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Quick Reference on Accounting Standard (AS) 17

Download Quick Reference on Accounting Standard (AS) 17 Segment Reporting

For Companies – AS 17 is not mandatory for SMCs.

For Non-companies – AS 17 is not mandatory for entities falling in Level II and Level III.

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.

An enterprise should comply with the requirements of this Standard fully and not selectively.

If a single financial report contains both consolidated financial statements and the separate financial statements of the parent, segment information needs to be presented only on the basis of the consolidated financial statements.

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.

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.

A reportable segment is a business segment or a geographical segment identified on the basis of definitions of business segment and geographical segment for which segment information is required to be disclosed by this Standard.

Identifying Reportable Segments as Primary Segment and Secondary Segment

  • If the risks and returns of an enterprise are affected predominently by the differences in the products and services, its primary segment will be business segment and geographic segment will be secondary
  • If the risks and returns of an enterprise are affected predominently by the fact that it operates in different geographical areas, its primary segment will be geographical segment and business segment will be secondary.

Criteria for identifying reportable segments 

  • Revenue Test Segment revenue >= 10% of all segment revenues
  • Result Test Segment result >= 10% of higher of segments in profit or loss
  • Assets Test Segment assets >= 10% of total assets of all segments
  • Management choice- Management may designate any segment as reportable segment despite its size even if tests are not satisfied
  • 75% Test- Is external revenue of reportable segment < 75% of enterprise revenue

Previous year’s segment information to continue in current year. If inconsistent, previous year figures to be regrouped to fall in line with current year.

In the last test (75% Test), if total external revenue attributable to reportable segments constitutes less than 75 per cent of the total enterprise revenue, additional segments should be identified as reportable segments, even if they do not meet the 10 per cent thresholds in other tests, until at least 75 per cent of total enterprise revenue is included in reportable segments.

Segment Revenue does not include:

i) Extraordinary items as defined in AS 5

ii) Interest or dividend income, including interest earned on advances or loans to other segments, unless the operations of the segment are primarily of a financial nature

iii) Gains on sales of investments or on extinguishment of debt, unless the operations of the segment are primarily of a financial nature

Segment Expense does not include: 

i) Extraordinary items as defined in AS 5

ii) Income tax expense

iii) General administrative expenses, head-office expenses and other expenses that arise at the enterprise level and related to the enterprise as a whole

iv) Interest expense, including interest incurred on advances or loans from other segments, unless the operations of the segment are primarily of a financial nature

v) Losses on sales of investments or losses on extinguishment of debt, unless the operations of the segment are primarily of a financial nature

Segment assets do not include income tax assets and segment liabilities do not include income tax liabilities.

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.
  • Disclosure of additional segment information that is prepared on a different basis is permitted provided that (a) the information is reported internally to the board of directors and the chief executive officer for the purposes of making decisions about allocating resources to the segment and assessing its performance and (b) the basis of measurement for this additional information is clearly described.
  • Assets and liabilities that relate jointly to two or more segments should be allocated to segments if, and only if, their related revenues and expenses are also allocated to those segments.

Primary Reporting Format

An enterprise should disclose the following for each reportable segment identified as primary segment:

(a) segment revenue, classified into segment revenue from sales to external customers and segment revenue from transactions with other segments;

(b) segment result;

(c) total carrying amount of segment assets;

(d) total amount of segment liabilities;

(e) 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);

(f) total amount of expense included in the segment result for depreciation and amortisation in respect of segment assets for the period; and

(g) 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.

An enterprise should present a reconciliation between the information disclosed for reportable segments and the aggregated information in the enterprise financial statements. In presenting the reconciliation:

  • segment revenue should be reconciled to enterprise revenue
  • segment result should be reconciled to enterprise net profit or loss
  • segment assets should be reconciled to enterprise assets
  • segment liabilities should be reconciled to enterprise liabilities

Secondary Segment Information

If primary format is business segment, it should also report the following information:

  • segment revenue from external customers by geographical area based on the geographical location of its customers, for each geographical segment whose revenue from sales to external customers is 10 per cent or more of enterprise revenue;
  • the total carrying amount of segment assets by geographical location of assets, for each geographical segment whose segment assets are 10 per cent or more of the total assets of all geographical segments; and
  • the 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) by geographical location of assets, for each geographical segment whose segment assets are 10 per cent or more of the total assets of all segments.

If primary format is geographical segments (whether based on location of assets or location of customers), it should also report the following segment information for each business segment whose revenue from sales to external customers is 10 per cent or more of enterprise revenue or whose segment assets are 10 per cent or more of the total assets of all business segments:

  • segment revenue from external customers;
  • the total carrying amount of segment assets; and
  • the 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).

If primary format of an enterprise for reporting segment information is geographical segments that are based on location of assets, and if the location of its customers is different from the location of its assets, then the enterprise should also report revenue from sales to external customers for each customer-based geographical segment whose revenue from sales to external customers is 10 per cent or more of enterprise revenue.

If primary format of an enterprise for reporting segment information is geographical segments that are based on location of customers, and if the assets of the enterprise are located in different geographical areas from its customers, then the enterprise should also report the following segment information for each asset-based geographical segment whose revenue from sales to external customers or segment assets are 10 per cent or more of total enterprise amounts:

  • the total carrying amount of segment assets by geographical location of the assets
  • the 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) by location of the assets.

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