PROJECT REPORT ONACCOUNTING STANDARD-17, ITS APPLICATION TO CORPORATE SECTOR

Submitted to University of MumbaiIn Partial Fulfillment Of The Requirement

For

M.Com (Accountancy) Semester IIn the subjectAdvanced Financial Accounting

By

Name of the student: -Anand Chavan Roll No. : - 14 -7273

Name and address of the collegeK. V. Pendharkar CollegeOf Arts, Science & CommerceDombivli (E), 421203

APRIL 2015

DECLARATION

I Anand Chavan Roll No. 14 7273 the student of M.Com (Accountancy) Semester I (2014), K. V. Pendharkar College, Dombivli, Affiliated to University of Mumbai, hereby declare that the project for the subject Strategic Management of Project report on ACCOUNTING STANDARD -17, ITS APPLICATION TO CORPORATE SECTOR submitted by me to University of Mumbai, for semester I examination is based on actual work carried by me.

I further state that this work is original and not submitted anywhere else for any examination.

Place : DombivliDate: Signature of the StudentAnand Chavan Roll No:- 14 -7273

ACKNOWLEDGEMENT

It is a pleasure to thank all those who made this project work possible. I Thank the Almighty God for his blessings in completing this task. The successful completion of this project is possible only due to support and cooperation of my teachers, relatives, friends and well-wishers. I would like to extend my sincere gratitude to all of them.I am highly indebted to Principal A.K.Ranade , Co-ordinator P.V.Limye , and my subject teacher ............................................................... for their encouragement, guidance and support. I also take this opportunity to express sense of gratitude to my parents for their support and co-operation in completing this project.Finally I would express my gratitude to all those who directly and indirectly helped me in completing this project.

Anand Chavan

Indian Accounting Standards(abbreviated asIndia AS) are a set of accounting standards notified by theMinistry of Corporate Affairswhich are converged withInternational Financial Reporting Standards(IFRS). These accounting standards are formulated by Accounting Standards Board ofInstitute of Chartered Accountants of India. Now India will have two sets of accounting standards viz. existing accounting standards under Companies (Accounting Standard) Rules, 2006 andIFRSconverged Indian Accounting Standards(Ind AS). The Ind AS are named and numbered in the same way as the corresponding IFRS.NACASrecommend these standards to theMinistry of Corporate Affairs. The Ministry of Corporate Affairs has to spell out the accounting standards applicable for companies in India. As on date theMinistry of Corporate Affairsnotified 35 Indian Accounting Standards(Ind AS).This shall be applied to the companies of financial year 2015-16 voluntarily and from 2016-17 on a mandatory basis. Based on the international consensus, the regulators will separately notify the date of implementation of AS Ind for the banks, insurance companies etc. Standards for the computation of Tax would be notified separately.

DEFINITION OF 'ACCOUNTING STANDARDA principle that guides and standardizes accounting practices. The Generally Accepted Accounting Principles (GAAP) are a group of accounting standards that are widely accepted as appropriate to the field of accounting. Accounting standards are necessary so that financial statements are meaningful across a wide variety of businesses; otherwise, the accounting rules of different companies would make comparative analysis almost impossible.An accounting standard is a guideline for financial accounting, such as how a firm prepares and presents its business income and expense, assets and liabilities. The Generally Accepted Accounting Principles is comprised of a large group of individual accounting standards. GAAP standards apply to financial reporting in the United States and may be eventually phased out in favor of the International Accounting Standards.

Accountingis the art of recording transactions in the best manner possible, so as to enable the reader to arrive at judgments/come to conclusions, and in this regard it is utmost necessary that there are set guidelines. These guidelines are generally called accounting policies. The intricacies of accounting policies permitted Companies to alter their accounting principles for their benefit. This made it impossible to make comparisons. In order to avoid the above and to have a harmonised accounting principle, Standards needed to be set by recognised accounting bodies. This paved the way for Accounting Standards to come into existence.Accounting Standards in India are issued By the Institute of Chartered Accountanst of India (ICAI). At present there are 30 Accounting Standards issued by ICAI.Objective of Accounting StandardsThe objective of this Statement 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. Such information helps users of financial statements:

(a) better understand the performance of the enterprise;

(b) better assess the risks and returns of the enterprise; and

(c) make more informed judgements about the enterprise as a whole.

Many enterprises provide groups of products and services or operate in geographical areas that are subject to differing rates of profitability, opportunities for growth, future prospects, and risks. Information about different types of products and services of an enterprise and its operations in different geographical areas - often called segment information - is relevant to assessing the risks and returns of a diversified or multi-locational enterprise but may not be determinable from the aggregated data. Therefore, reporting of segment information is widely regarded as necessary for meeting the needs of users of financial statements. Compliance with Accounting Standards issued by ICAISub Section(3A) to section 211 of Companies Act, 1956 requires that every Profit/Loss Account and Balance Sheet shall comply with the Accounting Standards. 'Accounting Standards' means the standard of accounting recomended by the ICAI and prescribed by the Central Government in consultation with the National Advisory Committee on Accounting Standards(NACAs) constituted under section 210(1) of companies Act, 1956.Accounting Standards Issued by the Institute of Chatered Accountants of India are as below: Disclosure of accounting policies: Valuation Of Inventories: Cash Flow Statements Contingencies and events Occurring after the Balance sheet Date Net Profit or loss For the period, Prior period items and Changes in accounting Policies. Depreciation accounting. Construction Contracts. Revenue Recognition. Accounting For Fixed Assets. The Effect of Changes In Foreign Exchange Rates. Accounting For Government Grants. Accounting For Investments. Accounting For Amalgamation. Employee Benefits. Borrowing Cost. Segment Reporting. Related Party Disclosures. Accounting For Leases. Earning Per Share. Consolidated Financial Statement. Accounting For Taxes on Income. Accounting for Investment in associates in Consolidated Financial Statement. Discontinuing Operation. Interim Financial Reporting. Intangible assets. Financial Reporting on Interest in joint Ventures. Impairment Of assets. Provisions, Contingent, liabilities and Contingent assets. Financial instrument. Financial Instrument: presentation. Financial Instruments, Disclosures and Limited revision to accounting standards.

Disclosure of Accounting Policies:Accounting Policies refer to specific accounting principles and the method of applying those principles adopted by the enterprises in preparation and presentation of the financial statements.

Valuation of Inventories:The objective of this standard is to formulate the method of computation of cost of inventories / stock, determine the value of closing stock / inventory at which the inventory is to be shown in balance sheet till it is not sold and recognized as revenue.

Cash Flow Statements:Cash flow statement is additional information to user of financial statement. This statement exhibits the flow of incoming and outgoing cash. This statement assesses the ability of the enterprise to generate cash and to utilize the cash. This statement is one of the tools for assessing the liquidity and solvency of the enterprise.

Contigencies and Events occuring after the balance sheet date:In preparing financial statement of a particular enterprise, accounting is done by following accrual basis of accounting and prudent accounting policies to calculate the profit or loss for the year and to recognize assets and liabilities in balance sheet. While following the prudent accounting policies, the provision is made for all known liabilities and losses even for those liabilities / events, which are probable. Professional judgement is required to classify the likehood of the future events occuring and, therefore, the question of contingencies and their accounting arises.Objective of this standard is to prescribe the accounting of contigencies and the events, which take place after the balance sheet date but before approval of balance sheet by Board of Directors. The Accounting Standard deals with Contingencies and Events occuring after the balance sheet date.

Net Profit or Loss for the Period, Prior Period Items and change in Accounting Policies :The objective of this accounting standard is to prescribe the criteria for certain items in the profit and loss account so that comparability of the financial statement can be enhanced. Profit and loss account being a period statement covers the items of the income and expenditure of the particular period. This accounting standard also deals with change in accounting policy, accounting estimates and extraordinary items.

Depreciation Accounting :It is a measure of wearing out, consumption or other loss of value of a depreciable asset arising from use, passage of time. Depreciation is nothing but distribution of total cost of asset over its useful life.

Construction Contracts :Accounting for long term construction contracts involves question as to when revenue should be recognized and how to measure the revenue in the books of contractor. As the period of construction contract is long, work of construction starts in one year and is completed in another year or after 4-5 years or so. Therefore question arises how the profit or loss of construction contract by contractor should be determined. There may be following two ways to determine profit or loss: On year-to-year basis based on percentage of completion or On completion of the contract.

Revenue Recognition :The standard explains as to when the revenue should be recognized in profit and loss account and also states the circumstances in which revenue recognition can be postponed. Revenue means gross inflow of cash, receivable or other consideration arising in the course of ordinary activities of an enterprise such as:- The sale of goods, Rendering of Services, and Use of enterprises resources by other yeilding interest, dividend and royalties. In other words, revenue is a charge made to customers / clients for goods supplied and services rendered.

Accounting for Fixed Assets :It is an asset, which is:- Held with intention of being used for the purpose of producing or providing goods and services. Not held for sale in the normal course of business. Expected to be used for more than one accounting period.

The Effects of changes in Foreign Exchange Rates :Effect of Changes in Foreign Exchange Rate shall be applicable in Respect of Accounting Period commencing on or after 01-04-2004 and is mandatory in nature. This accounting Standard applicable to accounting for transaction in Foreign currencies in translating in the Financial Statement Of foreign operation Integral as well as non- integral and also accounting for For forward exchange.Effect of Changes in Foreign Exchange Rate, an enterprises should disclose following aspects: Amount Exchange Difference included in Net profit or Loss; Amount accumulated in foreign exchange translation reserve; Reconciliation of opening and closing balance of Foreign Exchange translation reserve;

Accounting for Government Grants :Governement Grants are assistance by the Govt. in the form of cash or kind to an enterprise in return for past or future compliance with certain conditions. Government assistance, which cannot be valued reasonably, is excluded from Govt. grants,. Those transactions with Governement, which cannot be distinguished from the normal trading transactions of the enterprise, are not considered as Government grants.

Accounting for Investments :It is the assets held for earning income by way of dividend, interest and rentals, for capital appreciation or for other benefits.

Accounting for Amalgamation :This accounting standard deals with accounting to be made in books of Transferee company in case of amalgamtion. This accounting standard is not applicable to cases of acquisition of shares when one company acquires / purcahses the share of another company and the acquired company is not dissolved and its seperate entity continues to exist. The standard is applicable when acquired company is dissolved and seperate entity ceased exist and purchasing company continues with the business of acquired company

Employee Benefits :Accounting Standard has been revised by ICAI and is applicable in respect of accounting periods commencing on or after 1st April 2006. the scope of the accounting standard has been enlarged, to include accounting for short-term employee benefits and termination benefits.

Borrowing Costs :Enterprises are borrowing the funds to acquire, build and install the fixed assets and other assets, these assets take time to make them useable or saleable, therefore the enterprises incur the interest (cost on borrowing) to acquire and build these assets. The objective of the Accounting Standard is to prescribe the treatment of borrowing cost (interest + other cost) in accounting, whether the cost of borrowing should be included in the cost of assets or not.

Segment Reporting :An enterprise needs in multiple products/services and operates in different geographical areas. Multiple products / services and their operations in different geographical areas are exposed to different risks and returns. Information about multiple products / services and their operation in different geographical areas are called segment information. Such information is used to assess the risk and return of multiple products/services and their operation in different geographical areas. Disclosure of such information is called segment reporting.

Related PatyDisclosure :Sometimes business transactions between related parties lose the feature and character of the arms length transactions. Related party relationship affects the volume and decision of business of one enterprise for the benefit of the other enterprise. Hence disclosure of related party transaction is essential for proper understanding of financial performance and financial position of enterprise.

Accounting for leases :Lease is an arrangement by which the lesser gives the right to use an asset for given period of time to the lessee on rent. It involves two parties, a lessor and a lessee and an asset which is to be leased. The lessor who owns the asset agrees to allow the lessee to use it for a specified period of time in return of periodic rent payments.

Earning Per Share :Earning per share (EPS)is a financial ratio that gives the information regarding earning available to each equiy share. It is very important financial ratio for assessing the state of market price of share. This accounting standard gives computational methodology for the determination and presentation of earning per share, which will improve the comparison of EPS. The statement is applicable to the enterprise whose equity shares or potential equity shares are listed in stock exchange.

Consolidated Financial Statements :The objective of this statement is to present financial statements of a parent and its subsidiary (ies) as a single economic entity. In other words the holding company and its subsidiary (ies) are treated as one entity for the preparation of these consolidated financial statements. Consolidated profit/loss account and consolidated balance sheet are prepared for disclosing the total profit/loss of the group and total assets and liabilities of the group. As per this accounting standard, the conslidated balance sheet if prepared should be prepared in the manner prescribed by this statement.

Accounting for Taxes on Income :This accounting standard prescribes the accounting treatment for taxes on income. Traditionally, amount of tax payable is determined on the profit/loss computed as per income tax laws. According to this accounting standard, tax on income is determined on the principle of accrual concept. According to this concept, tax should be accounted in the period in which corresponding revenue and expenses are accounted. In simple words tax shall be accounted on accrual basis; not on liability to pay basis.

Accounting for Investments in Associates in consolidated financial statements :The accounting standard was formulated with the objective to set out the principles and procedures for recognizing the investment in associates in the cosolidated financial statements of the investor, so that the effect of investment in associates on the financial position of the group is indicated.

Discontinuing Operations :The objective of this standard is to establish principles for reporting information about discontinuing operations. This standard covers "discontinuing operations" rather than "discontinued operation". The focus of the disclosure of the Information is about the operations which the enterprise plans to discontinue rather than dsclosing on the operations which are already discontinued. However, the disclosure about discontinued operation is also covered by this standard.

Interim Financial Reporting (IFR) :Interim financial reporting is the reporting for periods of less than a year generally for a period of 3 months. As per clause 41 of listing agreement the companies are required to publish the financial results on a quarterly basis.

Intangible Assets :An Intangible Asset is an Identifiable non-monetary Asset without physical substance held for use in the production or supplying of goods or services for rentals to others or for administrative purpose

Financial Reporting of Interest in joint ventures :Joint Venture is defined as a contractual arrangement whereby two or more parties carry on an economic activity under 'joint control'. Control is the power to govern the financial and operating policies of an economic activity so as to obtain benefit from it. 'Joint control' is the contractually agreed sharing of control over economic activity.

Impairment of Assets :The dictionary meanong of 'impairment of asset' is weakening in value of asset. In other words when the value of asset decreases, it may be called impairment of an asset. As per AS-28 asset is said to be impaired when carrying amount of asset is more than its recoverable amount.

Provisions, Contingent Liabilities And Contingent Assets :Objective of this standard is to prescribe the accounting for Provisions, Contingent Liabilitites, Contingent Assets, Provision for restructuring cost.Provision: It is a liability, which can be measured only by using a substantial degree of estimation.Liability: A liability is present obligation of the enterprise arising from past events the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits.

Financial Instrument:Recognition and Measurement, issued by The Council of the Institute of Chartered Accountants of India, comes into effect in respect of Accounting periods commencing on or after 1-4-2009 and will be recommendatory in nature for An initial period of two years. This Accounting Standard will become mandatory in respect of Accounting periods commencing on or after 1-4-2011 for all commercial, industrial and business Entities except to a Small and Medium-sized Entity. The objective of this Standard is to establish principles for recognizing and measuring Financial assets, financial liabilities and some contracts to buy or sell non-financial items. Requirements for presenting information about financial instruments are in Accounting Standard.

Financial Instrument: presentation :The objective of this Standard is to establish principles for presenting financial instruments as liabilities or equity and for offsetting financial assets and financial liabilities. It applies to the classification of financial instruments, from the perspective of the issuer, into financial assets, financial liabilities and equity instruments; the classification of related interest, dividends, losses and gains; and the circumstances in which financial assets and financial liabilities should be offset. The principles in this Standard complement the principles for recognising and measuring financial assets and financial liabilities in Accounting Standard Financial Instruments:

Financial Instruments, Disclosures and Limited revision to accounting standards:The objective of this Standard is to require entities to provide disclosures in their financial statements that enable users to evaluate: the significance of financial instruments for the entitys financial position and performance; and the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the reporting date, and how the entity manages those risks.

AS 17 SEGMENT REPORTING

Applicability

AS 17, on segment reporting is mandatory in respect of accounting periods commencing on or after 1-4-2001 in respect of enterprises (a) whose equity or debt securities are listed on a stock exchange in India or in process of listing on stock exchange or (b) all other enterprises whose turnover for the accounting period exceeds Rs. 50 crores.

AS 17, is a disclosure standard meaning thereby it involves only disclosure of certain information in the financial statements by way of additional information.

Issue 1 :

AS 17, is applicable to which entities?

As referred in above, AS 17 is mandatory wef 1-4-2001, to (a) companies whose equity or debt are listed on a stock exchange or are in process of listing equity or debt on a stock exchange or (b) All other commercial, industrial and business reporting enterprises, whose turnover for the accounting period exceeds Rs. 50 crores.

However, the Institute of Chartered Accountants of India, New Delhi, has made the AS applicable to the following enterprises wef 1-4-2004:

(a) Enterprises whose equity or debt securities are listed in India or Outside India. (b) Enterprises in the process of listing their equity or debt on a stock exchange. (c) Banks including Co-operative banks.(d) Financial Institutions(e) Enterprises carrying on Insurance business.(f) All commercial, industrial and business reporting enterprises, whose turnover for the immediately preceding accounting year exceeds Rs.50 crores.(g) All commercial, industrial and business reporting enterprises having borrowings, including public deposits in excess of Rs.10 crores at any time during accounting period.(h) Holding and subsidiary enterprises of any one of the above.

Issue 2 :

What happens if an enterprise ceases to be covered by any of the criteria mentioned in Issue 1 above or for the first time no longer qualifies for exemption for year 2004-05?

When an enterprise ceases to be covered by the criteria, as per the amendment made in the AS (as effective from 01-04-2004) the enterprise will not qualify for exemption from the application of this standard, until the enterprise ceases to be covered in any of the above categories for two consecutive years.

Where an enterprise is covered for the first time and the AS becomes applicable from the current period, only currentperiodfigures are required to be given meaning thereby previous year figures need not be disclosed.

An enterprise which is not required to disclose segment information, wef 1-4-2004, should disclose the fact that pursuant to the exemption / relaxation given in AS, disclosures are not made in the financial statements.

Issue 3 :

When consolidated financial statements is prepared wherein both single financial statements and consolidated financial statements of parent is given, should segment reporting also be given by the parent in its single financial statements ?

AS mentions, if a single financial report contains both consolidated financial statements and the separate financial statements of the parent, segment information need be presented only on the basis of the consolidated financial statements.

However, since consolidated financial statement is still not a recognised concept under the Companies Act, 1956 and that stand alone Annual report is required to be filed with Registrar of Company, enterprises would be advised to prepare segment reporting in its stand alone financial statements also.

Issue 4 :

What should be included in segment revenue and what is disclosure requirement as to AS?

Segment revenue will include direct sales to external customers, as well as inter-unit transfer to other segment. It will also include all operating revenue whether directly attributable or that can be allocated on a reasonable basis to a segment. Operating revenue will include transactions such as scrap sales, damage or penalty recovery, rent from property and profit on sale of fixed assets, if asset is included under segment assets, export incentives, royalty / licence fees if intangible assets included in segment assets, exchange fluctuation gain if relevant revenue forms part of segment revenue or relates to segment assets or segment liabilities, etc.

Issue 5 :

What is not included in segment expense ?

Interest expense, including interest on loans or advances, general administrative expenses, head office expenses, other expenses that arise at the enterprise level and relate to the whole enterprise (e.g. secretarial, legal, accounting,) income-tax expense, extra-ordinary item as defined in AS 5, loss on sale of investments or losses on extinguishment of debt are not included as segment expense.However, if any expense relate to the operating activities of the segment and if it can be directly attributed or allocated to the segment on a reasonable basis, then the same should be considered as part of the segment expense.

Issue 6 :

What are segment accounting policies and are they required to be disclosed separately ?

Segment accounting policies are the accounting policies adopted for preparing and presenting the financial statements of the enterprise as well as those accounting policies that relate specifically to segment reporting.The segment accounting policies would include such as identification of segments, method of pricing inter-segment transfers, basis for allocating revenues and expenses to segments etc.The Accounting Standard requires that basis of pricing inter-segment transfers and any change therein or any change in accounting policies adopted for segment reporting having material effect on segment information should be disclosed.

Issue 7 :

What would normally constitute non-cash expense other than depreciation and amortisation in respect of segment assets those are included in segment expense ?

Items such as impairment losses, provision for bad and doubtful debts, write-down of inventories to net realisable value, foreseeable losses on construction contracts, provisioning for restructuring, loss on sale of fixed assets, and similar amounts which are deducted in determining carrying amounts of segment assets are disclosed under non-cash expense other than depreciation and amortisation.

Issue 8 :

A Ltd. had a reportable segment in year 02-03, but for 03-04, that reportable segment doesnot meet the 10% threshold limit. Should A Ltd. continue or drop the segment for reporting in 03-04?

A segment may have been a reportable segment in the prior period but is not a reportable segment in the current period as it no longer meets the 10% threshold limit of revenue, result or assets or other reportable segments may account for more than 75% of the entitys revenue. The AS requires A Ltd. to continue the reportable segment of 02-03 also for 03-04, even though its revenue, result and assets no longer meet the 10% threshold limit. Taking a clue about the applicability of Accounting Standards, A Ltd. would be required to disclose for two consecutive years and thereafter cease reporting that segment which doesnot meet the threshold criteria.

Conversely, if a segment is identified by A Ltd. in 03-04 as a reportable segment, Accounting Standard requires that prior period segment data i.e. 02-03 also be presented unless it is impracticable to do so, even if the 10% threshold were not satisfied in the preceeding year.

Issue 9 :

A Ltd. is in one business segment i.e. deals in food business. Also it sells entire production in India. Is A Ltd. required to give information as required under AS 17 ?

If A Ltd. has neither more than one business segment nor has more than one geographical segment, segment information as per AS 17 is not required to be disclosed.However A Ltd. should do well to disclose, that as it has one business segment, segment information as per AS 17 is not required to be disclosed.

However, should company A Ltd. have turnover spread over geographical segments such as India, USA, UK and Asia other than India and the threshold criteria of 10% or more is met in each of above geographical segment, then A Ltd. will berequiredto give segment revenue by geographical area even though primary business segment may not be applicable.

Issue 10 :

Is there any difference between the disclosures required under listing agreement clause 41 and that required under AS 17 ? Listing agreement requires company to give segment reporting on a quarter to quarter basis along with year to date figures. Further, reporting is of segment wise revenue, results and capital employed. Capital employed is defined as segment assets less segment liabilities. The quarterly disclosure format has an elimination column for segment revenue, but there is no elimination column in the segment result. AS 17 has elimination column for segment revenue and segment results.

Further, company has an option to publish consolidated quarterly / half yearly financial results in addition to the unaudited quarterly / half yearly financial results of the parent company. However, the publication of consolidated annual financial results alongwith stand alone financial results shall be mandatory. Thus, segment revenue, results and capital employed on a consolidated basis is optional for quarterly / half yearly basis.Identifying Reportable Segments Primary and Secondary Segment Reporting Formats 19. The dominant source and nature of risks and returns of an enterprise should govern whether its primary segment reporting format will be business segments or geographical segments. If the risks and returns of an enterprise are affected predominantly by differences in the products and services it produces, its primary format for reporting segment information should be business segments, with secondary information reported geographically. Similarly, if the risks and returns of the enterprise are affected predominantly by the fact that it operates in different countries or other geographical areas, its primary format for reporting segment information should be geographical segments, with secondary information reported for groups of related products and services. 20. Internal organisation and management structure of an enterprise and its system of internal financial reporting to the board of directors and the chief executive officer should normally be the basis for identifying the predominant source and nature of risks and differing rates of return facing the enterprise and, therefore, for determining which reporting format is primary and which is secondary, except as provided in sub-paragraphs (a) and (b) below: (a) if risks and returns of an enterprise are strongly affected both by differences in the products and services it produces and by differences in the geographical areas in which it operates, as evidenced by a matrix approach to managing the company and to reporting internally to the board of directors and the chief executive officer, then the enterprise should use business segments as its primary segment reporting format and geographical segments as its secondary reporting format; and (b) if internal organisational and management structure of an enterprise and its system of internal financial reporting to the board of directors and the chief executive officer are based neither on individual products or services or groups of related

298AS 17 (issued 2000) products/services nor on geographical areas, the directors and management of the enterprise should determine whether the risks and returns of the enterprise are related more to the products and services it produces or to the geographical areas in which it operates and should, accordingly, choose business segments or geographical segments as the primary segment reporting format of the enterprise, with the other as its secondary reporting format. 21. For most enterprises, the predominant source of risks and returns determines how the enterprise is organised and managed. Organisational and management structure of an enterprise and its internal financial reporting system normally provide the best evidence of the predominant source of risks and returns of the enterprise for the purpose of its segment reporting. Therefore, except in rare circumstances, an enterprise will report segment information in its financial statements on the same basis as it reports internally to top management. Its predominant source of risks and returns becomes its primary segment reporting format. Its secondary source of risks and returns becomes its secondary segment reporting format. 22. A matrix presentation both business segments and geographical segments as primary segment reporting formats with full segment disclosures on each basis -- will often provide useful information if risks and returns of an enterprise are strongly affected both by differences in the products and services it produces and by differences in the geographical areas in which it operates. This Standard does not require, but does not prohibit, a matrix presentation. 23. In some cases, organisation and internal reporting of an enterprise may have developed along lines unrelated to both the types of products and services it produces, and the geographical areas in which it operates. In such cases, the internally reported segment data will not meet the objective of this Standard. Accordingly, paragraph 20(b) requires the directors and management of the enterprise to determine whether the risks and returns of the enterprise are more product/service driven or geographically driven and to accordingly choose business segments or geographical segments as the primary basis of segment reporting. The objective is to achieve a reasonable degree of comparability with other enterprises, enhance understandability of the resulting information, and meet the needs of investors, creditors, and others for information about product/service-related and geographicallyrelated risks and returns. Segment Reporting 299 Business and Geographical Segments 24. 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 units performance and for making decisions about future allocations of resources, except as provided in paragraph 25. 25. If internal organisational and management structure of an enterprise and its system of internal financial reporting to the board of directors and the chief executive officer are based neither on individual products or services or groups of related products/services nor on geographical areas, paragraph 20(b) requires that the directors and management of the enterprise should choose either business segments or geographical segments as the primary segment reporting format of the enterprise based on their assessment of which reflects the primary source of the risks and returns of the enterprise, with the other as its secondary reporting format. In that case, the directors and management of the enterprise should determine its business segments and geographical segments for external reporting purposes based on the factors in the definitions in paragraph 5 of this Standard, rather than on the basis of its system of internal financial reporting to the board of directors and chief executive officer, consistent with the following: (a) if one or more of the segments reported internally to the directors and management is a business segment or a geographical segment based on the factors in the definitions in paragraph 5 but others are not, sub-paragraph (b) below should be applied only to those internal segments that do not meet the definitions in paragraph 5 (that is, an internally reported segment that meets the definition should not be further segmented); (b) for those segments reported internally to the directors and management that do not satisfy the definitions in paragraph 5, management of the enterprise should look to the next lower level of internal segmentation that reports information along product and service lines or geographical lines, as appropriate under the definitions in paragraph 5; and 300 AS 17 (issued 2000) (c) if such an internally reported lower-level segment meets the definition of business segment or geographical segment based on the factors in paragraph 5, the criteria in paragraph 27 for identifying reportable segments should be applied to that segment. 26. Under this Standard, most enterprises will identify their business and geographical segments as the organisational units for which information is reported to the board of the directors (particularly the non-executive directors, if any) and to the chief executive officer (the senior operating decision maker, which in some cases may be a group of several people) for the purpose of evaluating each units performance and for making decisions about future allocations of resources. Even if an enterprise must apply paragraph 25 because its internal segments are not along product/service or geographical lines, it will consider the next lower level of internal segmentation that reports information along product and service lines or geographical lines rather than construct segments solely for external reporting purposes. This approach of looking to organisational and management structure of an enterprise and its internal financial reporting system to identify the business and geographical segments of the enterprise for external reporting purposes is sometimes called the management approach, and the organisational components for which information is reported internally are sometimes called operating segments. Reportable Segments 27. A business segment or geographical segment should be identified as a reportable segment if: (a) its revenue 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 (b) its segment result, whether profit or loss, is 10 per cent or more of (i) the combined result of all segments in profit, or (ii) the combined result of all segments in loss, Segment Reporting 301whichever is greater in absolute amount; or (c) its segment assets are 10 per cent or more of the total assets of all segments. 28. A business segment or a geographical segment which is not a reportable segment as per paragraph 27, may be designated as a reportable segment despite its size at the discretion of the management of the enterprise. If that segment is not designated as a reportable segment, it should be included as an unallocated reconciling item. 29. 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 paragraph 27, until at least 75 per cent of total enterprise revenue is included in reportable segments. 30. The 10 per cent thresholds in this Standard are not intended to be a guide for determining materiality for any aspect of financial reporting other than identifying reportable business and geographical segments. Illustration II attached to this Standard presents an illustration of the determination of reportable segments as per paragraphs 31. A segment identified as a reportable segment in the immediately preceding period because it satisfied the relevant 10 per cent thresholds should continue to be a reportable segment for the current period notwithstanding that its revenue, result, and assets all no longer meet the 10 per cent thresholds. 32. If a segment is identified as a reportable segment in the current period because it satisfies the relevant 10 per cent thresholds, preceding-period segment data that is presented for comparative purposes should, unless it is impracticable to do so, be restated to reflect the newly reportable segment as a separate segment, even if that segment did not satisfy the 10 per cent thresholds in the preceding period. 302 AS 17 (issued 2000) Segment Accounting Policies 33. 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. 34. 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. 35. This Standard does not prohibit the disclosure of additional segment information that is prepared on a basis other than the accounting policies adopted for the enterprise financial statements provided that (a) the information is reported internally to the board of directors and the chief executive officer for 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. 36. 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 also are allocated to those segments. 37. The way in which asset, liability, revenue, and expense items are allocated to segments depends on such factors as the nature of those items, the activities conducted by the segment, and the relative autonomy of that segment. It is not possible or appropriate to specify a single basis of allocation that should be adopted by all enterprises; nor is it appropriate to force allocation of enterprise asset, liability, revenue, Segment Reporting 303 and expense items that relate jointly to two or more segments, if the only basis for making those allocations is arbitrary. At the same time, the definitions of segment revenue, segment expense, segment assets, and segment liabilities are interrelated, and the resulting allocations should be consistent. Therefore, jointly used assets and liabilities are allocated to segments if, and only if, their related revenues and expenses also are allocated to those segments. For example, an asset is included in segment assets if, and only if, the related depreciation or amortisation is included in segment expense. Disclosure 38. Paragraphs 39-46 specify the disclosures required for reportable segments for primary segment reporting format of an enterprise. Paragraphs 47-51 identify the disclosures required for secondary reporting format of an enterprise. Enterprises are encouraged to make all of the primary-segment disclosures identified in paragraphs 39-46 for each reportable secondary segment although paragraphs 47-51 require considerably less disclosure on the secondary basis. Paragraphs 53-59 address several other segment disclosure matters. Illustration III attached to this Standard illustrates the application of these disclosure standards. Explanation: In case, by applying the definitions of business segment and geographical segment, it is concluded that there is neither more than one business segment nor more than one geographical segment, segment information as per this Standard is not required to be disclosed. However, the fact that there is only one business segment and geographical segment is disclosed by way of a note.

Primary Reporting Format 39. The disclosure requirements in paragraphs 40-46 should be applied to each reportable segment based on primary reporting format of an enterprise. 40. An enterprise should disclose the following for each reportable segment: 304 AS 17 (issued 2000) (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. 41. Paragraph 40 (b) requires an enterprise to report segment result. If an enterprise can compute segment net profit or loss or some other measure of segment profitability other than segment result, without arbitrary allocations, reporting of such amount(s) in addition to segment result is encouraged. If that measure is prepared on a basis other than the accounting policies adopted for the financial statements of the enterprise, the enterprise will include in its financial statements a clear description of the basis of measurement. 42. An example of a measure of segment performance above segment result in the statement of profit and loss is gross margin on sales. Examples of measures of segment performance below segment result in the statement of profit and loss are profit or loss from ordinary activities (either before or after income taxes) and net profit or loss. 43. Accounting Standard 5, Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies requires that when items of income and expense within profit or loss from ordinary activities are of such size, nature or incidence that their disclosure is relevant to explain the Segment Reporting 305performance of the enterprise for the period, the nature and amount of such items should be disclosed separately. Examples of such items include writedowns of inventories, provisions for restructuring, disposals of fixed assets and long-term investments, legislative changes having retrospective application, litigation settlements, and reversal of provisions. An enterprise is encouraged, but not required, to disclose the nature and amount of any items of segment revenue and segment expense that are of such size, nature, or incidence that their disclosure is relevant to explain the performance of the segment for the period. Such disclosure is not intended to change the classification of any such items of revenue or expense from ordinary to extraordinary or to change the measurement of such items. The disclosure, however, does change the level at which the significance of such items is evaluated for disclosure purposes from the enterprise level to the segment level. 44. An enterprise that reports the amount of cash flows arising from operating, investing and financing activities of a segment need not disclose depreciation and amortisation expense and non-cash expenses of such segment pursuant to sub-paragraphs (f) and (g) of paragraph 40. 45. AS 3, Cash Flow Statements, recommends that an enterprise present a cash flow statement that separately reports cash flows from operating, investing and financing activities. Disclosure of information regarding operating, investing and financing cash flows of each reportable segment is relevant to understanding the enterprises overall financial position, liquidity, and cash flows. Disclosure of segment cash flow is, therefore, encouraged, though not required. An enterprise that provides segment cash flow disclosures need not disclose depreciation and amortisation expense and non-cash expenses pursuant to sub-paragraphs (f) and (g) of paragraph 40. 46. 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; and segment liabilities should be reconciled to enterprise liabilities. Secondary Segment Information 47. Paragraphs 39-46 identify the disclosure requirements to be applied to 306AS 17 (issued 2000) each reportable segment based on primary reporting format of an enterprise. Paragraphs 48-51 identify the disclosure requirements to be applied to each reportable segment based on secondary reporting format of an enterprise, as follows: (a) if primary format of an enterprise is business segments, the required secondary-format disclosures are identified in paragraph 48; (b) if primary format of an enterprise is geographical segments based on location of assets (where the products of the enterprise are produced or where its service rendering operations are based), the required secondary-format disclosures are identified in paragraphs 49 and 50; (c) if primary format of an enterprise is geographical segments based on the location of its customers (where its products are sold or services are rendered), the required secondary-format disclosures are identified in paragraphs 49 and 51. 48. If primary format of an enterprise for reporting segment information is business segments, it should also report the following information: (a) 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; (b) 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 (c) 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 geographical segments. 49. If primary format of an enterprise for reporting segment information is geographical segments (whether based on location of assets or location of Segment Reporting 307 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: (a) segment revenue from external customers; (b) the total carrying amount of segment assets; and (c) 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). 50. 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. 51. 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: (a) the total carrying amount of segment assets by geographical location of the assets; and (b) 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.Illustrative Segment Disclosures 52. Illustration III attached to this Standard Illustrates the disclosures for primary and secondary formats that are required by this Standard. 308AS 17 (issued 2000)Other Disclosures 53. In measuring and reporting segment revenue from transactions with other segments, inter-segment transfers should be measured on the basis that the enterprise actually used to price those transfers. The basis of pricing inter-segment transfers and any change therein should be disclosed in the financial statements. 54. Changes in accounting policies adopted for segment reporting that have a material effect on segment information should be disclosed. Such disclosure should include a description of the nature of the change, and the financial effect of the change if it is reasonably determinable. 55. AS 5 requires that changes in accounting policies adopted by the enterprise should be made only if required by statute, or for compliance with an accounting standard, or if it is considered that the change would result in a more appropriate presentation of events or transactions in the financial statements of the enterprise. 56. Changes in accounting policies adopted at the enterprise level that affect segment information are dealt with in accordance with AS 5. AS 5 requires that any change in an accounting policy which has a material effect should be disclosed. The impact of, and the adjustments resulting from, such change, if material, should be shown in the financial statements of the period in which such change is made, to reflect the effect of such change. Where the effect of such change is not ascertainable, wholly or in part, the fact should be indicated. If a change is made in the accounting policies which has no material effect on the financial statements for the current period but which is reasonably expected to have a material effect in later periods, the fact of such change should be appropriately disclosed in the period in which the change is adopted. 57. Some changes in accounting policies 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 the impact of such changes, this Standard requires the disclosure of the nature of the change and the financial effect of the change, if reasonably determinable. Segment Reporting 30958. An enterprise should indicate the types of products and services included in each reported business segment and indicate the composition of each reported geographical segment, both primary and secondary, if not otherwise disclosed in the financial statements. 59. To assess the impact of such matters as shifts in demand, changes in the prices of inputs or other factors of production, and the development of alternative products and processes on a business segment, it is necessary to know the activities encompassed by that segment. Similarly, to assess the impact of changes in the economic and political environment on the risks and returns of a geographical segment, it is important to know the composition of that geographical segment.