Ind AS 108, Operating Segment, Important Questions with Solutions for CA Final Financial Reporting May & Nov 2021 Exams
Question 1 –
Seeds Ltd. is operating in oil industry. Its business segments comprise crushing and refining. Certain information for financial year 2017-18 is given below:
(Rs. in lakh)
Additional Information: (Rs. in lakh)
- Unallocated revenue net of expenses is Rs. 1,500.
- Interest and bank charges is Rs. 1,000
- Income-tax expense is Rs. 1,000 (current tax Rs. 975 and deferred tax Rs. 25)
- Investments Rs. 5,000 and unallocated assets Rs. 5,000
- Unallocated liabilities, Reserves & Surplus and Share capital are Rs. 10,000; Rs. 15,000 and Rs. 5,000 respectively.
- Depreciation amounts for crushing and refining are Rs. 500 and Rs. 150 respectively.
- Capital expenditure for crushing and refining are Rs. 2,500 and Rs. 1,000 respectively.
- Revenue from outside India is Rs. 15,000 and segment assets outside India Rs. 5,000.
Based on the above information, how Seeds Ltd. would disclose information about reportable segment revenue, profit or loss, assets and liabilities for financial year 2017-18?
Segment revenues, results and other information
(Rs. in lakh)
|1.||External sales (gross)||1,00,000||35,000||1,35,000|
|External sales (net)||97,500||33,500||1,31,000|
|Other operating income||20,000||7,500||27,500|
|Unallocated income (net of unallocated expenses)||
|Profit from operation before interest, taxation and exceptional items||
|Interest and bank charges||(1,000)|
|Profit before exceptional items||7,500|
|Profit before taxation||7,500|
|Less: Income Taxes|
|Profit after taxation||6,500|
|Reserves and surplus||15,000|
|Total liabilities / shareholder’s funds||50,000|
(Rs. in lakh)
Note: Segment revenue, results, assets and liabilities include the respective amounts identifiable to each of the segments.
Question 2 –
X Ltd. is operating in coating industry. Its business segment comprise coating and others consisting of chemicals, polymers and related activities. Certain information for financial year 20X1-20X2 is given below:
(Rs. in lakhs)
|Segments||External sale||Tax||Other operating
- Unallocated revenue net of expenses is Rs. 30,00,00,000
- Interest and bank charges is Rs. 20,00,00,000
- Income tax expenses is Rs. 20,00,00,000 (current tax Rs. 19,50,00,000 and deferred tax Rs. 50,00,000)
- Investments Rs. 1,00,00,00,000 and unallocated assets Rs. 1,00,00,00,000.
- Unallocated liabilities, Reserve & surplus and share capital are Rs. 2,00,00,00,000, Rs. 3,00,00,00,000 & Rs. 1,00,00,00,000 respectively.
- Depreciation amounts for coating & others are Rs. 10,00,00,000 and Rs. 3,00,00,000 respectively.
- Capital expenditure for coating and others are Rs. 50,00,00,000 and Rs. 20,00,00,000 respectively.
- Revenue from outside India is Rs. 3,00,00,00,000 and segment asset outside India Rs. 1,00,00,00,000.
Based on the above information, how X Ltd. would disclose information about reportable segment revenue, profit or loss, assets and liabilities for financial year 20X1-20X2?
(A) Information about operating segment
(1) the company’s operating segments comprise:
Coatings: consisting of decorative, automotive, industrial paints and related activities. Others: consisting of chemicals, polymers and related activities.
(2) Segment revenues, results and other information.
(Rs. in Lakhs)
|1.||External sales (gross)||2,00,000||70,000||2,70,000|
|External sales (net)||1,95,000||67,000||2,62,000|
|Other operating income||40,000||15,000||55,000|
|Unallocated income (net of unallocated expenses)||3,000|
|Profit from operation before||17,000|
|interest, taxation and exceptional items|
|Interest and bank charges||(2,000)|
|Profit before exceptional items||15,000|
|Profit before taxation||15,000|
|Profit after taxation||13,000|
|Reserves and surplus||30,000|
|Total liabilities/shareholder’s funds||1,00,000|
|Geographical Information||(Rs. in lakhs)|
(i) The operating segments have been identified in line with the Ind AS 108, taking into account the nature of product, organisation structure, economic environment and internal reporting system.
(ii) Segment revenue, results, assets and liabilities include the respective amounts identifiable to each of the segments. Unallocable assets include unallocable fixed assets and other current assets. Unallocable liabilities include unallocable current liabilities and net deferred tax liability.
(iii) Corresponding figures for previous year have not been provided. However, in practical scenario the corresponding figures would need to be given.
Question 3 –
An entity uses the weighted average cost formula to assign costs to inventories and cost of goods sold for financial reporting purposes, but the reports provided to the chief operating decision maker use the First-In, First-Out (FIFO) method for evaluating the performance of segment operations. Which cost formula should be used for Ind AS 108 disclosure purposes?
The entity should use First-In, First-Out (FIFO) method for its Ind AS 108 disclosures, even though it uses the weighted average cost formula for measuring inventories for inclusion in its financial statements. Where chief operating decision maker uses only one measure of segment asset, same measure should be used to report segment information. Accordingly, in the given case, the method used in preparing the financial information for the chief operating decision maker should be used for reporting under Ind AS 108.
However, reconciliation between the segment results and results as per financial statements needs to be given by the entity in its segment report.
Question 4 –
X Ltd. has identified the following business components.
|Segment||Revenue (Rs.)||Profit (Rs.)||Assets (Rs.)|
|Total for the entity||1,08,00,000||45,00,000||30,00,000||90,00,000|
Which of the segments would be reportable as per the criteria prescribed in Ind AS 108?
Quantitative thresholds are calculated below:
|% segment sales to total sales
% segment profit to total profits
% segment assets to total assets
Segment Pharma would separately reportable since they meet all three size criteria, though any one criteria is required. FMCG segment does not satisfy the revenue and profit test but does satisfy the asset test. So it would be separately reportable. Ayurveda segment does not meet any threshold. It may not be classified as reportable segment.
An entity may combine information about operating segments that do not meet the quantitative thresholds with information about other operating segments that do not meet the quantitative thresholds to produce a reportable segment only if the operating segments have similar economic characteristics and share a majority of the aggregation criteria.
If the total external revenue reported by operating segments constitutes less than 75% of the entity’s revenue, additional operating segments should be identified as reportable segments (even if they do not meet the criteria) until at least 75% of the entity’s revenue is included in reportable segments.
Question 5 –
ABC Limited has 5 operating segments namely A, B, C, D and E. The profit/ loss of respective segments for the year ended March 31, 20X1 are as follows:
|Segment||Profit/(Loss) (Rs. in crore)|
Based on the quantitative thresholds, which of the above segments A to E would be considered as reportable segments for the year ending March 31, 20X1?
With regard to quantitative thresholds to determine reportable segment relevant in context of instant case, paragraph 13(b) of Ind AS 108 may be noted which provides as follows:
“The absolute amount of its reported profit or loss is 10 per cent o r more of the greater, in absolute amount, of (i) the combined reported profit of all operating segments that did not report a loss and (ii) the combined reported loss of all operating segments that reported a loss.”
In compliance with Ind AS 108, the segment profit/loss of respective segment will be compared with the greater of the following:
- All segments in profit, i.e., A, B and E – Total profit Rs. 8,280 crores.
- All segments in loss, i.e., C and D – Total loss Rs. 6,800 crores.
Greater of the above – Rs. 8,280 crores.
Based on the above, reportable segments will be determined as follows:
(Rs. in crore)
|As absolute % of Rs. 8,280 crore||Reportable segment|
Hence B, C, D, E are reportable segments.