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CA Intermediate · Advanced Accounting · AS 17 Segment Reporting

Kaveri Industries has identified business segments. Segment A has external revenue of Rs 40 lakh and inter-segment revenue of Rs 10 lakh. Segment B has external revenue of Rs 30 lakh and inter-segment revenue of Rs 5 lakh. Segment C has external revenue of Rs 20 lakh and no inter-segment revenue. Total revenue of the enterprise (including inter-segment) before elimination is Rs 105 lakh. Under AS 17, what is the enterprise revenue used to apply the 10% revenue test, and what is the 10% threshold?

The revenue test uses total segment revenue including inter-segment sales, which is Rs 105 lakh, so the 10% threshold is Rs 10.5 lakh. Using only external revenue of Rs 90 lakh would be wrong because AS 17 defines segment revenue to include inter-segment transfers.

  1. ARs 90 lakh; threshold Rs 9 lakh
  2. BRs 105 lakh; threshold Rs 10.5 lakhCorrect
  3. CRs 90 lakh; threshold Rs 10.5 lakh
  4. DRs 105 lakh; threshold Rs 9 lakh

Explanation

AS 17's 10% revenue test compares segment revenue (external plus inter-segment) with total revenue of all segments, which includes inter-segment revenue. Here total is Rs 105 lakh, so 10% is Rs 10.5 lakh. Using Rs 90 lakh (external only) is the mistake in the other options.

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