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CMA Final · Corporate Financial Reporting · Operating Segments (Ind AS 108)

Nalanda Pharma Ltd has a research division that is purely a cost centre. It earns no revenue, though a minor amount of scrap is occasionally sold, which is incidental to the entity's activities. The CODM reviews its costs monthly. The company's other divisions earn substantial external revenue. Based on Ind AS 108, which treatment is correct for the research division?

The research division is not necessarily an operating segment. Ind AS 108 says functional departments that earn no revenues, or revenues only incidental to the entity's activities, would not be operating segments, even if management reviews their costs.

  1. AIt is necessarily an operating segment because the CODM reviews its results
  2. BIt is not necessarily an operating segment, since parts earning no revenue or only incidental revenue need not qualifyCorrect
  3. CIt is an operating segment only if its costs exceed 10% of total costs
  4. DIt must be merged into the largest revenue-earning segment as a segment

Explanation

Ind AS 108 says not every part of an entity is necessarily an operating segment; functional departments that earn no revenue or only incidental revenue would not be operating segments. CODM review alone does not make a part a segment, and the 10% and merging options are not the basis given in the text.

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