow identification.
  • Use the phrase 'regularly reviewed by the CODM' in your answer. It is the core of the definition.

Practice questions from Ind AS 108 Operating Segments

Identifying Operating Segments in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Identifying Operating Segments: frequently asked questions

What is the definition of an operating segment in Ind AS 108?

It is a component of an entity that engages in business activities from which it may earn revenues and incur expenses. Its results must be regularly reviewed by the CODM for resource allocation and performance assessment, and discrete financial information must be available. All three conditions must be met.

Who is the CODM under Ind AS 108?

The CODM is a function that allocates resources to and assesses the performance of the operating segments. It could be a CEO, a COO or a group of executive directors. Decide it from what the person or group actually does, not from the designation.

Can a component with no revenue be an operating segment?

Yes, if it engages in activities from which it may earn revenue and meets the other two tests. A start-up unit reviewed regularly by the CODM with separate information can qualify. Revenue earned only incidentally by a corporate function does not make it a segment.

Is corporate headquarters an operating segment?

Generally no. Corporate functions that earn revenue only incidentally are not operating segments. Their amounts appear as reconciling items when segment totals are tied to the entity's figures.