Page 119 - DCOM409_CONTEMPORARY_ACCOUNTING

Contemporary Accounting

Notes report will contain information as to the sales, costs, assets and liabilities pertaining to that
segment. The important aspect is that segmental transfers are to be priced fairly and disclosed.
There is also another accounting standard (AS21) which makes its compulsory to present
consolidated financial data of holding company and its subsidiaries. It is expected that the
disclosures, under the accounting standard would help the users of the data to have a holistic
assessment of the risk and return of an enterprise, with multi-product line and multinational
operations.

Business and Geographical Segments

Business and geographical segments of an enterprise for external reporting purposes should be
those organisational units for which information is reported to the board of directors and to the
chief executive officer for the purpose of evaluating the unit’s performance and for making
decisions about future allocations of resources.

A business segment or geographical segment should be identified as a reportable segment if:
1. Its revenues from sales to external customers and from transactions with other segments
is 10 per cent or more of the total revenue, external and internal, of all segments; or
2. Its segment result, whether profit or loss, is 10 per cent 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
3. Its segment assets are 10 per cent or more of the total assets of all segments.

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. There is a
presumption that the accounting policies that the directors and management of an enterprise
have chosen to use in preparing the financial statements of the enterprise as a whole are those
that the directors and management believe are the most appropriate for external reporting
purposes. Since the purpose of segment information is to help users of financial statements
better understand and make more informed judgements about the enterprise as a whole, this
Standard requires the use, in preparing segment information, of the accounting policies adopted
for preparing and presenting the financial statements of the enterprise as a whole. That does not
mean, however, that the enterprise accounting policies are to be applied to reportable segments
as if the segments were separate stand-alone reporting entities. A detailed calculation done in
applying a particular accounting policy at the enterprise-wide level may be allocated to segments
if there is a reasonable basis for doing so. Pension calculations, for example, often are done for
an enterprise as a whole, but the enterprise-wide figures may be allocated to segments based on
salary and demographic data for the segments.

Notes Bases of Segmenting
The following are, generally, the bases of segmenting:
Product lines: If a company has diversified its production activities, and is
manufacturing different and distinct types of products, financial information can be
provided on the basis of product lines.
Contd...

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