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CA Final FR Ind AS 108 Operating Segments Important Solved Questions

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)

Segments External

Sale

Tax Other Operating

Income

Result Assets Liabilities
Crushing 1,00,000 2,500 20,000 5,000 25,000 15,000
Refining 35,000 1,500 7,500 2,000 15,000 5,000

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?

Solutions –

Segment revenues, results and other information

(Rs. in lakh)

Revenue Coating Others Total
1. External sales (gross) 1,00,000 35,000 1,35,000
Tax   (2,500) (1,500)   (4,000)
External sales (net) 97,500 33,500 1,31,000
Other operating income   20,000   7,500   27,500
Total Revenue 1,17,500 41,000 1,58,500
2. Results
Segment results 5,000 2,000 7,000
Unallocated income (net of unallocated expenses)  

1,500

Profit from operation before interest, taxation and exceptional items  

8,500

Interest and bank charges (1,000)
Profit before exceptional items 7,500
Exceptional items      Nil
Profit before taxation 7,500
Less: Income Taxes
Current taxes (975)
Deferred taxes     (25)
Profit after taxation  6,500
3. Other Information
(a) Assets
Segment Assets 25,000 15,000 40,000
Investments 5,000
Unallocated assets   5,000
Total Assets 50,000
(b) Liabilities/Shareholder’s funds
Segment liabilities 15,000 5,000 20,000
Unallocated liabilities 10,000
Share capital 5,000
Reserves and surplus 15,000
Total liabilities / shareholder’s funds 50,000
(c) Others
Capital Expenditure 2,500 1,000 3,500
Depreciation 500 150 650

Geographical Information

(Rs. in lakh)

India Outside India Total
Revenue 1,43,500 15,000 1,58,500
Segment assets 35,000 5,000 40,000
Capital expenditure 3,500 3,500

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

 income

Result Asset Liabilities
Coating 2,00,000 5,000 40,000 10,000 50,000 30,000
Others 70,000 3,000 15,000 4,000 30,000 10,000

Additional information:

  1. Unallocated revenue net of expenses is Rs. 30,00,00,000
  2. Interest and bank charges is Rs. 20,00,00,000
  3. Income tax expenses is Rs. 20,00,00,000 (current tax Rs. 19,50,00,000 and deferred tax Rs. 50,00,000)
  4. Investments Rs. 1,00,00,00,000 and unallocated assets Rs. 1,00,00,00,000.
  5. 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.
  6. Depreciation amounts for coating & others are Rs. 10,00,00,000 and Rs. 3,00,00,000 respectively.
  7. Capital expenditure for coating and others are Rs. 50,00,00,000 and Rs. 20,00,00,000 respectively.
  8. 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?

Solution –

Segment information

(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)

Revenue Coating Others Total
1. External sales (gross) 2,00,000 70,000 2,70,000
Tax (5,000) (3,000) (8,000)
External sales (net) 1,95,000 67,000 2,62,000
Other operating income   40,000 15,000   55,000
Total Revenue 2,35,000 82,000 3,17,000
2. Results
Segment results 10,000 4,000 14,000
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
Exceptional items             Nil
Profit before taxation 15,000
Income Taxes

-Current taxes

 

1,950

-Deferred taxes     (50)
Profit after taxation 13,000
3. Other Information
(a) Assets
Segment Assets 50,000 30,000 80,000
Investments 10,000
Unallocated assets   10,000
Total Assets 1,00,000
(b) Liabilities/Shareholder’s funds
Segment liabilities 30,000 10,000 40,000
Unallocated liabilities 20,000
Share capital 10,000
Reserves and surplus   30,000
Total liabilities/shareholder’s funds 1,00,000
(c) Others
Capital Expenditure 5,000 2,000
Depreciation 1,000 300
Geographical Information (Rs. in lakhs)
India

(Rs.)

Outside India

(Rs.)

Total

(Rs.)

Revenue 2,87,000 30,000 3,17,000
Segment assets 70,000 10,000 80,000
Capital expenditure 7,000 7,000

Notes:

(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?

Solution –

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.)
External Internal
Pharma 97,00,000 Nil 20,00,000 55,00,000
FMCG Nil 4,00,000 2,50,000 25,00,000
Ayurveda 3,00,000 Nil 2,00,000 4,00,000
Others 8,00,000 41,00,000 5,50,000 6,00,000
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?

Solution

Quantitative thresholds are calculated below:

Segments Pharma FMCG Ayurveda Others
% segment sales to total sales

% segment profit to total profits

% segment assets to total assets

63.40

66.67

61.11

2.61

8.33

27.78

1.96

6.67

4.44

32.03

18.33

6.67

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)
A 780
B 1,500
C (2,300)
D (4,500)
E    6,000
Total    1,480

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?

Solutions –

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:

  1. All segments in profit, i.e., A, B and E – Total profit Rs. 8,280 crores.
  2. 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:

Segment Profit/(Loss)
(Rs. in crore)
As absolute % of Rs. 8,280 crore Reportable segment
A 780 9% No
B 1,500 18% Yes
C (2,300) 28% Yes
D (4,500) 54% Yes
E 6,000 72% Yes
Total 1,480

Hence B, C, D, E are reportable segments.

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