IAS 17

Accounting Standard (AS) 17

(issued 2000)

Segment Reporting

Contents

OBJECTIVE

SCOPE Paragraphs 1-4

DEFINITIONS 5-18

IDENTIFYING REPORTABLE SEGMENTS 19-32

Primary and Secondary Segment Reporting Formats 19-23

Business and Geographical Segments 24-26

Reportable Segments 27-32

SEGMENT ACCOUNTING POLICIES 33-37

DISCLOSURE 38-59

Primary Reporting Format 39-46

Secondary Segment Information 47-51

Illustrative Segment Disclosures 52

Other Disclosures 53-59

APPENDICES

The following Accounting Standards Interpretations (ASIs) relate to AS 17:

 Revised ASI 20 - Disclosure of Segment Information

 ASI 22 - Treatment of Interest for determining Segment Expense

The above Interpretations are published elsewhere in this Compendium.

Accounting Standard (AS) 17

(issued 2000)

SegmentReporting

(This Accounting Standard includes paragraphs set in bold italic type

and plain type, which have equal authority. Paragraphs in bold italic

type indicate the main principles. This Accounting Standard should be

read in the context of its objective and the Preface to the Statements of

Accounting Standards1.)

Accounting Standard (AS) 17, ‘Segment Reporting’, issued by the Council

of the Institute of Chartered Accountants of India, comes into effect in

respect of accounting periods commencing on or after 1.4.2001.

This Standard is mandatory in nature2 in respect of accounting periods

commencing on or after 1-4-20043 for the enterprises which fall in any one

ormore of the following categories, at any time during the accounting period:

(i) Enterprises whose equity or debt securities are listed whether in

India or outside India.

(ii) Enterprises which are in the process of listing their equity or debt

securities as evidenced by the board of directors’ resolution in

this regard.

1 Attention is specifically drawn to paragraph 4.3 of the Preface, according to which

Accounting Standards are intended to apply only to items which are material.

2 Reference may be made to the section titled ‘Announcements of the Council

regarding status of various documents issued by the Institute of Chartered

Accountants of India’ appearing at the beginning of this Compendium for a detailed

discussion on the implications of the mandatory status of an accounting standard.

3 AS 17 was originally made mandatory in respect of accounting periods commencing

on or after 1-4-2001 for the following enterprises:

(i) Enterprises whose equity or debt securities are listed on a recognised

stock exchange in India, and enterprises that are in the process of issuing

equity or debt securities that will be listed on a recognised stock

exchange in India as evidenced by the board of directors’ resolution in

this regard.

(ii) All other commercial, industrial and business reporting enterprises,

whose turnover for the accounting period exceeds Rs. 50 crores.

Segment Reporting 311

(iii) Banks including co-operative banks.

(iv) Financial institutions.

(v) Enterprises carrying on insurance business.

(vi) All commercial, industrial and business reporting enterprises,

whose turnover for the immediately preceding accounting period

on the basis of audited financial statements exceeds Rs. 50 crore.

Turnover does not include ‘other income’.

(vii) All commercial, industrial and business reporting enterprises having

borrowings, including public deposits, in excess ofRs. 10 crore at

any time during the accounting period.

(viii) Holding and subsidiary enterprises of any one of the above at any

time during the accounting period.

The enterprises which do not fall in any of the above categories are not

required to apply this Standard.

Where an enterprise has been covered in any one or more of the above

categories and subsequently, ceases to be so covered, the enterprise will not

qualify for exemption from application of this Standard, until the enterprise

ceases to be covered in any of the above categories for two consecutive

years.

Where an enterprise has previously qualified for exemption fromapplication

of this Standard (being not covered by any of the above categories) but no

longer qualifies for exemption in the current accounting period, this Standard

becomes applicable from the current period. However, the corresponding

previous period figures need not be disclosed.

An enterprise, which, pursuant to the above provisions, does not disclose

segment information, should disclose the fact.

The following is the text of the Accounting Standard.

Objective

The objective of this Statement is to establish principles for reporting financial

312 AS 17 (issued 2000)

information, about the different types of products and services an enterprise

produces and the different geographical areas in which it operates. Such

information helps users of financial statements:

(a) better understand the performance of the enterprise;

(b) better assess the risks and returns of the enterprise; and

(c) make more informed judgements about the enterprise as a whole.

Many enterprises provide groups of products and services or operate in

geographical areas that are subject to differing rates of profitability,

opportunities for growth, future prospects, and risks. Information about

different types of products and services of an enterprise and its operations in

different geographical areas - often called segment information - is relevant

to assessing the risks and returns of a diversified ormulti-locational enterprise

but may not be determinable from the aggregated data. Therefore, reporting

of segment information is widely regarded as necessary for meeting the

needs of users of financial statements.

Scope

1. This Statement should be applied in presenting general purpose

financial statements.

2. The requirements of this Statement are also applicable in case of

consolidated financial statements.

3. An enterprise should comply with the requirements of this Statement

fully and not selectively.

4. If a single financial report contains both consolidated financial

statements and the separate financial statements of the parent, segment

information need be presented only on the basis of the consolidated

financial statements. In the context of reporting of segment information

in consolidated financial statements, the references in this Statement to

any financial statement items should construed to be the relevant item

as appearing in the consolidated financial statements.

Definitions

Segment Reporting 313

5. The following terms are used in this Statement with the meanings

specified:

A business segment is a distinguishable component of an enterprise

that is engaged in providing an individual product or service or a group of

related products or services and that is subject to risks and returns that

are different from those of other business segments. Factors that should

be considered in determining whether products or services are related

include:

(a) the nature of the products or services;

(b) the nature of the production processes;

(c) the type or class of customers for the products or services;

(d) the methods used to distribute the products or provide the

services; and

(e) if applicable, the nature of the regulatory environment, for

example, banking, insurance, or public utilities.

A geographical segment is a distinguishable component of an enterprise

that is engaged in providing products or services within a particular

economic environment and that is subject to risks and returns that are

different from those of components operating in other economic

environments. Factors that should be considered in identifying

geographical segments include:

(a) similarity of economic and political conditions;

(b) relationships between operations in different geographical

areas;

(c) proximity of operations;

(d) special risks associated with operations in a particular area;

(e) exchange control regulations; and

314 AS 17 (issued 2000)

(f) the underlying currency risks.

A reportable segment is a business segment or a geographical segment

identified on the basis of foregoing definitions for which segment

information is required to be disclosed by this Statement.

Enterprise revenue is revenue from sales to external customers as

reported in the statement of profit and loss.

Segment revenue is the aggregate of

(i) the portion of enterprise revenue that is directly attributable

to a segment,

(ii) the relevant portion of enterprise revenue that can be allocated

on a reasonable basis to a segment, and

(iii) revenue from transactions with other segments of the

enterprise.

Segment revenue does not include:

(a) extraordinary items as defined in AS 5, Net Profit or Loss for

the Period, Prior Period Items and Changes in Accounting

Policies;

(b) interest or dividend income, including interest earned on

advances or loans to other segments unless the operations of

the segment are primarily of a financial nature; and

(c) gains on sales of investments or on extinguishment of debt

unless the operations of the segment are primarily of a

financial nature.

Segment expense is the aggregate of

(i) the expense resulting from the operating activities of a

segment that is directly attributable to the segment, and

(ii) the relevant portion of enterprise expense that can be allocated

on a reasonable basis to the segment,

Segment Reporting 315

including expense relating to transactions with other segments of

the enterprise.

Segment expense does not include:

(a) extraordinary items as defined in AS 5, Net Profit or Loss for

the Period, Prior Period Items and Changes in Accounting

Policies;

(b) interest expense, including interest incurred on advances or

loans from other segments, unless the operations of the

segment are primarily of a financial nature4;

(c) losses on sales of investments or losses on extinguishment of

debt unless the operations of the segment are primarily of a

financial nature;

(d) income tax expense; and

(e) general administrative expenses, head-office expenses, and

other expenses that arise at the enterprise level and relate to

the enterprise as a whole. However, costs are sometimes

incurred at the enterprise level on behalf of a segment. Such

costs are part of segment expense if they relate to the

operating activities of the segment and if they can be directly

attributed or allocated to the segment on a reasonable basis.

Segment result is segment revenue less segment expense.

Segment assets are those operating assets that are employed by a segment

in its operating activities and that either are directly attributable to the

segment or can be allocated to the segment on a reasonable basis.

If the segment result of a segment includes interest or dividend income,

its segment assets include the related receivables, loans, investments,

or other interest or dividend generating assets.

Segment assets do not include income tax assets.

4 See also Accounting Standards Interpretation (ASI) 22 published elsewhere in this

Compendium.

316 AS 17 (issued 2000)

Segment assets are determined after deducting related allowances/

provisions that are reported as direct offsets in the balance sheet of the

enterprise.

Segment liabilities are those operating liabilities that result from the

operating activities of a segment and that either are directly attributable

to the segment or can be allocated to the segment on a reasonable basis.

If the segment result of a segment includes interest expense, its segment

liabilities include the related interest-bearing liabilities.

Segment liabilities do not include income tax liabilities.

Segment accounting policies are the accounting policies adopted for

preparing and presenting the financial statements of the enterprise as

well as those accounting policies that relate specifically to segment

reporting.

6. The factors in paragraph 5 for identifying business segments and

geographical segments are not listed in any particular order.

7. A single business segment does not include products and services with

significantly differing risks and returns. While there may be dissimilarities

with respect to one or several of the factors listed in the definition of business

segment, the products and services included in a single business segment are

expected to be similar with respect to a majority of the factors.

8. Similarly, a single geographical segment does not include operations in

economic environments with significantly differing risks and returns. A

geographical segment may be a single country, a group of two or more

countries, or a region within a country.

9. The risks and returns of an enterprise are influenced both by the

geographical location of its operations (where its products are produced or

where its service rendering activities are based) and also by the location of

its customers (where its products are sold or services are rendered). The

definition allows geographical segments to be based on either:

(a) the location of production or service facilities and other assets of

an enterprise; or

Segment Reporting 317

(b) the location of its customers.

10. The organisational and internal reporting structure of an enterprisewill

normally provide evidence of whether its dominant source of geographical

risks results from the location of its assets (the origin of its sales) or the

location of its customers (the destination of its sales). Accordingly,

an enterprise looks to this structure to determine whether its

geographical segments should be based on the location of its assets or on

the location of its customers.

11. Determining the composition of a business or geographical segment

involves a certain amount of judgement. Inmaking that judgement, enterprise

management takes into account the objective of reporting financial

information by segment as set forth in this Statement and the qualitative

characteristics of financial statements as identified in the Framework for

the Preparation and Presentation of Financial Statements issued by the

Institute of Chartered Accountants of India. The qualitative characteristics

include the relevance, reliability, and comparability over time of financial

information that is reported about the different groups of products and services

of an enterprise and about its operations in particular geographical areas,

and the usefulness of that information for assessing the risks and returns of

the enterprise as a whole.

12. The predominant sources of risks affect how most enterprises are

organised and managed. Therefore, the organisational structure of

an enterprise and its internal financial reporting system are normally the

basis for identifying its segments.

13. The definitions of segment revenue, segment expense, segment assets

and segment liabilities include amounts of such items that are directly

attributable to a segment and amounts of such items that can be allocated to

a segment on a reasonable basis. An enterprise looks to its internal financial

reporting system as the starting point for identifying those items that can be

directly attributed, or reasonably allocated, to segments. There is thus a

presumption that amounts that have been identified with segments for internal

financial reporting purposes are directly attributable or reasonably allocable

to segments for the purpose of measuring the segment revenue, segment

expense, segment assets, and segment liabilities of reportable segments.

14. In some cases, however, a revenue, expense, asset or liability may

have been allocated to segments for internal financial reporting purposes on

318 AS 17 (issued 2000)

a basis that is understood by enterprisemanagementbut that could be deemed

arbitrary in the perception of external users of financial statements. Such an

allocation would not constitute a reasonable basis under the definitions of

segment revenue, segment expense, segment assets, and segment liabilities

in this Statement. Conversely, an enterprise may choose not to allocate

some itemof revenue, expense, asset or liability for internal financial reporting

purposes, even though a reasonable basis for doing so exists. Such an item

is allocated pursuant to the definitions of segment revenue, segment expense,

segment assets, and segment liabilities in this Statement.

15. Examples of segment assets include current assets that are used in the

operating activities of the segment and tangible and intangible fixed assets.

If a particular item of depreciation or amortisation is included in segment

expense, the related asset is also included in segment assets. Segment assets

do not include assets used for general enterprise or head-office purposes.

Segment assets include operating assets shared by two or more segments if

a reasonable basis for allocation exists. Segment assets include goodwill

that is directly attributable to a segment or that can be allocated to a segment

on a reasonable basis, and segment expense includes related amortisation of

goodwill. If segment assets have been revalued subsequent to acquisition,

then the measurement of segment assets reflects those revaluations.

16. Examples of segment liabilities include trade and other payables, accrued

liabilities, customer advances, productwarranty provisions, and other claims

relating to the provision of goods and services. Segment liabilities do not

include borrowings and other liabilities that are incurred for financing rather

than operating purposes. The liabilities of segments whose operations are

not primarily of a financial nature do not include borrowings and similar

liabilities because segment result represents an operating, rather than a netof-

financing, profit or loss. Further, because debt is often issued at the headoffice

level on an enterprise-wide basis, it is often not possible to directly

attribute, or reasonably allocate, the interest-bearing liabilities to segments.

17. Segment revenue, segment expense, segment assets and segment

liabilities are determined before intra-enterprise balances and intra-enterprise

transactions are eliminated as part of the process of preparation of enterprise

financial statements, except to the extent that such intra-enterprise balances

and transactions are within a single segment.

18. While the accounting policies used in preparing and presenting the

financial statements of the enterprise as a whole are also the fundamental

Segment Reporting 319

segment accounting policies, segment accounting policies include, in addition,

policies that relate specifically to segment reporting, such as identification of

segments,method of pricing inter-segment transfers, and basis for allocating

revenues and expenses to segments.

IdentifyingReportable Segments

Primary and Secondary Segment Reporting Formats

19. The dominant source and nature of risks and returns of an enterprise

should govern whether its primary segment reporting format will be

business segments or geographical segments. If the risks and returns of

an enterprise are affected predominantly by differences in the

products

and services it produces, its primary format for reporting segment

information should be business segments, with secondary information

reported geographically. Similarly, if the risks and returns of the enterprise

are affected predominantly by the fact that it operates in different countries

or other geographical areas, its primary format for reporting segment

information should be geographical segments, with secondary information

reported for groups of related products and services.

20. Internal organisation and management structure of an enterprise

and its system of internal financial reporting to the board of directors

and the chief executive officer should normally be the basis for identifying

the predominant source and nature of risks and differing rates of return

facing the enterprise and, therefore, for determining which reporting

format is primary and which is secondary, except as provided in subparagraphs

(a) and (b) below:

(a) if risks and returns of an enterprise are strongly affected

both by differences in the products and services it produces

and by differences in the geographical areas in which it

operates, as evidenced by a ‘matrix approach’ to managing

the company and to reporting internally to the board of

directors and the chief executive officer, then the enterprise

should use business segments as its primary segment reporting

format and geographical segments as its secondary reporting

format; and

(b) if internal organisational and management structure of an

320 AS 17 (issued 2000)

enterprise and its system of internal financial reporting to

the board of directors and the chief executive officer are based

neither on individual products or services or groups of related

products/services nor on geographical areas, the directors

and management of the enterprise should determine whether

the risks and returns of the enterprise are related more to the

products and services it produces or to the geographical areas

in which it operates and should, accordingly, choose business

segments or geographical segments as the primary segment

reporting format of the enterprise, with the other as its

secondary reporting format.

21. For most enterprises, the predominant source of risks and returns

determines how the enterprise is organised and managed. Organisational

andmanagement structure of an enterprise and its internal financial reporting

system normally provide the best evidence of the predominant source of

risks and returns of the enterprise for the purpose of its segment reporting.

Therefore, except in rare circumstances, an enterprise will report segment

information in its financial statements on the same basis as it reports internally

to top management. Its predominant source of risks and returns becomes its

primary segment reporting format. Its secondary source of risks and returns

becomes its secondary segment reporting format.

22. A ‘matrix presentation’ — both business segments and geographical

segments as primary segment reportingformatswith full segmentdisclosures

on each basis -- will often provide useful information if risks and returns of

an enterprise are strongly affected both by differences in the products and

services it produces and by differences in the geographical areas in which it

operates. This Statement does not require, but does not prohibit, a ‘matrix

presentation’.

23. In some cases, organisation and internal reporting of an enterprise may

have developed along lines unrelated to both the types of products and services

it produces, and the geographical areas in which it operates. In such cases,

the internally reported segment data will not meet the objective of this

Statement. Accordingly, paragraph 20(b) requires the directors and

management of the enterprise to determine whether the risks and returns of

the enterprise are more product/service driven or geographically driven and

to accordingly choose business segments or geographical segments as the

primary basis of segment reporting. The objective is to achieve a reasonable

degree of comparabilitywith other enterprises, enhance understandability of

Segment Reporting 321

the resulting information, and meet the needs of investors, creditors, and

others for information about product/service-related and geographicallyrelated

risks and returns.

Business and Geographical Segments

24. Business and geographical segments of an enterprise for external

reporting purposes should be those organisational units for which

information is reported to the board of directors and to the chief executive

officer for the purpose of evaluating the unit’s performance and for

making decisions about future allocations of resources, except as

provided in paragraph 25.

25. If internal organisational and management structure of an

enterprise and its system of internal financial reporting to the board of

directors and the chief executive officer are based neither on individual

products or services or groups of related products/services nor on

geographical areas, paragraph 20(b) requires that the directors and

management of the enterprise should choose either business segments

or geographical segments as the primary segment reporting format of

the enterprise based on their assessment of which reflects the primary

source of the risks and returns of the enterprise, with the other as its

secondary reporting format. In that case, the directors and management

of the enterprise should determine its business segments and

geographical segments for external reporting purposes based on the

factors in the definitions in paragraph 5 of this Statement, rather than

on the basis of its system of internal financial reporting to the board of

directors and chief executive officer, consistent with the following:

(a) if one or more of the segments reported internally to the

directors and management is a business segment or a

geographical segment based on the factors in the definitions

in paragraph 5 but others are not, sub-paragraph (b) below

should be applied only to those internal segments that do not

meet the definitions in paragraph 5 (that is, an internally

reported segment that meets the definition should not be

further segmented);

(b) for those segments reported internally to the directors and

management that do not satisfy the definitions in paragraph

5, management of the enterprise should look to the next lower

322 AS 17 (issued 2000)

level of internal segmentation that reports information along

product and service lines or geographical lines, as appropriate

under the definitions in paragraph 5; and

(c) if such an internally reported lower-level segment meets the

definition of business segment or geographical segment based

on the factors in paragraph 5, the criteria in paragraph 27

for identifying reportable segments should be applied to that

segment.

26. Under this Statement, most enterprises will identify their business and

geographical segments as the organisational units for which information is

reported to the board of the directors (particularly the non-executive directors,

if any) and to the chief executive officer (the senior operating decisionmaker,

which in some cases may be a group of several people) for the purpose of

evaluating each unit’s performance and for making decisions about future

allocations of resources. Even if an enterprise must apply paragraph 25

because its internal segments are not along product/service or geographical

lines, itwill consider the next lower level of internal segmentation that reports

information along product and service lines or geographical lines rather than

construct segments solely for external reporting purposes. This approach of

looking to organisational and management structure of an enterprise and its

internal financial reporting systemto identify the business and geographical

segments of the enterprise for external reporting purposes is sometimes called

the ‘management approach’, and the organisational components for which

information is reported internallyare sometimes called ‘operatingsegments’.

Reportable Segments

27. A business segment or geographical segment should be identified

as a reportable segment if:

(a) its revenue from sales to external customers and from

transactions with other segments is 10 per cent or more of

the total revenue, external and internal, of all segments; or

(b) its segment result, whether profit or loss, is 10 per cent or

more of -

(i) the combined result of all segments in profit, or

Segment Reporting 323

(ii) the combined result of all segments in loss,

whichever is greater in absolute amount; or

(c) its segment assets are 10 per cent or more of the total assets

of all segments.

28. A business segment or a geographical segment which is not a

reportable segment as per paragraph 27, may be designated as a

reportable segment despite its size at the discretion of the management

of the enterprise. If that segment is not designated as a reportable

segment, it should be included as an unallocated reconciling item.

29. If total external revenue attributable to reportable segments

constitutes less than 75 per cent of the total enterprise revenue, additional

segments should be identified as reportable segments, even if they do

not meet the 10 per cent thresholds in paragraph 27, until at least 75

per cent of total enterprise revenue is included in reportable segments.

30. The 10 per cent thresholds in this Statement are not intended to be a

guide for determining materiality for any aspect of financial reporting other

than identifying reportable business and geographical segments.

Appendix II to this Statement presents an illustration of the determination of

reportable segments as per paragraphs 27-29.

31. A segment identified as a reportable segment in the immediately

preceding period because it satisfied the relevant 10 per cent thresholds

should continue to be a reportable segment for the current period

notwithstanding that its revenue, result, and assets all no longer meet

the 10 per cent thresholds.

32. If a segment is identified as a reportable segment in the current

period because it satisfies the relevant 10 per cent thresholds, precedingperiod

segment data that is presented for comparative purposes should,

unless it is impracticable to do so, be restated to reflect the newly

reportable segment as a separate segment, even if that segment did not

satisfy the 10 per cent thresholds in the preceding period.

324 AS 17 (issued 2000)

Segment Accounting Policies

33. Segment information should be prepared in conformity with the

accounting policies adopted for preparing and presenting the financial

statements of the enterprise as a whole.

34. There is a presumption that the accounting policies that the directors

andmanagement of an enterprise have chosen to use in preparing the financial

statements of the enterprise as a whole are those that the directors and

management believe are the most appropriate for external reporting

purposes. Since the purpose of segment information is to help users of

financial statements better understand and make more informed

judgements about the enterprise as a whole, this Statement requires the

use, in preparing segment information, of the accounting policies adopted

for preparing and presenting the financial statements of the enterprise as a

whole. That does not mean, however, that the enterprise accounting

policies are to be applied

to reportable segments as if the segments were separate stand-alone reporting

entities.Adetailed calculation done in applying a particular accounting policy

at the enterprise-wide level may be allocated to segments if there is a

reasonable basis for doing so. Pension calculations, for example, often are

done for an enterprise as a whole, but the enterprise-wide figures may be

allocated to segments based on salary and demographic data for the segments.

35. This Statement does not prohibit the disclosure of additional segment

information that is prepared on a basis other than the accounting policies

adopted for the enterprise financial statements provided that (a) the

information is reported internally to the board of directors and the chief

executive officer for purposes ofmakingdecisions about allocatingresources

to the segment and assessing its performance and (b) the basis of

measurement for this additional information is clearly described.

36. Assets and liabilities that relate jointly to two or more segments

should be allocated to segments if, and only if, their related revenues

and expenses also are allocated to those segments.

37. The way in which asset, liability, revenue, and expense items are

allocated to segments depends on such factors as the nature of those

items, the activities conducted by the segment, and the relative autonomy

of that segment. It is not possible or appropriate to specify a single

basis of allocation that should be adopted by all enterprises; nor is it

appropriate to force allocation of enterprise asset, liability, revenue,

Segment Reporting 325

and expense items that relate jointly to two or more segments, if the

only basis for making those allocations is arbitrary. At the same time,

the definitions of segment revenue, segment expense, segment assets,

and segment liabilities are interrelated, and the resulting allocations

should be consistent. Therefore, jointly used assets and liabilities are

allocated to segments if, and only if, their related revenues and expenses

also are allocated to those segments. For example, an asset is included

in segment assets if, and only if, the related depreciation or amortisation

is included in segment expense.

Disclosure5

38. Paragraphs 39-46 specify the disclosures required for reportable

segments for primary segment reporting format of an enterprise. Paragraphs

47-51 identify the disclosures required for secondary reporting format of an

enterprise. Enterprises are encouraged to make all of the primary-segment

disclosures identified in paragraphs 39-46 for each reportable secondary

segment although paragraphs 47-51 require considerably less disclosure on

the secondary basis. Paragraphs 53-59 address several other segment

disclosure matters. Appendix III to this Statement illustrates the application

of these disclosure standards.

Primary Reporting Format

39. The disclosure requirements in paragraphs 40-46 should be

applied to each reportable segment based on primary reporting format

of an enterprise.

40. An enterprise should disclose the following for each reportable

segment:

(a) segment revenue, classified into segment revenue from sales

to external customers and segment revenue from transactions

with other segments;

5 The Council, at its 224th meeting, held on March 8-10, 2002, considered the matter

relating to disclosure of corresponding previous year figures in respect of segment

reporting in the first year of application of AS 17. The Council decided that in the first

year of application of AS 17, corresponding previous year figures in respect of segment

reporting need not be disclosed (See ‘The Chartered Accountant’, April 2002, pp. 1242).

See also Accounting Standards Interpretation (ASI) 20 published elsewhere in this

Compendium.

326 AS 17 (issued 2000)

(b) segment result;

(c) total carrying amount of segment assets;

(d) total amount of segment liabilities;

(e) total cost incurred during the period to acquire segment assets

that are expected to be used during more than one period

(tangible and intangible fixed assets);

(f) total amount of expense included in the segment result for

depreciation and amortisation in respect of segment assets

for the period; and

(g) total amount of significant non-cash expenses, other than

depreciation and amortisation in respect of segment assets,

that were included in segment expense and, therefore,

deducted in measuring segment result.

41. Paragraph 40 (b) requires an enterprise to report segment result. If an

enterprise can compute segment net profit or loss or some other measure of

segment profitability other than segment result,without arbitrary allocations,

reporting of such amount(s) in addition to segment result is encouraged. If

thatmeasure is prepared on a basis other than the accountingpolicies adopted

for the financial statements of the enterprise, the enterprisewill include in its

financial statements a clear description of the basis of measurement.

42. An example of a measure of segment performance above segment

result in the statement of profit and loss is gross margin on sales. Examples

of measures of segment performance below segment result in the statement

of profit and loss are profit or loss from ordinary activities (either before or

after income taxes) and net profit or loss.

43. Accounting Standard 5, ‘Net Profit or Loss for the Period, Prior Period

Items and Changes in Accounting Policies’ requires that “when items of

income and expense within profit or loss fromordinary activities are of such

size, nature or incidence that their disclosure is relevant to explain the

performance of the enterprise for the period, the nature and amount of such

items should be disclosed separately”. Examples of such items includewritedowns

of inventories, provisions for restructuring, disposals of fixed assets

and long-terminvestments, legislative changes having retrospective application,

Segment Reporting 327

litigation settlements, and reversal of provisions. An enterprise is encouraged,

but not required, to disclose the nature and amount of any items of segment

revenue and segment expense that are of such size, nature, or incidence that

their disclosure is relevant to explain the performance of the segment for the

period. Such disclosure is not intended to change the classification of any

such items of revenue or expense fromordinary to extraordinary or to change

the measurement of such items. The disclosure, however, does change the

level at which the significance of such items is evaluated for

disclosure purposes from the enterprise level to the segment level.

44. An enterprise that reports the amount of cash flows arising from

operating, investing and financing activities of a segment need not

disclose depreciation and amortisation expense and non-cash expenses

of such segment pursuant to sub-paragraphs (f) and (g) of paragraph

40.

45. AS 3, Cash Flow Statements, recommends that an enterprise present

a cash flow statement that separately reports cash flows from operating,

investing and financing activities. Disclosure of information regarding

operating, investing and financing cash flows of each reportable segment is

relevant to understanding the enterprise’s overall financial position, liquidity,

and cash flows. Disclosure of segment cash flow is, therefore, encouraged,

though not required. An enterprise that provides segment cash flow

disclosures need notdisclose depreciation and amortisation expenseandnoncash

expenses pursuant to sub-paragraphs (f) and (g) of paragraph 40.

46. An enterprise should present a reconciliation between the

information disclosed for reportable segments and the aggregated

information in the enterprise financial statements. In presenting the

reconciliation, segment revenue should be reconciled to enterprise

revenue; segment result should be reconciled to enterprise net profit or

loss; segment assets should be reconciled to enterprise assets; and

segment liabilities should be reconciled to enterprise liabilities.

Secondary Segment Information

47. Paragraphs 39-46 identify the disclosure requirements to be applied to

each reportable segment based on primary reporting format of an enterprise.

Paragraphs 48-51 identify the disclosure requirements to be applied to each

reportable segment based on secondary reporting format of an enterprise, as

follows:

328 AS 17 (issued 2000)

(a) if primary format of an enterprise is business segments, the

required secondary-format disclosures are identified in paragraph

48;

(b) if primary format of an enterprise is geographical segments based

on location of assets (where the products of the enterprise are

produced or where its service rendering operations are based),

the required secondary-format disclosures are identified in

paragraphs 49 and 50;

(c) if primary format of an enterprise is geographical segments based

on the location of its customers (where its products are sold or

services are rendered), the required secondary-format disclosures

are identified in paragraphs 49 and 51.

48. If primary format of an enterprise for reporting segment

information is business segments, it should also report the following

information:

(a) segment revenue from external customers by geographical

area based on the geographical location of its customers, for

each geographical segment whose revenue from sales to

external customers is 10 per cent or more of enterprise

revenue;

(b) the total carrying amount of segment assets by geographical

location of assets, for each geographical segment whose

segment assets are 10 per cent or more of the total assets of

all geographical segments; and

(c) the total cost incurred during the period to acquire segment

assets that are expected to be used during more than one period

(tangible and intangible fixed assets) by geographical location

of assets, for each geographical segment whose segment assets

are 10 per cent or more of the total assets of all geographical

segments.

49. If primary format of an enterprise for reporting segment information

is geographical segments (whether based on location of assets or location

of customers), it should also report the following segment information for

each business segment whose revenue from sales to external customers is

Segment Reporting 329

10 per cent or more of enterprise revenue or whose segment assets are 10

per cent or more of the total assets of all business segments:

(a) segment revenue from external customers;

(b) the total carrying amount of segment assets; and

(c) the total cost incurred during the period to acquire segment

assets that are expected to be used during more than one

period (tangible and intangible fixed assets).

50. If primary format of an enterprise for reporting segment information

is geographical segments that are based on location of assets, and if the

location of its customers is different from the location of its assets, then the

enterprise should also report revenue from sales to external customers for

each customer-based geographical segment whose revenue from sales

to external customers is 10 per cent or more of enterprise revenue.

51. If primary format of an enterprise for reporting segment information

is geographical segments that are based on location of customers, and if

the assets of the enterprise are located in different geographical areas

from its customers, then the enterprise should also report the following

segment information for each asset-based geographical segment whose

revenue from sales to external customers or segment assets are 10 per cent

or more of total enterprise amounts:

(a) the total carrying amount of segment assets by geographical

location of the assets; and

(b) the total cost incurred during the period to acquire segment

assets that are expected to be used during more than one

period (tangible and intangible fixed assets) by location of

the assets.

Illustrative Segment Disclosures

52. Appendix III to this Statement presents an illustration of the disclosures

for primary and secondary formats that are required by this Statement.

330 AS 17 (issued 2000)

Other Disclosures

53. In measuring and reporting segment revenue from transactions

with other segments, inter-segment transfers should be measured on

the basis that the enterprise actually used to price those transfers. The

basis of pricing inter-segment transfers and any change therein should

be disclosed in the financial statements.

54. Changes in accounting policies adopted for segment reporting that

have a material effect on segment information should be disclosed. Such

disclosure should include a description of the nature of the change, and

the financial effect of the change if it is reasonably determinable.

55. AS 5 requires that changes in accounting policies adopted by the

enterprise should bemade only if required by statute, or for compliancewith

an accounting standard, or if it is considered that the change would result in

a more appropriate presentation of events or transactions in the financial

statements of the enterprise.

56. Changes in accounting policies adopted at the enterprise level that affect

segment information are dealt with in accordance with AS 5. AS 5 requires

that any change in an accounting policy which has a material effect should

be disclosed.The impact of, and the adjustments resultingfrom, such change,

ifmaterial, should be shown in the financial statements of the period in which

such change is made, to reflect the effect of such change. Where the effect

of such change is not ascertainable, wholly or in part, the fact should be

indicated. If a change ismade in the accounting policieswhich has nomaterial

effect on the financial statements for the current period but which is

reasonably expected to have a material effect in later periods, the fact of

such change should be appropriately disclosed in the period in which the

change is adopted.

57. Some changes in accounting policies relate specifically to segment

reporting. Examples include changes in identification of segments and changes

in the basis for allocating revenues and expenses to segments. Such changes

can have a significant impact on the segment information reported but will

not change aggregate financial information reported for the enterprise. To

enable users to understand the impact of such changes, this Statement requires

the disclosure of the nature of the change and the financial effect of the

change, if reasonably determinable.

Segment Reporting 331

58. An enterprise should indicate the types of products and services

included in each reported business segment and indicate the composition

of each reported geographical segment, both primary and secondary,

if not otherwise disclosed in the financial statements.

59. To assess the impact of such matters as shifts in demand, changes in

the prices of inputs or other factors of production, and the development of

alternative products and processes on a business segment, it is necessary to

know the activities encompassed by that segment. Similarly, to assess the

impact of changes in the economic and political environment on the risks and

returns of a geographical segment, it is important to knowthe composition of

that geographical segment.

Do the segments reflected in the management reporting system meet the requisite definitions of

business or geographical segments in para 5 (para 24)

Do some management reporting segments meet the definitions in para 5 (para 20)

N o ▼ ▼ Y e s

Appendix I

Segment Definition Decision Tree

The purpose of this appendix is to illustrate the application of paragraphs 24-32 of the Accounting Standard.

Yes ▼ ▼ No

Use the segments reported to the board of directors and CEO a

business segments or geographical segments (para 20)

For those segments that do not meet the definitions, go to the next lower level of internal

segmentation that reports information along product/service lines or geographical lines (para 25)

Those segments may be reportable segments

▼ ▼

▼

Does the segment exceed the quantitative thresholds (para 27)

No Yes This segment is a reportable segment

▼

a. This segment may be separately reported despite its size.

b. If not separately reported, it is unallocated reconciling item (para 28)

Does total segment external revenue exceed 75%

No Identify additional segments until 75%

of total enterprise revenue (para 29) threshold is reached (para 29)

Appendix II

Illustration on Determination of Reportable Segments [Paragraphs 27-29]

This appendix is illustrative only and does not form part of the Accounting Standard. The purpose of this

appendix is to illustrate the application of paragraphs 27-29 of the Accounting Standard.

An enterprise operates through eight segments, namely, A, B, C, D, E, F, G and H. The relevant information about these

segments is given in the following table (amounts in Rs.’000):

A B C D E F G H Total (Segments) Total (Enterprise)

1. SEGMENT REVENUE

(a) External Sales - 255 15 10 15 50 20 35 400

(b) Inter-segment Sales 100 60 30 5 - - 5 - 200

(c) Total Revenue 100 315 45 15 15 50 25 35 600 400

2. Total Revenue of each

segment as a percentage of

total revenue of all segments

16.7 52.5 7.5 2.5 2.5 8.3 4.2 5.8

A B C D E F G H Total (Segments) Total (Enterprise)

3. SEGMENT RESULT

[Profit/(Loss)]

5 (90) 15 (5) 8 (5) 5 7

4. Combined Result of all

Segments in profits

5 15 8 5 7 40

5. Combined Result of all

Segments in loss

(90) (5) (5) (100)

6. Segment Result as a

percentage of the greater

of the totals arrived at 4 and

5 above in absolute amount

(i.e., 100)

5 90 15 5 8 5 5 7

7. SEGMENT ASSETS 15 47 5 11 3 5 5 9 100

8. Segment assets as a

percentage of total assets

of all segments

15 47 5 11 3 5 5 9

The reportable segments of the enterprise will be identified as below:

(a) In accordance with paragraph 27(a), segments whose total revenue from external sales and inter-segment sales

is 10% or more of the total revenue of all segments, external and internal, should be identified as reportable

segments. Therefore, Segments A and B are reportable segments.

(b) As per the requirements of paragraph 27(b), it is to be first identified whether the combined result of all segments

in profit or the combined result of all segments in loss is greater in absolute amount. From the table, it is evident

that combined result in loss (i.e., Rs.100,000) is greater. Therefore, the individual segment result as a percentage

of Rs.100,000 needs to be examined. In accordance with paragraph 27(b), Segments B and C are reportable

segments as their segment result is more than the threshold limit of 10%.

(c) Segments A, B and D are reportable segments as per paragraph 27(c), as their segment assets are more than

10% of the total segment assets.

Thus, Segments A, B, C and D are reportable segments in terms of the criteria laid down in paragraph 27.

Paragraph 28 of the Statement gives an option to the management of the enterprise to designate any segment as

a reportable segment. In the given case, it is presumed that the management decides to designate Segment E as a

reportable segment.

Paragraph 29 requires that if total external revenue attributable to reportable segments identified as aforesaid constitutes

less than 75% of the total enterprise revenue, additional segments should be identified as reportable segments even if they

do not meet the 10% thresholds in paragraph 27, until at least 75% of total enterprise revenue is included in reportable

segments.

The total external revenue of Segments A, B, C, D and E, identified above as reportable segments, is Rs.295,000. This is

less than 75% of total enterprise revenue of Rs.400,000. The management of the enterprise is required to designate any

one or more of the remaining segments as reportable segment(s) so that the external revenue of reportable segments is at

least 75% of the total enterprise revenue. Suppose, the management designates Segment H for this purpose. Now the

external revenue of reportable segments is more than 75% of the total enterprise revenue.

Segments A, B, C, D, E and H are reportable segments. Segments F and G will be shown as reconciling items.

Appendix III

Illustrative Segment Disclosures

This appendix is illustrative only and does not form part of the Accounting Standard. The purpose of this appendix

is to illustrate the application of paragraphs 38-59 of the Accounting Standard.

ThisAppendix illustrates the segment disclosures that this Statementwould require for a diversifiedmulti-locational business

enterprise. This example is intentionally complex to illustrate most of the provisions of this Statement.

INFORMATION ABOUT BUSINESS SEGMENTS (NOTE xx)

(All amounts in Rs. lakhs)

Paper Products Office Products P ublishing Other Operations E liminations Consolidate d Total

Current

Year

Previous

Year

Current

Year

Previous

Year

Current

Year

Previous

Year

Current

Year

Previous

Year

Current

Year

Previous

Year

Current

Year

Previous

Year

REVENUE

External

sales

55 50 20 17 19 16 7 7

Intersegment

sales

15 10 10 14 2 4 2 2 (29) (30)

Total

Revenue

70 60 30 31 21 20 9 9 (29) (30) 101 90

Paper Products Office Products P ublishing Other Operations E liminations Consolidate d Total

Current

Year

Previous

Year

Current

Year

Previous

Year

Current

Year

Previous

Year

Current

Year

Previous

Year

Current

Year

Previous

Year

Current

Year

Previous

Year

RESULT

Segment

result

20 17 9 7 2 1 0 0 (1) (1) 30 24

Unallocated

corporate

expenses

(7) (9)

Operating

profit

23 15

Interest

expense

(4) (4)

Interest

income

2 3

Income

taxes

(7) (4)

Profit from

ordinary

activities

14 10

Paper Products Office Products P ublishing Other Operations E liminations Consolidate d Total

Current

Year

Previous

Year

Current

Year

Previous

Year

Current

Year

Previous

Year

Current

Year

Previous

Year

Current

Year

Previous

Year

Current

Year

Previous

Year

Extraordinary

loss:

uninsured

earthquake

damage to

factory

(3) (3)

Net profit 14 7

OTHER

INFORMATION

Segment

assets

54 50 34 30 10 10 10 9 108 99

Unallocated

corporate

assets

67 56

Total

assets

175 155

Segment

liabilities

25 15 8 11 8 8 1 1 42 35

Paper Products Office Products P ublishing Other Operations E liminations Consolidate d Total

Current

Year

Previous

Year

Current

Year

Previous

Year

Current

Year

Previous

Year

Current

Year

Previous

Year

Current

Year

Previous

Year

Current

Year

Previous

Year

Unallocated

corporate

liabilities

40 55

Total

liabilities

82 90

Capital

expenditure

12 10 3 5 5 4 3

Depreciation

9 7 9 7 5 3 3 4

Non-cash

expenses

other than

depreciation

8 2 7 3 2 2 2 1

Note xx-Business and Geographical Segments (amounts in Rs. lakhs)

Business segments: For management purposes, the Company is organised on a worldwide basis into three major operating

divisions-paper products, office products and publishing— each headed by a senior vice president. The divisions are the

basis on which the company reports its primary segment information. The paper products segment produces a broad range

of writing and publishing papers and newsprint. The office products segment manufactures labels, binders, pens, and

markers and also distributes office products made by others. The publishing segment develops and sells books in

the fields of taxation, law and accounting. Other operations include development of computer software for standard

and specialised business applications. Financial information about business segments is presented in the above table

(from page 336 to page 339).

Geographical segments: Although the Company’s major operating divisions are managed on a worldwide basis, they

operate in four principal geographical areas of the world. In India, its home country, the Company produces and sells a

broad range of papers and office products.Additionally, all of theCompany’s publishing and computer software development

operations are conducted in India. In the EuropeanUnion, theCompany operates paper and office productsmanufacturing

facilities and sales offices in the following countries: France, Belgium, Germany and the U.K. Operations in Canada and

the United States are essentially similar and consist of manufacturing papers and newsprint that are sold entirely within

those two countries. Operations in Indonesia include the production of paper pulp and the manufacture of writing and

publishing papers and office products, almost all ofwhich is sold outside Indonesia, both to other segments of the company

and to external customers.

Sales by market: The following table shows the distribution of the Company’s consolidated sales by geographical market,

regardless of where the goods were produced:

Sales Revenue by

Geographical Market

Current Year Previous Year

India 19 22

European Union 30 31

Canada and the United States 28 21

Mexico and South America 6 2

Southeast Asia (principally Japan and Taiwan) 18 14

101 90

Assets and additions to tangible and intangible fixed assets by geographical area: The following table shows the

carrying amount of segment assets and additions to tangible and intangible fixed assets by geographical area in which the

assets are located:

Carrying Additions to

Amount of Fixed Assets

Segment Assets and

Intangible

Assets

Current Previous Current Previous

Year Year Year Year

India 72 78 8 5

European Union 47 37 5 4

Canada and the United States 34 20 4 3

Indonesia 22 20 7 6

175 155 24 18

Segment revenue and expense: In India, paper and office products are manufactured in combined facilities and are sold

by a combined sales force. Joint revenues and expenses are allocated to the two business segments on a reasonable basis.

All other segment revenue and expense are directly attributable to the segments.

Segment assets and liabilities: Segment assets include all operating assets used by a segment and consist principally of

operating cash, debtors, inventories and fixed assets, net of allowances and provisions which are reported as direct offsets

in the balance sheet.Whilemost such assets can be directly attributed to individual segments, the carrying amount of certain

assets used jointly by two or more segments is allocated to the segments on a reasonable basis. Segment liabilities include

all operating liabilities and consist principally of creditors and accrued liabilities. Segment assets and liabilities do not include

deferred income taxes.

Inter-segment transfers: Segment revenue, segment expenses and segment result include transfers between

business segments and between geographical segments. Such transfers are accounted for at competitive market prices

charged to unaffiliated customers for similar goods. Those transfers are eliminated in consolidation.

Unusual item: Sales of office products to external customers in the current year were adversely affected by a lengthy

strike of transportationworkers in India,which interrupted product shipments for approximatelyfourmonths.TheCompany

estimates that sales of office products during the four-month period were approximately half ofwhat theywould otherwise

have been.

Extraordinary loss: As more fully discussed in Note x, the Company incurred an uninsured loss of Rs.3,00,000 caused by

earthquake damage to a paper mill in India during the previous year.

Appendix IV

Summary of Required Disclosure

Segment Reporting 343

The appendix is illustrative only and does not formpart of the Accounting Standard.

Its purpose is to summarise the disclosures required by paragraphs 38-59 for each

of the three possible primary segment reporting formats.

Figures in parentheses refer to paragraph numbers of the relevant paragraphs in the

text.

PRIMARYFORMAT

ISBUSINESS

SEGMENTS

PRIMARYFORMAT

ISGEOGRAPHICAL

SEGMENTSBY

LOCATIONOF

ASSETS

PRIMARYFORMAT

ISGEOGRAPHICAL

SEGMENTSBY

LOCATIONOF

CUSTOMERS

Required Primary

Disclosures

Required Primary

Disclosures

Required Primary

Disclosures

Revenue fromexternal

customers by business

segment [40(a)]

Revenue fromexternal

customers by location of

assets [40(a)]

Revenue fromexternal

customers by location of

customers [40(a)]

Revenue from

transactions with other

segments by business

segment [40(a)]

Revenue from

transactions with other

segments by location of

assets [40(a)]

Revenue from

transactions with other

segments by location of

customers [40(a)]

Segment result by

business segment

[40(b)]

Segment result by

location of assets

[40(b)]

Segment result by

location of customers

[40(b)]

Carrying amount of

segment assets by

business segment

[40(c)]

Carrying amount of

segment assets by

location of assets

[40(c)]

Carrying amount of

segment assets by

location of customers

[40(c)]

Segment liabilities by

business segment

[40(d)]

Segment liabilities by

location of assets

[40(d)]

Segment liabilities by

location of customers

[40(d)]

Cost to acquire tangible

and intangible fixed

assets by business

segment [40(e)]

Cost to acquire tangible

and intangible fixed

assets by location of

assets [40(e)]

Cost to acquire tangible

and intangible fixed

assets by location of

customers [40(e)]

344 AS 17 (issued 2000)

PRIMARYFORMAT

ISBUSINESS

SEGMENTS

PRIMARYFORMAT

ISGEOGRAPHICAL

SEGMENTSBY

LOCATIONOF

ASSETS

PRIMARYFORMAT

ISGEOGRAPHICAL

SEGMENTSBY

LOCATIONOF

CUSTOMERS

Required Primary

Disclosures

Required Primary

Disclosures

Required Primary

Disclosures

Depreciation and

amortisation expense

by business segment

[40(f)]

Depreciation and

amortisation expense by

location of assets[40(f)]

Depreciation and

amortisation expense by

location of

customers[40(f)]

Non-cash expenses

other than depreciation

and amortisation by

business segment

[40(g)]

Non-cash expenses

other than depreciation

and amortisation by

location of assets

[40(g)]

Non-cash expenses

other than depreciation

and amortisation by

location of customers

[40(g)]

Reconciliation of

revenue, result, assets,

and liabilities by

business segment [46]

Reconciliation of

revenue, result, assets,

and liabilities [46]

Reconciliation of

revenue, result, assets,

and liabilities [46]

Required Secondary

Disclosures

Required Secondary

Disclosures

Required Secondary

Disclosures

Revenue fromexternal

customers by location

of customers [48]

Revenue fromexternal

customers by business

segment [49]

Revenue fromexternal

customers by business

segment [49]

Carrying amount of

segment assets by

location of assets [48]

Carrying amount of

segment assets by

business segment [49]

Carrying amount of

segment assets by

business segment [49]

Cost to acquire tangible

and intangible fixed

assets by location of

assets [48]

Cost to acquire tangible

and intangible fixed

assets by business

segment [49]

Cost to acquire tangible

and intangible fixed

assets by business

segment [49]

Revenue fromexternal

customers by

geographical customers

if different from

location of assets [50]

Segment Reporting 345

PRIMARYFORMAT

ISBUSINESS

SEGMENTS

PRIMARYFORMAT

ISGEOGRAPHICAL

SEGMENTSBY

LOCATIONOF

ASSETS

PRIMARYFORMAT

ISGEOGRAPHICAL

SEGMENTSBY

LOCATIONOF

CUSTOMERS

Required Secondary

Disclosures

Required Secondary

Disclosures

Required Secondary

Disclosures

Carrying amount of

segment assets by

location of assets if

different fromlocation

of customers [51]

Cost to acquire tangible

and intangible fixed

assets by location of

assets if different from

location of customers

[51]

Other Required

Disclosures

Other Required

Disclosures

Other Required

Disclosures

Basis of pricing intersegment

transfers and

any change therein [53]

Basis of pricing intersegment

transfers and

any change therein [53]

Basis of pricing intersegment

transfers and

any change therein [53]

Changes in segment

accounting policies [54]

Changes in segment

accounting policies [54]

Changes in segment

accounting policies [54]

Types of products and

services in each

business segment [58]

Types of products and

services in each

business segment [58]

Types of products and

services in each

business segment [58]

Composition of each

geographical segment

[58]

Composition of each

geographical segment

[58]

Composition of each

geographical segment

[58]