AS 17 Segment Reporting

MAY 2020
Q1. THE CHIEF ACCOUNTANT OF COTTON GARMENTS LIMITED GIVES THE
FOLLOWING DATA REGARDING ITS FIVE SEGMENTS: (` in Crore)
Particulars A B C D E Total
Segment Assets 40 15 10 10 5 80
Segment Results (95) 5 5 (5) 15 (75)
Segment Revenue 310 40 30 40 30 450

The Chief Accountant is of the opinion that segment "A" alone should be reported. Is he justified in his
view? Examine his opinion in the light of provisions of AS 17 'Segment Reporting'.
SOLUTION:
1. (a) As per AS 17 ‘Segment Reporting’, a business segment or geographical segment
should be identified as a reportable segment if:
(i) 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
(ii) Its segment result whether profit or loss is 10% or more of:
(1) The combined result of all segments in profit; or
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.
Further, 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 at least
75% of total enterprise revenue is included in reportable segments.
Accordingly,
(a) On the basis of revenue from sales criteria, segment A is a reportable segment.
(b) On the basis of the result criteria, segments A & E are reportable segments
(since their results in absolute amount is 10% or more of ` 100 crore).
(c) On the basis of asset criteria, all segments except E are reportable segments.
Since all the segments are covered in atleast one of the above criteria, all segments
have to be reported upon in accordance with AS 17.
Hence, the opinion of chief accountant that only segment ‘A’ is reportable is wrong.

NOV 2019
 Q 2. A COMPANY HAS AN INTER-SEGMENT TRANSFER PRICING POLICY OF CHARGING
AT COST LESS 5%. THE MARKET PRICES ARE GENERALLY 20% ABOVE COST.YOU
ARE REQUIRED TO EXAMINE WHETHER THE POLICY ADOPTED BY THE COMPANY IS
CORRECT OR NOT?
SOLUTION :
AS 17 ‘Segment Reporting’ requires that inter-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.

MAY 2019

Q3. (A) 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 COMPANY’S SALES. 25 PER CENT IS SOLD IN USA AND THE BALANCE
IS SOLD IN UK. 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?

SOLUTION :

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.
Accordingly, 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.

Nov 2018
Q4. 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 (allocated in 5 1,10,000
: 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 (allocated in 77,000
5 : 4 : 2 basis)
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

SOLUTION: Calculation 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 (allocated in 5 : 4 : 50,000 40,000 20,000 1,10,000
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 as per AS 17 (A)
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 : 35,000 28,000 14,000 77,000
4 : 2 basis)
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 as per AS 17 (B)

4,16,000 2,36,000 2,01,000 8,53,000
Segment result (A-B) 2,44,000 1,79,000 69,000 4,92,000

MAY 2018

Q5.A COMPANY HAS AN INTER-SEGMENT TRANSFER PRICING POLICY OF CHARGING AT

COST LESS 5%. THE MARKET PRICES ARE GENERALLY 20% ABOVE COST.
YOU ARE REQUIRED TO EXAMINE WHETHER THE POLICY ADOPTED BY THE
COMPANY IS CORRECT OR NOT?

SOLUTION :

AS 17 ‘Segment Reporting’ requires that inter-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.
NOV 20

Q.NO 6
A Company has an inter-segment transfer pricing policy of charging at cost less 5%. The market prices
are generally 20% above cost. You are required to examine whether the policy adopted by the company
for pricing inter-segment transfers at reduced prices is correct or not in line with the provisions of AS 17?

SOLUTION
AS 17 ‘Segment Reporting’ requires that inter-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.