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CA Final · Financial Reporting · Ind AS 108 Operating Segments

Sagar Textiles Ltd has a corporate headquarters in Mumbai that houses the finance, legal and HR departments. The headquarters earns no revenue except occasional incidental rental income from a canteen contractor. The CODM reviews results of the Spinning, Weaving and Garments divisions. Under Ind AS 108, how should the corporate headquarters be treated?

The headquarters is not an operating segment. Ind AS 108 says a corporate headquarters or functional departments that earn no revenues, or revenues only incidental to the entity's activities, are not operating segments, so incurring costs or having incidental rent does not make it one.

  1. AIt is not necessarily an operating segment, since it earns no revenue or only incidental revenueCorrect
  2. BIt must be reported as a separate operating segment because it incurs significant expenses
  3. CIt must be reported as an operating segment because the CODM reviews its costs
  4. DIt becomes an operating segment as soon as it earns any rental income

Explanation

Ind AS 108 states that not every part of an entity is an operating segment. A corporate headquarters or functional departments that earn no revenues, or only incidental revenues, are not operating segments. Hence option B, treating expenses as the test, is wrong because revenue-earning activity is what matters.

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