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CA Final · Financial Reporting · Ind AS 108 Operating Segments

Varuna Industries Ltd has a corporate headquarters that incurs administrative costs and earns only incidental revenue from sub-letting a small portion of its office space. The CODM reviews results of the manufacturing, trading and services divisions separately. How should the headquarters be treated under Ind AS 108?

The headquarters is not necessarily an operating segment. Ind AS 108 says a corporate headquarters or functional department that earns no revenues, or revenues only incidental to the entity's activities, does not qualify, so incurring costs alone does not make it a segment.

  1. AIt is a separate operating segment because it incurs expenses and has a manager
  2. BIt is not necessarily an operating segment, since it earns no revenue or only incidental revenueCorrect
  3. CIt is an operating segment if its costs exceed 10% of total expenses
  4. DIt must be merged with the largest operating segment as a matter of rule

Explanation

Ind AS 108 states that not every part of an entity is necessarily an operating segment. A corporate headquarters or functional departments that earn no revenue, or only incidental revenue, are not operating segments. Option A wrongly treats incurring expenses as enough to qualify.

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