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CA Intermediate · Advanced Accounting · AS 17 Segment Reporting

Narmada Enterprises sells diverse products across several countries. Its risks and returns are predominantly affected by differences in the products and services it offers, and only secondarily by the geographical areas in which it operates. Under AS 17, how should the segment reporting formats be determined?

Business segments are the primary format and geographical segments the secondary format. AS 17 selects the primary format by the dominant source of risks and returns, and here differences in products and services dominate. Geographical segments are therefore disclosed as the secondary format with fewer disclosures.

  1. AGeographical segments are the primary format and business segments the secondary format
  2. BBusiness segments are the primary format and geographical segments the secondary formatCorrect
  3. CBoth formats are primary and must be given equal disclosure
  4. DOnly business segments are reported, with no secondary format needed

Explanation

AS 17 bases the primary format on the dominant source and nature of the enterprise's risks and returns. Here products and services dominate, so business segments are primary and geographical segments are secondary, with the secondary disclosures required in reduced form. Reporting geographical segments as primary reverses this rule.

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