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.

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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.

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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.

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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.

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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.