AS 17 Segment Reporting Meaning, Applicability, Format Summary Notes PDF. In the previous article, we have given AS 18 Related Party Disclosures. Today we are providing the complete details of accounting standard 17 segment reporting I;e meaning, applicability, Primary segment and Secondary segment, accounting policies and disclosures. At the end of this article, you can also download AS 17 segment reporting note by ICAI. This notes is useful for CA Final students.
AS 17 Segment Reporting Summary Notes
The objective of this Standard is to establish principles for reporting financial 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:
- better understand the performance of the enterprise;
- better assess the risks and returns of the enterprise; and
- make more informed judgements about the enterprise as a whole.
The following terms are used in this Standard with the meanings specified:
1) 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:
- the nature of the products or services;
- the nature of the production processes;
- the type or class of customers for the products or services;
- the methods used to distribute the products or provide the services; and
- if applicable, the nature of the regulatory environment, for example, banking, insurance, or public utilities.
2) 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:
- similarity of economic and political conditions;
- relationships between operations in different geographical areas;
- proximity of operations;
- special risks associated with operations in a particular area;
- exchange control regulations; and
- the underlying currency risks.
3) 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 Standard. If total external revenue attributable to reportable segments constitutes less than 75% of the total enterprise revenue, additional segments should be identified as reportable segments, even if they do not meet 10% thresholds as above, until at least 75% percent of the total enterprise revenue is included in reportable segments.
A segment identified as a reportable segment in the immediately preceding period because it satisfied the relevant 10% thresholds should continue to be a reportable segment for the current period notwithstanding that its revenue, result, and assets no longer meet the 10% thresholds.
4) Enterprise revenue is revenue from sales to external customers as reported in the statement of profit and loss.
5) Segment revenue is the aggregate of
- the portion of enterprise revenue that is directly attributable to a segment,
- the relevant portion of enterprise revenue that can be allocated on a reasonable basis to a segment, and
- revenue from transactions with other segments of the enterprise.
6)Segment expense is the aggregate of
- the expense resulting from the operating activities of a segment that is directly attributable to the segment, and
- the relevant portion of enterprise expense that can be allocated on a reasonable basis to the segment, including expense relating to transactions with other segments of the enterprise.
Note: However, SEGMENT REVENUE/EXPENSE does not include
(a) Extraordinary items as defined in AS-5
(b) Interest or dividend ( including earned/incurred on loans to other segment) unless the operations of the segment are primarily of a financial nature
(c) Gains on sales of investments or on extinguishments of debt (Capital gain/loss) unless the operations of the segment are primarily of a financial nature.
(d) General administration expenses, head office expenses and other expenses that arise at the enterprise level and relate to the enterprise as a whole.
7)Segment Assets are those operating assets that are employed by a segment in its operating activities and that either are directly attributable the segment or can be allocated to the segment on a reasonable basis.
8)Segment liabilities are those operating liabilities that result from operating activities and that either are directly attributable 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 and vice versa.)
(Segment liabilities do not include income tax liabilities and vice versa.)
Similarly, if depreciation segment expenses then related assets comes under segment assets.
Primary segment and Secondary segment
One among the two, Business Segment and Geographical Segment, is primary segment and other becomes secondary segment. The reporting requirements for the primary and secondary segments are different.
Basis for identifying primary and secondary segments
Risks and returns are the main criteria for identifying primary and secondary segments.
1) If the risks and returns of an enterprise are affected predominantly by differences in the products, business segments are recognized as primary segments and geographical segments as secondary segments and vice versa.
2) If the risks and returns of an enterprise are affected both by differences in the products as well as differences in the locations in which it operates, then the enterprise should use business segments as its primary segment and geographical segment as its secondary segment.
3) If risks and returns of an enterprise are affected neither by differences in products/services nor by differences in geographical areas of operations, the management may elect any of the two as primary with other being secondary segment.
(Internal organization and management structure of an enterprise and its system of internal financial reporting to the board of directors and the CEO should normally be the basis for identifying the predominant source and nature of risks and differing rates of return facing the enterprise.)
Segment Accounting Policies
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.There is a presumption that the accounting policies that the directors and management 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 Standard 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. A detailed 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.
An enterprise should disclose the following for each reportable segment:
- segment revenue, classified into segment revenue from sales to external customers and segment revenue from transactions with other segments;
- segment result;
- total carrying amount of segment assets;
- total amount of segment liabilities;
- 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);
- total amount of expense included in the segment result for depreciation and amortisation in respect of segment assets for the period; and
- 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.
Click Here to download AS 17 Segment Reporting notes by ICAI.
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