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CMA Final · Corporate Financial Reporting

Operating Segments (Ind AS 108) for CMA Final

Ind AS 108 requires an entity to report information about its operating segments, the way management sees the business. You identify operating segments, aggregate them only if the criteria are met, apply the 10 per cent thresholds and the 75 per cent revenue test, then give the required disclosures and reconciliations.

What this chapter covers

Ind AS 108 is about showing users of financial statements the business through the eyes of management. You first find the operating segments. Then you decide which ones must be reported separately. Then you give the disclosures the standard asks for.

The chapter has a clear sequence. Identify segments, aggregate if allowed, test against the quantitative thresholds, measure and disclose, then add entity-wide disclosures such as major customers. Each step has fixed rules, so the chapter is very orderly.

In Paper 18 it sits alongside other disclosure-heavy Ind AS topics. It is mostly rule-based, so it suits both MCQs and a short numerical on thresholds. Exam questions often test a threshold calculation or a conditions-based rule from a case.

This chapter is compact and rule-driven, so effort converts into marks reliably. Threshold sums are mechanical once you know the three tests and the 75 per cent check. MCQs often turn on exact wording, such as 10 per cent or more, combined revenue including intersegment sales, or the single-customer rule. Students who learn the exact conditions avoid easy losses, and a good answer can be built from a short table of working plus a clear conclusion.

Operating Segments (Ind AS 108): topics in the order to study them

  1. 1Ind AS 108 Objective and ScopeStart here to see why the standard exists and who it applies to, so the later rules make sense.
  2. 2Definition and Identification of Operating SegmentsYou cannot test thresholds until you know what counts as an operating segment.
  3. 3Aggregation Criteria for Operating SegmentsAggregation happens before the threshold tests, so learn it next.
  4. 4Quantitative Thresholds for Reportable SegmentsThis is the most numerical part and the most testable, so give it the most time once the basics are clear.
  5. 5Segment Disclosures and MeasurementAfter you know which segments are reportable, learn what must be disclosed about them and how amounts are measured.
  6. 6Entity-Wide Disclosures and Major CustomersThese apply even to entities with a single reportable segment, so study them after segment disclosures.
  7. 7Restatement of Segments and Practical ProblemsFinish with restatement rules and mixed problems, which pull all earlier topics together.

How to prepare Operating Segments (Ind AS 108)

Treat this chapter as a decision sequence. Learn the order of the tests, then practise applying them to numbers.

  1. Read the standard's flow once: identify, aggregate, test thresholds, disclose. Write it as a four-line chain.
  2. Learn the aggregation conditions: similar economic characteristics and similarity in products and services, production processes, type of customer, distribution methods and, if applicable, regulatory environment.
  3. Memorise the three 10 per cent tests on revenue (including intersegment), profit or loss and assets. Note the profit test compares against the greater of combined profit and combined loss.
  4. Practise threshold problems in a fixed table: segment, revenue, profit or loss, assets, and a tick for each test. Then do the 75 per cent external revenue check.
  5. Learn the rules for segments below the thresholds: the all other segments category, voluntary reporting, continuing significance, and the practical limit of about ten.
  6. Revise entity-wide disclosures and the 10 per cent major customer rule, including the common control and government judgement points.
  7. Attempt past MCQs and one mixed problem under time. Check that your conclusion names each reportable segment and states the 75 per cent result.

Common mistakes in Operating Segments (Ind AS 108)

  • Using external revenue only in the 10 per cent revenue test.

    Fix: Include intersegment sales and transfers in the segment's revenue, and compare with combined internal and external revenue of all segments.

  • Comparing segment profit with total profit in the profit test.

    Fix: Compute combined profit of profitable segments and combined loss of loss-making segments, take the greater in absolute amount, then take 10 per cent of it.

  • Stopping after the three tests and ignoring the 75 per cent check.

    Fix: Always add the external revenue of reportable segments and compare with entity revenue. If it is below 75 per cent, add more segments.

  • Aggregating segments just because they are in the same industry.

    Fix: Check economic characteristics and every listed respect: products, processes, customers, distribution and regulation if applicable.

  • Treating a segment that falls below 10 per cent as automatically dropped.

    Fix: Check continuing significance for a prior-year reportable segment, and voluntary reporting where management thinks it is useful.

  • Thinking entity-wide disclosures are not needed with one segment.

    Fix: Remember they apply to all entities, including those with a single reportable segment, but only if not already given in segment information.

Last-day revision: Operating Segments (Ind AS 108)

  • Reportable segment test: any one of three 10 per cent thresholds is enough.
  • Revenue test uses reported revenue including intersegment sales, against combined internal and external revenue of all operating segments.
  • Profit test uses absolute profit or loss against the greater of combined profit of non-loss segments and combined loss of loss-making segments.
  • Asset test: 10 per cent or more of combined assets of all operating segments.
  • If reportable segments' external revenue is below 75 per cent of entity revenue, add more segments until at least 75 per cent is covered.
  • Aggregation needs similar economic characteristics and similarity in each listed respect, plus consistency with the core principle.
  • Non-reportable segments go into an all other segments category, with revenue sources described.
  • A segment reportable last year may continue to be reported if management judges it of continuing significance.
  • A newly reportable segment requires restated comparatives, unless information is unavailable and the cost is excessive.
  • Consider whether a practical limit has been reached when reportable segments rise above ten.
  • Major customer: 10 per cent or more of entity revenues; disclose that fact, the amount and the segments, but not necessarily the identity.
  • Entity-wide disclosures apply even to entities with one reportable segment, only if not already given in segment information.

Operating Segments (Ind AS 108) practice questions

Operating Segments (Ind AS 108) in other exams

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

Operating Segments (Ind AS 108): frequently asked questions

Is one threshold enough to make a segment reportable?

Yes. A segment that meets any one of the revenue, profit or loss, or asset thresholds must be reported separately. Each test uses 10 per cent or more.

What is the 75 per cent test in Ind AS 108?

If total external revenue of the reportable segments is less than 75 per cent of the entity's revenue, more operating segments must be identified as reportable. You continue until at least 75 per cent is covered.

Do I need to name a major customer?

No. If a single customer gives 10 per cent or more of revenues, you disclose that fact, the total revenue from that customer and the segments reporting it. The identity and segment-wise amounts need not be disclosed.

What happens to segments that are not reportable?

They are combined in an all other segments category, shown separately from other reconciling items. The sources of revenue in that category must be described.