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CA Intermediate · Advanced Accounting · AS 17 Segment Reporting

Mahadev Foods Ltd. has the following external revenue by business segment (there are no inter-segment sales): P ₹330 lakh, Q ₹150 lakh, R ₹90 lakh, S ₹60 lakh, T ₹60 lakh, U ₹60 lakh, V ₹60 lakh. Total enterprise revenue is therefore ₹810 lakh. Assume the segment result and segment assets tests are met only by the segments that pass the revenue test, and that the segments are of similar size on those tests. Applying the 10% test and then the 75% test of AS 17, what is the minimum number of reportable segments?

The minimum is 4 reportable segments. Only P, Q and R pass the 10% test, but their external revenue of ₹570 lakh is below 75% of ₹810 lakh. Adding one more segment takes it to ₹630 lakh, which satisfies the 75% requirement.

  1. A3
  2. B4Correct
  3. C5
  4. D6

Explanation

10% of ₹810 lakh is ₹81 lakh, so P, Q and R pass the revenue test. Their external revenue is 570, which is below 75% of 810 (₹607.5 lakh). One more segment must be added (570 + 60 = 630, which is above 607.5). Hence 4 reportable segments. Stopping at 3 ignores the 75% test.

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