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

Tapti Engineering Ltd has a design and administration head office. The head office earns no revenue from external customers, but a small unit within it sells scrap packaging to outsiders, earning ₹40,000 against total group revenue of ₹50 crore. The CODM reviews this unit's results separately. Applying paragraph 6 of Ind AS 108 to the head office, which statement is most consistent with the text?

The head office is not an operating segment merely because it earns revenue that is only incidental to the entity's activities. Ind AS 108 states that a corporate headquarters or functional department earning no revenue or only incidental revenue is not an operating segment, and scrap sales of ₹40,000 are incidental.

  1. AThe head office is automatically an operating segment because it earns some revenue
  2. BThe head office is not an operating segment merely because it earns revenue that is only incidental to the entity's activitiesCorrect
  3. CThe head office becomes an operating segment only if its revenue exceeds ₹1 crore
  4. DThe head office is always a reportable segment as it is reviewed by the CODM

Explanation

Paragraph 6 says a corporate headquarters or functional department that earns no revenue, or revenue only incidental to the entity's activities, is not an operating segment. Scrap sales of ₹40,000 against ₹50 crore are incidental. No threshold of ₹1 crore appears in the text, so that option is invented. Earning some revenue does not automatically create a segment.

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