CHAPTER

6
Accounting Standard 17 Segment Reporting
Question 1
The Chief Accountant of Sports Ltd. gives the following data regarding its six segments:
in lakhs
Particulars M N O P Q R Total
Segment Assets 40 80 30 20 20 10 200
Segment Results 50 (190) 10 10 (10) 30 (100)
Segment Revenue 300 620 80 60 80 60 1,200

his view? Discuss.

(Source: Illustration 1, Study Material)
Answer

reportable segment if:

Its revenue from sales to external customers and from other transactions with other segments is 10% or more
of the total revenue- external and internal of all segments; or
Its segment result whether profit or loss is 10% or more of:
The combined result of all segments in profit; or
The combined result of all segments in loss, whichever is greater in absolute amount; or
Its segment assets are 10% or more of the total assets of all segments.
If the total external revenue attributable to reportable segments constitutes less than 75% of total enterprise
revenue, additional segments should be identified as reportable segments even if they do not meet the 10%
thresholds until atleast 75% of total enterprise revenue is included in reportable segments.
On the basis of turnover criteria segments M and N are reportable segments.
On the basis of the result criteria, segments M, N and R are reportable segments (since their results in
absolute amount is 10% or more of`200 lakhs).
On the basis of asset criteria, all segments except R are reportable segments.
Since all the segments are covered in at least one of the above criteria, all segments have to be reported in
accordance with Accounting Standard (AS) 17. Hence the opinion of chief accountant is wrong.
Question 2
A Company has an inter-segment transfer pricing policy of charging at cost less 10%. The market prices are
generally 25% above cost. Is the policy adopted by the company correct?
(Source: Illustration 2, Study Material)
Answer
-segment transfers should be measured on the basis that the
enterprise actually used to price these transfers. The basis of pricing inter-segment transfers and any change
therein should be disclosed in the financial statements. Hence the enterprise can have its own policy for
pricing inter-segment transfers and hence inter-segment transfers may be based on cost, below cost or
6.2 Accounting Standard 17 Segment Reporting Chap. 6
market price. However, whichever policy is followed, the same should be disclosed and applied consistently.
Therefore, in the given case inter-segment transfer pricing policy adopted by the company is correct if,
followed consistently.
Question 3
M/s XYZ Ltd. has three segments namely X, Y, Z. The total Assets of the Company are 10.00 crores.
Segment X has 2.00 crores, segment Y has 3.00 crores and segment Z has 5.00 crores. Deferred tax
assets included in the assets of each segments are X 0.50 crores, Y 0.40 crores and Z 0.30 crores.
The accountant contends that all the three segments are reportable segments. Comment.
(Source: Illustration 3, Study Material)
Answer

revised total assets are `8.8 crores [`10 crores (`0.5 + `0.4 +`0.3)]. Segment X holds total assets of `1.5
crores (`2 crores `0.5 crores); Segment Y holds `2.6 crores (`3 crores `0.4 crores); and Segment Z holds
`4.7 crores (`5 crores `0.3 crores). Thus all the three segments hold more than 10% of the total assets, all
segments are reportable segments.
Question 4

three divisions and the head office:

Forging Shop Division

Sales to Bright Bar Division 4,575
Other Domestic Sales 90
Export Sales 6,135
Bright Bar Division 10,800
Sales to Fitting Division 45
Export Sales to Rwanda 300
Fitting Division 345
Export Sales to Maldives 270

Particulars Head Office Forging Bright Bar Fitting

` Shop Division Division Division
` ` `

Pre-tax operating result 240 30 (12)

Head office cost reallocated 72 36 36
Interest costs 6 8 2
Fixed assets 75 300 60 180
Net current assets 72 180 60 135
Long-term liabilities 57 30 15 180
(Source: Illustration 4, Study Material)
Chap. 6 Accounting Standard 17 Segment Reporting 6.3
Answer
Diversifiers Ltd. Segmental Report
(
Divisions Inter Segment Consolidated
Particulars Eliminations Total
Forging Bright Fitting
shop Bar
Segment Revenue
Sales:
Domestic 90 90
Export 6,135 300 270 6,705
External Sales 6,225 300 270 6,795
Inter-Segment Sales 4,575 45 4,620
Total Revenue 10,800 345 270 4,620 6,795
Segment Result (Given) 240 30 (12) 258
Head Office Expenses (144)
Operating Profit 114
Interest Expense (16)
Profit Before Tax 98
Information in Relation
to Assets and Liabilities:
Fixed Assets 300 60 180 540
Net Current Assets 180 60 135 375
Segment assets 480 120 315 915
Unallocated Corporate
Assets (75 + 72) 147
Total assets 1,062
Segment liabilities 30 15 180 225
Unallocated corporate 57
liabilities
Total liabilities 282
Sales Revenue by Geographical Market
(`
Home Export Sales (by Export to Export to Consolidated
Sales forging shop Rwanda Maldives Total
division)
External sales 90 6,135 300 270 6,795
Question 5
Microtech Ltd. produces batteries for scooters, cars, trucks, and specialised batteries for invertors and UPS.
How many segments should it have and why?
(Source: Illustration 5, Study Material)
6.4 Accounting Standard 17 Segment Reporting Chap. 6
Answer
In case of Microtech Ltd., the basic product is the batteries, but the risks and returns of the batteries for
automobiles (scooters, cars and trucks) and batteries for invertors and UPS are affected by different set of
factors. In case of automobile batteries, the risks and returns are affected by the Government policy, road
conditions, quality of automobiles, etc. whereas in case of batteries for invertors and UPS, the risks and
returns are affected by power condition, standard of living, etc. Therefore, it can be said that Microtech Ltd.
has two business segments viz-
Reference: The students are advised to ref
Question 6
Nathan Limited has three segments namely P, Q and R. The assets of the company are 15 crores. Segment
P has 4 crores, Segment Q has 6 crores and Segment R has 5 crores. Deferred tax assets included in the
assets of each segment are P - 1 crore, Q - 0.90 crores and R - 0.80 crores. The accountant contends all
these three segments are reportable segments. Comment.
(Source: Question 6, Study Material)
Answer
According to AS 17 "Segment Reporting", segment assets do not include income tax assets.
Therefore, the revised total assets are 12.3 crores [`15 - (`1 +0.9 + 0.8).
Details of Segment wise assets:
Segment P holds total assets of `3 crores (`4 crores - `1 crores); Segment Q holds `5.1 crores (`6 crores -
`0.9 crores);
Segment R holds `4.2 crores (`5 crores - `0.8 crores).
Thus, all the three segments hold more than 10% of the total assets, all segments are reportable segments.
Hence, the contention of the Accountant that all three segments are reportable segments is correct.
Question 7
Company A is engaged in the manufacture and sale of products, which constitute two distinct business
segments. The products of the Company are sold in the domestic market only. The management information
system of the Company is organized to reflect operating information by two broad market segments, rural and
urban.
Besides the two business segments, how should Company A identify geographical segments? Do
geographical segments exist within the same country? Explain in line with the provisions of AS 17.
(Source: Question 7, Study Material)
Answer

with significantly differing risks and returns. A geographical segment may be a single country, a group of two

Accordingly, to identity geographical segments, Company A needs to evaluate whether the segments
reflected in the management information system function in environments that are subject to significantly
differing risks and returns irrespective of the fact whether they are within the same country.

rdingly, while the management information system of the Company

provides segment information for rural and urban geographical segments for the purpose of internal reporting,
judgement is required to determine whether these segments are subject to significantly differing risks and
returns based on the definition of geographical segment. In making such a judgement, aspect like different
pricing and other policies, e.g., credit policies, deployment of resources between different regions etc., may
be considered
Company A, in making judgment for identifying geographical segments, should also consider the relevance,
reliability and comparability over time of segment information that will be reported. The Standard, explains

information by segment as set forth in the standard and the qualitative characteristics of financial statements.
The qualitative characteristics include the relevance, reliability and comparability over time of financial
information that is reported about the different groups of products and services of an enterprise and about its
operations in particular geographical areas, and the usefulness of that information for assessing the risks and
Chap. 6 Accounting Standard 17 Segment Reporting 6.5

Question 8
PK Ltd. has identified business segment as its primary reporting format. It has identified India, USA and UK
as three geographical segments. It sells its products in the Indian market, which constitutes 70 percent of the

Is PK Ltd. as part of its geographical secondary segment information, required to disclose segment revenue
from export sales, where such sales are not significant?
(Source: Question 8, Study Material)
Answer
As per AS 17, if primary format of an enterprise for reporting segment information is business segments, it
should also report 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.
Therefore, for the purposes of disclosing secondary segment information, PK Ltd. is not required to disclose
segment revenue from export sales to UK, since that segment does not meet the 10 per cent or more of
enterprise revenue threshold. However, other secondary segment information as per AS 17 should be
disclosed in respect of this segment if the thresholds prescribed in the AS 17 are met.
Question 9
XYZ Ltd. has 5 business segments. Profit / Loss of each of the segments for the year ended 31st March,
20X2 have been provided below. You are required to identify from the following whether reportable segments
or not reportable segments, on the basis of "profitability test" as per AS-17.
Segment Profit (Loss) in lakhs
A 225
B 25
C (175)
D (20)
E (105)
(Source: Question 9, Study Material)
Answer
As per AS
reportable segment if:
Its segment results whether profit or loss is 10% or more of:
The combined result of all segments in profit; i.e. `250 Lakhs or
The combined result of all segments in loss; i.e. `300 Lakhs whichever is greater in absolute amount
i.e. `300 Lakhs.
Operating Absolute amount of Profit or Loss Reportable Segment Yes or No
Segment (`In lakhs)
A 225 Yes
B 25 No
C 175 Yes
D 20 No
E 105 Yes
On the basis of the profitability test (result criteria), segments A, C and E are reportable segments (since their
results in absolute amount is 10% or more of`300 lakhs i.e. 30 lakhs).
6.6 Accounting Standard 17 Segment Reporting Chap. 6

Question 10
ABC Limited has 5 segments namely A, B, C, D and E. The profit/loss of each segment for the year ended
March 31st, 20X2 is as follows:
Segment Profit/(Loss)
( in crore)
A 780
B 1,500
C (2,300)
D (4,500)
E 6,000
Total 1,480
Identify the Reportable segments.
(Source: Question 10, Study Material)
Answer
In compliance with AS 17, the segment profit/loss of respective segment will be compared with the greater of
the following:
(i) All segments in profit, i.e., A, B and E - Total profit `8,280 crores.
(ii) All segments in loss, i.e., C and D - Total loss `6,800 crores.
Greater of the above - `8,280 crores.
Based on the above, reportable segments will be determined as follows:
Segment Profit/(Loss) Absolute Profit/Loss as Reportable Segment
a % of 8,280
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

Question 11
Heavy Goods Ltd. has 6 segments namely L-Q (below).
The total revenues (internal and external), profits or losses and assets are set out below:
(In )
Segment Inter Segment Sales External Profit / loss Total
Sales assets
L 4,200 12,300 3,000 37,500
M 3,500 7,750 1,500 23,250
N 1,000 3,500 (1,500) 15,750
0 0 5,250 (750) 10,500
P 500 5,500 900 10,500
Q 1,200 1,050 600 5,250
10,400 35,350 3,750 1,02,750
Chap. 6 Accounting Standard 17 Segment Reporting 6.7
Heavy Goods Ltd. needs to determine how many reportable segments it has.
You are required to advice Heavy Goods Ltd. as per the criteria defined in AS 17.
(Source: Question 11, Study Material)
Answer
Quantitative Threshold Test:
Revenue Test:
Combined total sales of all the segment = `10,400 + `35,350 = `45,750.
10% thresholds = 45,750 x 10% = 4,575.
Profitability Test:
In the given situation, combined reported profit = `6,000 and combined reported loss (`2,250). Hence, for
10% thresholds `6,000 will be considered.
10% thresholds = `6,000 x 10% = `600
Asset Test:
Combined total assets of all the segment = `1,02,750 10% thresholds = `1,02,750 x 10% = 10,275
Accordingly, quantitative thresholds are calculated below:
Segments L M N O P Q Reportable
segments
% segment sales to 36.66% 24.59% 9.84% 11.48% 13.11% 4.92% L, M,O,P
total sales
% segment profit to 50% 25% 25% 12.5% 15% 10% L,M,N,O,P,Q
total profits
% segment assets 36.50% 22.63% 15.33% 10.22% 10.22% 5.11% L,M,N,O,P
to total assets
Conclusion:
Segments L, M, O and P clearly satisfy the revenue and assets tests and they are separate reportable
segments.
Segment N does not satisfy the revenue test, but it does satisfy the asset test and it is a reportable segment.
Segment Q does not satisfy the revenue or the assets test but is does satisfy the profits test. Therefore,
Segment Q is also a reportable segment.
Hence all segments i.e. L, M, N, O, P and Q are reportable segments.
Question 12
Calculate the segment results of a manufacturing organization from the following information:
Segments A B C Total
Directly attributed revenue 5,00,000 3,00,000 1,00,000 9,00,000
Enterprise revenue 1,10,000
(allocated in 5 :4 : 2 basis)
Revenue from transactions with
other segments
Transaction from B 1,00,000 50,000 1,50,000
Transaction from C 10,000 50,000 60,000
Transaction from A 25,000 1,00,000 1,25,000
Operating expenses 3,00,000 1,50,000 75,000 5,25,000
Enterprise expenses 77,000
(allocated in 5 :4 :2 basis)
6.8 Accounting Standard 17 Segment Reporting Chap. 6

Segments A B C Total
Expenses on transactions with other
segments
Transaction from B 75,000 30,000
Transaction from C 6,000 40,000
Transaction from A 18,000 82,000
(Source: Question 12, Study Material)
Computation of segment result:
Segments A B C Total
` ` ` `
Directly attributed revenue 5,00,000 3,00,000 1,00,000 9,00,000
Enterprise revenue 50,000 40,000 20,000 1,10,000
(allocated in 5 :4 :2 basis)
Revenue from transactions with other
segments
Transaction from B 1,00,000 50,000 1,50,000
Transaction from C 10,000 50,000 60,000
Transaction from A 25,000 1,00,000 1,25,000
Total segment revenue (1) 6,60,000 4,15,000 2.70,000 13,45,000
Operating expenses 3,00,000 1,50,000 75,000 5,25,000
Enterprise expenses (allocated in 5 :4 :2 basis) 35,000 28,000 14,000 77,000
Expenses on transactions with other segments
Transaction from B 75,000 30,000 1,05,000
Transaction from C 6,000 40,000 46,000
Transaction from A 18,000 82,000 1,00,000
Total segment expenses (2) 4,16,000 2,36,000 2,01,000 8,53,000
Segment result (1-2) 2,44,000 1,79,000 69,000 4,92,000
Chap. 6 Accounting Standard 17 Segment Reporting 6.9

QUESTION BANK
Question 13
(a) Company A is engaged in the manufacture of chemicals. The company manufactures five types of chemicals that
have different applications. Can this company include more than one type of chemical in a single business segment?
Comment.
(b) Is an enterprise required to disclose changes in the basis of allocation of revenue and expenses to segments?
Explain.
(RTP November 2021)
Answer
(a)
individual product or service or a group of related products of 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:
(a) the nature of the products of services;
(b) the nature of the productions processes;
(c) the type of class of customers for the products or services;
(d) the methods use to distribute the products or provide the services; and
(e) if applicable, the nature of the regulatory environment,
As per provisions of the standard, a single business segment does not include products and services with
significantly differing risks and returns. Products and services included in a single business segment may be
dissimilar with respect to one or several factors listed above but are expected to be similar with respect to majority of
the factors.
In the present case, the Company should consider whether the chemicals with different applications, have similar
risks end returns. For this purpose, the Company should ascertain whether one or more types of chemicals are
related keeping in view the relevant factors including those given in the definition of business segment. Chemicals
having different applications can be included in a single business segment if majority of the relevant factors including
those listed above are similar. This would ensure that the chemicals having significantly different risks and returns are
not included in a single business segment.
(b)
information should be disclosed. Such disclosure should include a description of the nature of the change, and the
financial effec
relate specifically to segment reporting. Examples include changes in identification of segments and changes in the
basis for allocating revenues and expenses to segments. Such changes can have a significant impact on the
segment information reported but will not change aggregate financial information reported for the enterprise. To
enable users to understand and impact of such changes, this Statement requires the disclosure of the nature of

In view of the above, a change in the basis of allocation of revenue and expenses to segments is a change in the
accounting policy adopted for segment reporting. Accordingly, if the change has a material financial effect on the segment
information, a description of the nature of the change, and the financial effect of the change, if it is reasonably
determinable, should be disclosed.
Question 14
A Company has an inter-segment transfer pricing policy of charging at cost less 10%. The market prices are generally
25% above cost. Is the policy adopted by the company correct?
(RTP November, 2022)
Answer
-segment transfers should be measured on the basis that the enterprise
actually used to price these transfers. The basis of pricing inter-segment transfers and any change therein should be
disclosed in the financial statements. Hence, the enterprise can have its own policy for pricing inter-segment transfers and
hence, inter-segment transfers may be based on cost, below cost or market price. However, whichever policy is followed,
the same should be disclosed and applied consistently. Therefore, in the given case inter-segment transfer pricing policy
adopted by the company is correct if, followed consistently.
Question 15
The Senior Accountant of AMF Ltd. gives the following data regarding its five segments:
( in lakhs)
Particulars P Q R S T Total
(`) (`) (`) (`) (`) (`)
Segment Assets 80 30 20 20 10 160
Segment Results (190) 10 10 (10) 30 (150)
Segment Revenue 620 80 60 80 60 900
6.10 Accounting Standard 17 Segment Reporting Chap. 6
The Senior Accountant is of the opinion that segment "P" alone should be reported. Is he justified in his view? Examine
his opinion in the light of provision of AS-17 'Segment Reporting'.
(RTP May, 2023)
Answer

segment if:
(i) Its revenue from sales to external customers and from other transactions with o ther segments is 10% or more of the
total revenue- external and internal of all segments; or
(ii) Its segment result whether profit or loss is 10% or more of:
(1) The combined result of all segments in profit; or
(2) The combined result of all segments in loss, whichever is greater in absolute amount; or
(iii) Its segment assets are 10% or more of the total assets of all segments.
Accordingly,
(a) On the basis of revenue from sales criteria, segment P is a reportable segment.
(b) On the basis of the result criteria, segments P & T are reportable segments (since their results in absolute
amount is 10% or more of ` 200 Lakhs).
(c) On the basis of asset criteria, all segments except T are reportable segments.
Since all the segments are covered in at least one of the above criteria, all segments have to be reported upon in

Question 16
The Accountant of X. Ltd. provides the following data regarding its five segments:
Particulars A B C D E Total (`in Crore)
Segment Assets 50 20 15 10 5 100
Segment Results (85) 10 10 (15) 5 (75)
Segment Revenue 250 50 40 60 30 430
The accountant is of the opinion that segment 'A' alone should be reported,
Is he justified in his view ? Examine his opmion in the light' of provisions of AS-17 Segment Reporting.
(G-II, May, 2023) (5 Marks)