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CA Final · Financial Reporting · Ind AS 108 Operating Segments

Meridian Steels Ltd has a plant division that sells to external customers and also has a research unit. The research unit is still at a pre-revenue stage and earns nothing now, but is expected to earn revenues in future. A separate team in the finance department compiles the company's consolidated treasury results for statutory filing only, and the CODM does not use these to allocate resources. Which of the following is the most appropriate view under the features of operating segments in Ind AS 108, considering the guidance that not every part of an entity is necessarily an operating segment?

The treasury compilation team is not an operating segment. Ind AS 108 says corporate headquarters or functional departments that earn no revenue or only incidental revenue would not be operating segments, so incurring expenses alone does not make a part of the entity a segment.

  1. AEvery part that incurs expenses, including the treasury compilation team, is an operating segment
  2. BOnly parts that are part of a corporate headquarters are excluded; all other functional departments are segments
  3. CFunctional departments or headquarters that earn no revenue or only incidental revenue would not be operating segments, so the treasury compilation team is not a segment on that basisCorrect
  4. DThe research unit and the treasury team are both segments because the entity may later earn revenue from them

Explanation

Ind AS 108 notes that a corporate headquarters or some functional departments may earn no revenues or only incidental revenues and would not be operating segments. The treasury compilation team earns no revenue and is not reviewed by the CODM for resource allocation, so it is not a segment. The option calling all expense-incurring parts segments contradicts the paragraph.

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