AS 17 SEGMENT REPORTING

- PRIMARYAND SECONDARY SEGMENTS

PRESENTED BY:
ATHIRA JR
S1 MCOM
ROLL NO. 12
DEPT. OF COMMERCE
 CONTENTS
 INTRODUCTION
 BUSINESS SEGMENT
GEOGRAPHICAL SEGMENT
 PRIMARY AND SECONDARY SEGMENTS
 SEGMENT RESULT,SEGMENT ASSETS,SEGMENT LIABILITIES
 PRIMARY SEGMENT REPORTING FORMAT
 SECONDARY SEGMENTREPORTING FORMAT
 SUMMARY OF DISCLOSURE REQUIREMENT
CONCLUSION
REFERENCE
 INTRODUCTION
As 17- Segment Reporting deals with primary and secondary
segments
 Objective – to establish principles for reporting financial
information about:
 Different types of products and services it produces; and
 Different geographical areas in which it operates

 Help users of financial statement:

a) Better understand enterprise performance
b) Better assess the risks and returns of the enterprise
c) Make more informed judgement about the enterprise as a whole
 BUSINESS SEGMENT

 A distinguishable component of an enterprise

 Engaged in providing an individual product or service or a

group of related products or services
 Subject to risks and returns that is different from those of
other business segments
FACTORS WHICH DETERMINE WHETHER THE
PRODUCTS OR SERVICES ARE RELATED
• The nature of products or services
• Nature of production process
• The type or class of customers for the products and services
• The method used to distribute the products or provide the
services
• If applicable, the nature of the regulatory environment;
e.g. banking, insurance or public utilities
 GEOGRAPHICAL SEGMENTS
 A distinguishable component of an enterprise
 Engaged in providing products or services within a particular economic
environment
 Subject to risks and returns that are different from those of components
operating in other economic environments
 The geographical segments are based on either:
• the location of production or service facilities and other assets of an enterprise
• the location of its customers
 FACTORS TO BE CONSIDERED IN
IDENTIFYING GEOGRAPHICAL SEGMENT
• Similarity of economic and political condition
• Relationships between operations in different geographical areas
• Proximity of operations
• Special risks associated with operations in a particular area
• Exchange control regulations
• The underlying currency risks
 PRIMARY AND SECONDARY SEGMENTS

 The entities having both business and geographical

segment identify and report information in two formats:
i. primary format
ii. secondary format
 PROCESS OF SELECTION OF PRIMARY AND
SECONDARY SEGMENTS
 Identification of predominant source of risks and returns
 Enquiry into internal organisation, management structure, system of
internal reporting-product wise or geography based reporting – to BOD
or CEO will provide evidence
 Primary segment will be determined based on “dominance” factor
 It will either be a business segment or geographical segment
 PROCESS OF SELECTION OF PRIMARY AND
SECONDARY SEGMENTS

 The dominant source of risks and returns should govern whether its
primary reporting format will be business segment or geographical
segment.
 If risks and returns are affected predominantly by differences in the
products an services, then , primary reporting format – business
segment and secondary reporting format – geographical segment and
vice versa.
 BASIS FOR IDENTIFYING THE PREDOMINANT
SOURCE AND NATURE OF RISKS AND RETURNS

 Internal organisation and management structure

 System of internal financial reporting to BOD and CEO

 EXEPTIONS
 If the risks and returns are strongly affected both by differences in
the product and services and the geographical areas, as evidenced by
 a matrix approach to managing the company and
 to reporting internally to the BOD and CEO; then,
 primary segment reporting format – business segment

 secondary segment reporting format - geographical segment

• A „matrix‟ presentation – both primary segment and secondary segment
reporting formats with full segment disclosures on each basis – this standard
does not require but does not prohibit a matrix presentation.
 If internal organisation and management and system of
internal financial reporting is based neither on the products
or services it produces or the geographical areas, the director
and management can determine the primary and secondary
segment accordingly.
 SEGMENT REVENUE
 Segment revenue is the aggregate of :
 Sales to external customers directly attributable to the segment
 Sales to external customers allocated to the segment on a reasonable basis
 Revenue from transaction with other segments
Less:
 Extraordinary items
 Interest on dividend income
 Gains on sale of investments or on extinguishment of debts
• The standard states that in measuring and reporting segment revenue from
transactions with other segments, the entity should use the transfer prices
actually in use
 SEGMENT EXPENSE
 Segment expense is the aggregate of:
 The expense resulting from operating activities of a segment attributed to it
 The relevant portion of enterprise expense allocated on a reasonable basis
 Expense relating to transaction with other segment
 Less:
 Extraordinary items
 Interest expense
 Losses on sale of investment or on extinguishment of debt
 Income tax expense
 General administrative expenses
 SEGMENT RESULT

 Segment result is segment revenue less segment expense

 It is the operating result of the segment
Segment result = Segment revenue - Segment expense
 SEGMENT ASSETS
• Assets employed by a segment in its operating activities and that can
be directly attributed or allocated to the segment on a reasonable
basis.
• It do not include income tax assets
• If segment result include interest or dividend income, the
corresponding segment assets include the related interest or dividend
generating assets.
 SEGMENT LIABILITIES

• Liabilities that result from the operating activities of a segment that

can be directly attributed or allocated to the segment on a reasonable
basis
• It do not include income tax liabilities
• If segment result include interest expense, its segment liabilities
include the related interest bearing liabilities
 PRIMARY SEGMENT REPORTING FORMAT
An enterprise discloses the following for each reportable segment:
a) Segment revenue, classified into external and internal sales based on actual
transfer prices used by the entity
b) Segment result
c) Total carrying amount of segment assets
d) Total carrying amount of segment liabilities
e) Capital expenditure incurred to acquire tangible and intangible assets
f) Depreciation and amortisation
g) Total amount of significant non cash expenses
 OTHER DISCLOSURES
The standard doesn‟t require but encourages the following disclosures:
a) Segment profit or loss or some other measure of segment profitability(gross
margin on sales or net profit or loss) other than segment result without arbitrary
allocation
 If an entity discloses any measurement of profitability other than segment result based
on accounting policies other than those adopted for financial statements of the entity as a
whole, it should provide a clear description of the basis of measurement.
b) Segment cash flow with information regarding operating, investing and financial
cash flows
 If an entity presents segment cash flow then it need not disclose depreciation and
amortisation expenses and non-cash expenses
An entity presents a reconciliation statement reconciling:
i. Segment revenue to enterprise revenue
ii. Segment result to enterprise result
iii. Segment asset to enterprise asset
iv. Segment liabilities to enterprise liabilities
 This standard encourages entities to disclose the nature, size and amount
of any item of a segment revenue or segment expense that their disclosure
is relevant to explain the performance of the segment for the period
 The significance of such items is evaluated at the segment level and not at
the enterprise level.
 SECONDARY SEGMENT REPORTING FORMAT

If the primary segment reporting format is related to business segment,

then it reports the following information of geographical area for each
geographical segments whose revenue or assets is 10% or more of the
enterprise revenue or assets respectively:
a) Segment revenue from external customers based on geographical location of
its customers
b) The total carrying amount of segment asset based on geographical location of
assets
c) Capital expenditure on acquisition of tangible and intangible fixed assets
based on geographical location of assets
If the primary reporting format is related to geographical segment,
then the following information for each business segment whose
segment revenue or segment assets is 10% or more of the total
revenue of the enterprise or total assets of all the business segments
respectively:
a) Segment revenue from external customers
b) Total carrying amount of segment assets
c) The total capital expenditure
 If the primary reporting format is based on the location of assets,
and location of the assets and the customers are different from each
other, then revenue from sales to external customers for each
customer- based geographical segment whose segment revenue is
10% or more of the enterprise revenue is to be reported
 If the primary reporting format is based on the location of
customers, and location of the assets and the customers are different
from each other, then the following information is to be disclosed for
each asset - based geographical segment whose segment revenue or
segment asset is 10% or more of the enterprise revenue or assets
respectively:
a) Total carrying amount of segment assets
b) The total capital expenditure incurred during the period
 FURTHER DISCLOSURES

Further disclosures stipulated in the standard:

 The basis of transfer pricing between segments
 Change in accounting policies, if any, adopted for segment reporting having
material effect. Nature of change and financial implication
 Types of products and services in each business segment
 Composition of each business segments
 Composition of each geographical segment;
if not reported separately in financial statements
 SUMMARY OF DISCLOSURE REQUIREMENT
Reporting Format Segments
Primary reporting format Business segment or geographical
segment based on either the location
of customer or the location the
assets
Geographical segment based on
customers having external sales 10%
Secondary reporting format if the or more of the enterprise revenue
primary format is the business
segment Geographical segments based on
assets 10% or more of the total
assets of all geographical segments
Segment Information
Segment revenue, segment result, total
carrying amount of segment assets and
segment liabilities, capital expenditure,
depreciation and amortisation included in
segment expense and significant non cash
expenses included in segment expenses
External revenue
Segment assets and capital expenditure
Secondary reporting format, if the
primary format is geographical
segment based on either location of
customers or location of assets
Business segments having external External revenue, total carrying
revenue 10% or more of enterprise amount of segment assets, and
revenue; and business segment capital expenditure
having assets 10% or more of the
total assets of all business segments

Secondary reporting format, if the Geographical segment based on

primary format is geographical customers having external sales External revenue
segment based on location of assets 10% or more of the enterprise
revenue

Secondary reporting format if the
primary format is geographical
segment based on location of
customers
Geographical segment based on The total carrying amount of
location of assets having external segment assets and capital
revenue 10% or more of enterprise expenditure
revenue or whose assets are 10% or
more of total enterprise assets
 CONCLUSION
INTRODUCTION
 BUSINESS SEGMENT
GEOGRAPHICAL SEGMENT
 PRIMARY AND SECONDARY SEGMENTS
 SEGMENT RESULT,SEGMENT ASSETS,SEGMENT LIABILITIES
 PRIMARY SEGMENT REPORTING FORMAT
 SECONDARY SEGMENTREPORTING FORMAT
 SUMMARY OF DISCLOSURE REQUIREMENT
 REFERENCE

 M. P Vijayakumar., First Lesson on Accounting Standards

 Ashish K Bhattacharya., Indian Accounting Standards
 https://www.icai.org
THANK YOU