Ind AS 108: Identifying Operating Segments & Disclosure Checklist

Segment reporting often feels abstract to CA students—rows of numbers in financial statements that seem disconnected from real business logic. But Ind AS 108 is actually a window into how you would explain a company's internal geography to an investor. Let me walk you through the framework step by step.

What Is an Operating Segment?

An operating segment is not just any business unit. Under Ind AS 108, it is a component of an entity that:

  • Engages in business activities from which it may earn revenue and incur expenses
  • Results in operating profit or loss that is regularly reviewed by the chief operating decision maker (CODM)
  • Has discrete financial information available for assessment of performance

The key word here is CODM—usually the Chief Executive Officer or Managing Director. If the CODM reviews it and makes decisions on resource allocation based on it, it is likely an operating segment.

CODM: The True North Compass

Forget the organisational chart. The CODM's perspective determines segments, not the company's hierarchy. Suppose a large conglomerate has a Textiles Division under one CEO but that CEO never separately reviews its P&L—instead, the Group CFO reviews a consolidated textile report. Then the CODM for segment purposes may be the Group, not the Division CEO.

In your exam answers, always ask: Who makes resource allocation decisions based on which information? That answer points you to segments.

Identifying Segments Step by Step

Step 1: List all components the CODM reviews.

  • Manufacturing divisions
  • Geographic regions
  • Customer groups
  • Product lines
  • Distribution channels

Any component on the CODM's dashboard is a candidate segment.

Step 2: Check if each has discrete financial information.

  • Can you pull revenue, operating costs, and profit for it independently?
  • If yes, proceed. If no, it may not be a segment.

Step 3: Verify the CODM regularly reviews it.

  • Is it in board presentations?
  • Does the CODM allocate budgets and capital to it?
  • Are performance metrics tracked?

If yes to all three, it is an operating segment.

Reportable Segments: The Quantitative Test

Not every operating segment must be reported separately. Ind AS 108 sets quantitative thresholds:

A segment is reportable if it meets any one of these tests:

Revenue Threshold

The segment's revenue (including inter-segment sales) is ≥10% of the combined revenue of all operating segments.

Example:

  • Total operating segment revenue = ₹1,000 crore
  • 10% threshold = ₹100 crore
  • If a segment has ₹110 crore revenue, report it.

Profit or Loss Threshold

The absolute profit or loss is ≥10% of the greater of:

  • Total profit of all profitable segments, OR
  • Total loss of all loss-making segments

Example:

  • Profitable segments: ₹100 crore + ₹80 crore = ₹180 crore profit
  • Loss-making segments: ₹30 crore loss
  • The greater is ₹180 crore
  • 10% of ₹180 crore = ₹18 crore
  • A segment with ₹19 crore profit is reportable.

Assets Threshold

The segment's assets are ≥10% of combined assets of all operating segments.

Example:

  • Total operating segment assets = ₹500 crore
  • 10% threshold = ₹50 crore
  • A segment with ₹55 crore assets is reportable.

The "More Than 75%" Rule

If your reportable segments (after the quantitative test) cover revenue equal to <75% of total entity revenue, you must include additional segments until you reach ≥75%. This prevents entities from hiding material revenue in non-reported segments.

Worked Example:

  • Entity total revenue = ₹1,000 crore
  • 75% threshold = ₹750 crore
  • After quantitative test, reportable segments = ₹700 crore revenue
  • Shortfall = ₹50 crore
  • The next largest non-reportable segment must be included if it helps bridge the gap.

The Disclosure Checklist

Once you have identified operating and reportable segments, prepare disclosures:

General Information

  • [ ] How the entity identifies its operating segments
  • [ ] Types of products/services in each segment
  • [ ] How the CODM allocates resources
  • [ ] Accounting policies for segment reporting

Segment Financial Information

For each reportable segment, disclose:

  • [ ] Revenue (external and inter-segment, separately)
  • [ ] Operating profit or loss
  • [ ] Total assets
  • [ ] Total liabilities
  • [ ] Capital expenditure
  • [ ] Depreciation and amortisation
  • [ ] Other material non-cash items (if regularly reviewed by CODM)

Reconciliation

  • [ ] Reconcile segment revenue to total entity revenue
  • [ ] Reconcile segment profit to profit before tax
  • [ ] Reconcile segment assets to total assets
  • [ ] Reconcile segment liabilities to total liabilities

Reconciliation is crucial—it bridges the gap between segment totals and consolidated financial statements. Examiners love testing this.

Entity-Wide Disclosures

  • [ ] Revenue from external customers by geography (if not already disclosed by segment)
  • [ ] Revenue from major customers (≥10% of entity revenue)
  • [ ] Asset information by geography (if not already disclosed by segment)

Common Exam Pitfalls

1. Confusing operating segment with reportable segment. There may be 12 operating segments but only 4 reportable ones.

2. Forgetting inter-segment revenue. When testing the 10% revenue threshold, include both external and internal sales.

3. Misapplying the profit threshold. Remember: it is 10% of the greater of all profits or all losses, not the net profit.

4. Skipping reconciliation. Always show how segment totals bridge to the financial statements.

5. Ignoring the 75% rule. If reported revenue is <75% of total, you must add more segments.

Quick Summary

Segment identification flows from the CODM's perspective. Apply quantitative thresholds fairly. Disclose all required information. Reconcile to the financial statements. That is the backbone of Ind AS 108.

The standard is not about complexity—it is about transparency. Investors need to see the company the way management sees it.

FAQs

Q: Can a segment fail all three quantitative tests but still be reportable? A: Yes. If reported segments cover <75% of entity revenue, you must include additional segments until you reach ≥75%, even if they fail the 10% tests. These are called "add-back" segments.

Q: Is inter-segment revenue included in the revenue threshold test? A: Yes. Ind AS 108 requires that when testing the 10% revenue threshold, you include both external revenue and inter-segment (transfer) revenue.

Q: What if the CODM reviews a component but profit is not separately tracked? A: It is unlikely to qualify as an operating segment because discrete financial information is not available. You may need to combine it with another segment until reliable segment profit can be isolated.

---

Segment reporting rewards clear thinking and methodical work. Use the free day-by-day study planner to block time for working through practice cases. Then test yourself with real scenario-based questions on the free case-scenario practice platform. The more you apply the framework to messy, real-world scenarios, the faster the concepts stick.