Chapter 4: Presentation & Disclosure Based Standards - Test 2: answer key

Question 1 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · medium

Scenario. Sterling Garments Ltd. manufactures premium apparel, footwear, home textiles, workwear and accessories. Its financial year ends on 31 March 2026. The Board and Chief Executive Officer receive monthly operating reports for six product divisions, each with distinct customers, production processes and risk-and-return profiles. The divisions are treated as separate business segments. Figures for FY 2025-26 are in ₹ crore. | Segment | External sales | Inter-segment sales | Segment result | Assets assigned by MIS | Deferred tax asset included | | P | 40 | 760 | 300 | 600 | 20 | | Q | 35 | 665 | 250 | 500 | 15 | | R | 25 | 575 | 80 | 400 | 10 | | S | 15 | 485 | 70 | 250 | 10 | | T | 90 | 130 | 50 | 150 | 10 | | U | 95 | 85 | 40 | 100 | 5 | | Total | 300 | 2,700 | 790 | 2,000 | 70 | Segment results include direct operating costs and reasonable divisional support allocations, but exclude income-tax expense and enterprise-wide finance costs. Internal asset figures include the deferred tax assets shown above. A further ₹330 crore of assets is used solely by head office and is not allocated to divisions. The balance sheet reports total assets of ₹2,330 crore, comprising assigned segment assets and head-office assets. On 1 October 2025, the company revised its product-line review pack to show inter-segment transfers separately from external customer sales. Transfers are recorded at prices actually charged between divisions. Enterprise revenue from external customers, after eliminating inter-segment transactions, is ₹300 crore. Management initially proposes reporting only the four largest divisions, arguing that the remaining divisions are individually small. The audit committee requests an assessment under AS 17 before approval of the 31 March 2026 financial statements.

Applying the revenue criterion under AS 17, which combination of divisions qualifies as reportable segments? Consider both external and inter-segment revenue.

1. Divisions P, Q and R, since their external revenue individually exceeds the threshold.
2. Divisions P, Q, R, S and T, since all five have substantial segment turnover.
3. Divisions P, Q, R and S, since their total segment revenue is at least ₹300 crore each. (correct answer)
4. Divisions P, Q, R, S, T and U, since the external and internal revenues are aggregated.

Answer: C — Divisions P, Q, R and S, since their total segment revenue is at least ₹300 crore each.

Explanation. Total segment revenue, including inter-segment transactions, is ₹3,000 crore. The 10% threshold is therefore ₹300 crore. Segment revenues are P ₹800 crore, Q ₹700 crore, R ₹600 crore, S ₹500 crore, T ₹220 crore and U ₹180 crore. Accordingly, P, Q, R and S satisfy the criterion. The principal trap is using only external revenue or comparing each division with enterprise revenue after elimination rather than total revenue of all segments.

Where it goes wrong. Using consolidated external revenue instead of aggregate external and inter-segment revenue for the 10% revenue test.

Authority. AS 17 para 5.5; AS 17 para 27(a)

Question 2 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

For applying the profitability criterion, what is the correct threshold and which divisions satisfy it?

1. ₹79 crore; divisions P, Q and R qualify because their individual profits equal or exceed the threshold. (correct answer)
2. ₹30 crore; divisions P, Q, R and S qualify because the threshold is based on net assets.
3. ₹16 crore; all divisions qualify because the enterprise's profit is reduced by inter-segment eliminations.
4. ₹55 crore; divisions P, Q, R, S and T qualify because only profitable divisions are considered.

Answer: A — ₹79 crore; divisions P, Q and R qualify because their individual profits equal or exceed the threshold.

Explanation. Combined profits of all segments equal ₹300 + ₹250 + ₹80 + ₹70 + ₹50 + ₹40 = ₹790 crore. There are no loss-making segments. The threshold is 10% of ₹790 crore, i.e. ₹79 crore. Divisions P, Q and R have profits of ₹300 crore, ₹250 crore and ₹80 crore respectively and therefore qualify. Division S, with ₹70 crore profit, fails this particular test. The trap is using net enterprise profit or an arbitrary percentage of segment revenue.

Where it goes wrong. Applying the profitability threshold to net enterprise profit rather than combined positive segment results.

Authority. AS 17 para 27(b)

Question 3 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

After excluding income-tax assets and assets used exclusively by head office, what is the 10% segment-asset threshold and which divisions satisfy the asset criterion?

1. ₹200 crore; divisions P, Q, R and S qualify based on gross assets of all segments.
2. ₹233 crore; divisions P, Q and R qualify based on total balance-sheet assets.
3. ₹193 crore; divisions P, Q and R qualify after deducting deferred tax assets.
4. ₹193 crore; divisions P, Q, R and S qualify after deducting deferred tax assets. (correct answer)

Answer: D — ₹193 crore; divisions P, Q, R and S qualify after deducting deferred tax assets.

Explanation. Gross assets assigned to segments are ₹2,000 crore. Deduct deferred tax assets of ₹70 crore to obtain total segment assets of ₹1,930 crore. Head-office assets of ₹330 crore are excluded because they are not employed in segment operations. The 10% threshold is ₹193 crore. Net assets of P, Q, R and S are ₹580 crore, ₹485 crore, ₹390 crore and ₹240 crore, respectively, so all four qualify. T and U fall below the threshold.

Where it goes wrong. Including deferred tax assets and unallocated head-office assets when computing the segment-asset denominator.

Authority. AS 17 paras 5.8 and 15; AS 17 para 27(c)

Question 4 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · medium

After completing all three quantitative tests, divisions P, Q, R and S are initially reportable. What additional action is necessary under the 75% external-revenue sufficiency test?

1. Include only T because external revenue of P, Q, R, S and T exceeds 50% of enterprise revenue.
2. Include both T and U because the initial reportable segments cover only ₹115 crore of external revenue. (correct answer)
3. Include only U because its external revenue is greater than that of division T.
4. No additional division is required because inter-segment sales increase the reportable revenue above 75%.

Answer: B — Include both T and U because the initial reportable segments cover only ₹115 crore of external revenue.

Explanation. External revenue of initially reportable divisions P to S is ₹40 + ₹35 + ₹25 + ₹15 = ₹115 crore. Total enterprise revenue from external customers is ₹300 crore, so the 75% requirement is ₹225 crore. Adding T produces ₹205 crore, while adding U alone produces ₹210 crore. Neither is sufficient. Including both raises reportable external revenue to ₹300 crore. Inter-segment transfers cannot be counted again for this overall test.

Where it goes wrong. Counting inter-segment revenue in the 75% test or assuming that one additional segment automatically satisfies the requirement.

Authority. AS 17 paras 27-29

Question 5 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · medium

Scenario. Vardhan Consumer Products Ltd. manufactures smart cooling systems, water-treatment equipment and industrial control panels. Its financial year ended on 31 March 2026. The Board and Chief Executive Officer monitor performance and allocate resources through three product-based divisions. Differences in production technology, customer classes, certification requirements and product demand are the predominant sources of risk and return; factory and customer locations are secondary. Internal reporting is therefore organised primarily by business line. FY 2025-26 segment data (₹ crore): | Business segment | External sales | Inter-segment sales | Segment result | Segment assets | Segment liabilities | Capital expenditure | Depreciation | Other significant non-cash expense | | Smart Cooling | 360 | 40 | 72 | 400 | 150 | 75 | 18 | 4 | | Water Systems | 270 | 50 | 48 | 300 | 110 | 42 | 12 | 3 | | Industrial Controls | 170 | 30 | 20 | 260 | 95 | 25 | 8 | 1 | | Total | 800 | 120 | 140 | 960 | 355 | 142 | 38 | 8 | For secondary geographical information, external sales by customer location were India ₹550 crore, UAE ₹95 crore, Kenya ₹80 crore and East Asia ₹75 crore. Segment assets by operating-asset location were India ₹700 crore, UAE ₹180 crore and Kenya ₹80 crore. Capital expenditure on assets expected to be used for more than one period was ₹120 crore in India, ₹40 crore in UAE and ₹18 crore in Kenya. Enterprise revenue after eliminating inter-segment sales is ₹800 crore; geographical segment assets total ₹960 crore. A new UAE plant became operational on 1 July 2025. Corporate head-office expenditure of ₹15 crore is not directly attributable to a division and cannot be reasonably allocated. Income-tax expense is ₹25 crore. Management is also considering disclosure of operating, investing and financing cash flows for each segment to provide additional liquidity information.

Which reporting format should Vardhan Consumer Products Ltd. adopt as its primary segment reporting format, considering the predominant source of its risks and returns?

1. Geographical segments as primary and business segments as secondary because its factories operate in different countries.
2. Geographical segments as primary because external customer locations determine the enterprise's predominant risks.
3. Business segments as primary and geographical segments as secondary because product differences principally determine risks and returns. (correct answer)
4. Both formats as mandatory primary formats because the company manufactures three different product categories.

Answer: C — Business segments as primary and geographical segments as secondary because product differences principally determine risks and returns.

Explanation. AS 17 requires the predominant source and nature of risks and returns to determine the primary format. Here, differences in products, production technology, customers and certification requirements are the principal drivers. Therefore, business segments are the primary reporting format, with geographical information as secondary information. The existence of factories or customers in multiple countries does not automatically make geography the primary format. The internal reporting structure supports the product-based conclusion.

Where it goes wrong. Selecting geographical reporting merely because the enterprise operates or sells products in multiple countries.

Authority. AS 17 paras 19-21

Question 6 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · medium

For the secondary geographical reporting format, which customer locations satisfy the external-revenue threshold for disclosure?

1. India, UAE and Kenya qualify; East Asia does not satisfy the 10% requirement. (correct answer)
2. India and East Asia qualify; UAE and Kenya are below the 10% requirement.
3. India and UAE qualify; Kenya and East Asia are below the 10% requirement.
4. All four geographical locations qualify because their combined revenue equals enterprise revenue.

Answer: A — India, UAE and Kenya qualify; East Asia does not satisfy the 10% requirement.

Explanation. Enterprise external revenue is ₹800 crore. The 10% threshold for secondary geographical revenue disclosure is ₹80 crore. India has ₹550 crore, UAE ₹95 crore and Kenya ₹80 crore; each therefore meets the threshold because the rule includes equality. East Asia, with ₹75 crore, does not qualify. The disclosure is based on geographical location of customers, not factories. The trap is interpreting the threshold as strictly greater than 10%.

Where it goes wrong. Using factory location instead of customer location or interpreting 10% as a strictly greater-than test.

Authority. AS 17 para 48(a)

Question 7 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Which geographical asset information and related capital expenditure must Vardhan disclose under its secondary reporting format?

1. India, UAE and Kenya, since every location has positive segment assets and capital expenditure.
2. India alone, since its segment assets exceed 50% of total geographical segment assets.
3. India and Kenya, because their combined assets exceed the 10% threshold individually.
4. India and UAE, with carrying amounts of ₹700 crore and ₹180 crore and capital expenditure of ₹120 crore and ₹40 crore. (correct answer)

Answer: D — India and UAE, with carrying amounts of ₹700 crore and ₹180 crore and capital expenditure of ₹120 crore and ₹40 crore.

Explanation. Total geographical segment assets are ₹960 crore, making the 10% threshold ₹96 crore. India, with ₹700 crore, and UAE, with ₹180 crore, qualify. Kenya, with ₹80 crore, does not. Under paragraphs 48(b) and 48(c), the carrying amount of segment assets and capital expenditure on assets expected to be used for more than one period are disclosed for qualifying asset locations. Accordingly, the relevant capital expenditure is ₹120 crore and ₹40 crore.

Where it goes wrong. Applying the geographical revenue threshold to geographical assets or disclosing capital expenditure for every location.

Authority. AS 17 para 48(b); AS 17 para 48(c)

Question 8 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Vardhan proposes providing operating, investing and financing cash flows for each reportable business segment. Which primary-format disclosure requirement may consequently be dispensed with?

1. Segment revenue, segment result and the carrying amounts of segment assets and liabilities.
2. Separate disclosure of depreciation and amortisation expense and significant non-cash expenses. (correct answer)
3. Disclosure of segment asset acquisitions and reconciliation of segment revenue to enterprise revenue.
4. Disclosure of external and inter-segment revenue and reconciliation of segment liabilities to enterprise liabilities.

Answer: B — Separate disclosure of depreciation and amortisation expense and significant non-cash expenses.

Explanation. AS 17 paragraph 44 provides that an enterprise reporting operating, investing and financing cash flows of a segment need not separately disclose the depreciation and amortisation expense and significant non-cash expenses specified in paragraph 40(f) and (g). Segment revenue, result, assets, liabilities and capital expenditure remain required disclosures. Segment cash flow disclosure is encouraged, not compulsory. The trap is assuming that additional cash-flow information replaces all other primary-format requirements.

Where it goes wrong. Treating segment cash-flow disclosure as a complete substitute for the mandatory primary reporting format.

Authority. AS 17 para 40(f); AS 17 para 40(g); AS 17 paras 44-45

Question 9 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · medium

Scenario. Zenith Medical Systems Ltd. manufactures diagnostic equipment, surgical devices and laboratory consumables at facilities in India, ASEAN and East Africa. For the year ended 31 March 2026, the Board and Chief Executive Officer receive reports by territory. Political and economic conditions, regulation, supply-chain exposure and currency risks drive differing returns. Geographical segments based on operating-asset location are primary. Figures (₹ crore): | Location | External sales | Inter-segment sales | Segment result | Assets assigned | Deferred tax asset included | Liabilities assigned | | India | 380 | 40 | 70 | 620 | 30 | 250 | | ASEAN | 140 | 60 | 35 | 260 | 10 | 130 | | East Africa | 80 | 20 | 15 | 170 | 5 | 80 | | Total | 600 | 120 | 120 | 1,050 | 45 | 460 | Assigned assets include the deferred tax assets; a further ₹95 crore is used exclusively for corporate administration. Liabilities include India bank borrowings ₹40 crore and income-tax liabilities ₹10 crore; ASEAN ₹25 crore and ₹5 crore; and East Africa ₹15 crore and ₹5 crore. Remaining liabilities arise from operations. Total balance-sheet assets are ₹1,145 crore. Secondary business information (external revenue, segment assets and capital expenditure) is: Medical Devices ₹310 crore, ₹430 crore and ₹55 crore; Diagnostics ₹170 crore, ₹330 crore and ₹25 crore; Laboratory Consumables ₹75 crore, ₹165 crore and ₹10 crore; Training Services ₹45 crore, ₹80 crore and ₹4 crore. Enterprise external revenue is ₹600 crore; business segment assets total ₹1,005 crore. Customer-location sales are India ₹390 crore, GCC ₹135 crore, East Africa ₹45 crore and Other Asia ₹30 crore. Transfers were priced at cost plus 8% until 30 September 2025; from 1 October 2025, the basis became cost plus 10%. The change increased segment inter-segment revenue by ₹4 crore, eliminated on consolidation. The directors are reviewing the AS 17 disclosures.

After excluding financing borrowings and income-tax liabilities, what is the aggregate segment liability amount that Zenith Medical Systems Ltd. should report for its three geographical segments?

1. ₹460 crore, since the entire liability amount assigned by the internal reporting system must be included.
2. ₹380 crore, after excluding bank borrowings but retaining income-tax liabilities.
3. ₹360 crore, after excluding both financing borrowings and income-tax liabilities. (correct answer)
4. ₹440 crore, after excluding income-tax liabilities but retaining financing borrowings.

Answer: C — ₹360 crore, after excluding both financing borrowings and income-tax liabilities.

Explanation. Total liabilities assigned through the internal system are ₹460 crore. Financing borrowings are ₹40 + ₹25 + ₹15 = ₹80 crore, and income-tax liabilities are ₹10 + ₹5 + ₹5 = ₹20 crore. Therefore, segment liabilities are ₹460 − ₹80 − ₹20 = ₹360 crore. AS 17 paragraphs 5.9 and 16 include operating liabilities but exclude financing borrowings and income-tax liabilities. The trap is treating every balance-sheet liability as a segment liability.

Where it goes wrong. Including borrowings and income-tax liabilities while measuring operating segment liabilities.

Authority. AS 17 paras 5.9 and 16

Question 10 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Which business divisions require secondary segment disclosures under AS 17, considering both external revenue and segment assets?

1. Medical Devices, Diagnostics and Laboratory Consumables qualify; Training Services does not satisfy either criterion. (correct answer)
2. Medical Devices and Diagnostics qualify; Laboratory Consumables and Training Services fail both criteria.
3. All four divisions qualify because their combined external revenue equals the enterprise revenue.
4. Medical Devices alone qualifies because its external revenue exceeds 50% of enterprise revenue.

Answer: A — Medical Devices, Diagnostics and Laboratory Consumables qualify; Training Services does not satisfy either criterion.

Explanation. The secondary business segment revenue threshold is 10% of enterprise revenue of ₹600 crore, i.e. ₹60 crore. The asset threshold is 10% of ₹1,005 crore, i.e. ₹100.50 crore. Medical Devices, Diagnostics and Laboratory Consumables have external revenue of ₹310 crore, ₹170 crore and ₹75 crore, respectively, and assets of ₹430 crore, ₹330 crore and ₹165 crore. Training Services, with revenue ₹45 crore and assets ₹80 crore, fails both tests.

Where it goes wrong. Assuming secondary business reporting requires passing both the revenue and asset tests simultaneously.

Authority. AS 17 para 49

Question 11 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Since Zenith's primary geographical segments are based on operating-asset locations, which additional customer-location revenue information is required under the secondary format?

1. Revenue from India, GCC and East Africa, because all three represent significant geographical markets.
2. Revenue from India and East Africa, because customer-location assets determine the secondary disclosure threshold.
3. Revenue from all four markets, because every customer-based geographical area must be separately reported.
4. Revenue from India and GCC only, because their external sales individually meet 10% of enterprise revenue. (correct answer)

Answer: D — Revenue from India and GCC only, because their external sales individually meet 10% of enterprise revenue.

Explanation. Enterprise external revenue is ₹600 crore, so 10% equals ₹60 crore. Customer-location revenue is India ₹390 crore, GCC ₹135 crore, East Africa ₹45 crore and Other Asia ₹30 crore. Only India and GCC meet the threshold. Since the primary geographical format is based on the location of assets and the customer locations differ, paragraph 50 requires disclosure of external revenue for each customer-based geographical segment meeting the 10% criterion. The trap is disclosing insignificant customer markets.

Where it goes wrong. Confusing customer-location geographical revenue with the location of operating assets.

Authority. AS 17 para 50

Question 12 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · medium

What disclosures should Zenith make concerning the revision in inter-segment transfer pricing effective from 1 October 2025?

1. Only disclose the current cost-plus-10% rate because previous pricing arrangements are irrelevant.
2. Disclose both pricing bases, the nature of the material change and its determinable ₹4 crore financial effect. (correct answer)
3. Ignore the revision because inter-segment sales are eliminated when consolidated enterprise revenue is calculated.
4. Disclose the ₹4 crore as additional enterprise revenue without adjusting the inter-segment elimination.

Answer: B — Disclose both pricing bases, the nature of the material change and its determinable ₹4 crore financial effect.

Explanation. Paragraph 53 requires inter-segment transfers to be measured using the actual pricing basis followed by the enterprise, and that basis and changes be disclosed. Here, the policy changed from cost plus 8% to cost plus 10% on 1 October 2025. Since the change is material and its impact is measurable, paragraphs 54 and 57 require disclosure of its nature and financial effect, namely the ₹4 crore change in reported inter-segment revenue. Consolidation elimination does not remove this disclosure requirement.

Where it goes wrong. Assuming inter-segment transfer pricing changes need not be disclosed because the transactions are eliminated on consolidation.

Authority. AS 17 para 53; AS 17 paras 54 and 57

Question 13 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · medium

Scenario. Nandini Appliances Ltd. manufactures industrial refrigeration units and domestic air coolers. Both product lines use similar raw materials, but refrigeration units are manufactured under specialised processes for institutional customers, whereas air coolers use mass-production methods for household retail customers. The regulatory requirements and commercial risks also differ considerably. How should the activities be identified under AS 17?

Nandini Appliances Ltd. manufactures industrial refrigeration units and domestic air coolers. Both product lines use similar raw materials, but refrigeration units are manufactured under specialised processes for institutional customers, whereas air coolers use mass-production methods for household retail customers. The regulatory requirements and commercial risks also differ considerably. How should the activities be identified under AS 17?

1. A single business segment because both products use similar raw materials and manufacturing facilities.
2. A single business segment because both products are ultimately used for temperature control.
3. Two business segments because the products have materially different risks and returns across several relevant factors. (correct answer)
4. Two geographical segments because institutional and household customers represent separate customer locations.

Answer: C — Two business segments because the products have materially different risks and returns across several relevant factors.

Explanation. AS 17 paragraph 5.1 identifies a business segment by considering product nature, production processes, customer classes, distribution methods and, where relevant, regulatory environment. Although the two activities share raw materials, their processes, customers and regulation are significantly different. Paragraph 7 prevents combining products with substantially differing risks and returns into a single business segment. Accordingly, two business segments should be identified. The trap is relying on one common production input instead of overall commercial characteristics.

Where it goes wrong. Treating a common raw material or broad product purpose as sufficient evidence of a single business segment.

Authority. AS 17 paras 5.1 and 7

Question 14 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · medium

Scenario. A company manufactures the same product in two Indian states. One operation is exposed to materially different economic conditions, transport infrastructure, state-specific regulation and operating risks compared with the other. Can the two operations constitute separate geographical segments?

A company manufactures the same product in two Indian states. One operation is exposed to materially different economic conditions, transport infrastructure, state-specific regulation and operating risks compared with the other. Can the two operations constitute separate geographical segments?

1. Yes, since a geographical segment may be a region within a country with different risks and returns. (correct answer)
2. No, since geographical segments must always consist of different countries or international territories.
3. No, since products manufactured within the same country must have identical geographical risk characteristics.
4. Yes, but only when the two operations have different product categories and separate business ownership.

Answer: A — Yes, since a geographical segment may be a region within a country with different risks and returns.

Explanation. AS 17 paragraph 5.2 defines geographical segments by reference to particular economic environments and differing risks and returns. Paragraph 8 expressly permits a geographical segment to comprise one country, a group of countries or a region within a country. Accordingly, the two Indian operations may constitute separate geographical segments if their economic conditions and risk profiles materially differ. A separate international boundary is not necessary.

Where it goes wrong. Assuming geographical segments can only be identified across international borders.

Authority. AS 17 paras 5.2 and 8

Question 15 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · medium

Scenario. A diversified enterprise reports two broad internal divisions, Retail Operations and Institutional Operations, to its Board. Neither division represents a distinguishable business segment or geographical segment. Detailed management reports, however, separately identify medical products, consumer electronics and industrial equipment. What should management do?

A diversified enterprise reports two broad internal divisions, Retail Operations and Institutional Operations, to its Board. Neither division represents a distinguishable business segment or geographical segment. Detailed management reports, however, separately identify medical products, consumer electronics and industrial equipment. What should management do?

1. Use the two broad divisions automatically because every internal reporting unit must be reportable.
2. Create geographical segments using the head-office location regardless of operating activities.
3. Combine all three products because the management already reports their consolidated results to the Board.
4. Examine the next lower level of product-based internal segmentation and apply AS 17 definitions to qualifying components. (correct answer)

Answer: D — Examine the next lower level of product-based internal segmentation and apply AS 17 definitions to qualifying components.

Explanation. AS 17 ordinarily uses organisational and internal financial reporting to the Board and CEO as the starting point for segment identification. However, where internal divisions do not satisfy the business or geographical segment definitions, paragraph 25 requires consideration of the next lower level of internal segmentation along product/service or geographical lines. Segments at that level satisfying the definitions are tested for reportability. The trap is treating management's broad organisational labels as conclusive.

Where it goes wrong. Using broad internal management divisions without testing whether they satisfy the AS 17 segment definitions.

Authority. AS 17 paras 12 and 24-26

Question 16 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · medium

Scenario. A non-financial enterprise reports external sales of ₹180 lakh and inter-segment sales of ₹40 lakh for a business division. It also receives interest income of ₹12 lakh, dividend income of ₹4 lakh, a gain of ₹8 lakh on sale of investments and an extraordinary insurance recovery of ₹5 lakh. Calculate segment revenue under AS 17.

A non-financial enterprise reports external sales of ₹180 lakh and inter-segment sales of ₹40 lakh for a business division. It also receives interest income of ₹12 lakh, dividend income of ₹4 lakh, a gain of ₹8 lakh on sale of investments and an extraordinary insurance recovery of ₹5 lakh. Calculate segment revenue under AS 17.

1. ₹249 lakh, including all income received and inter-segment transfers.
2. ₹220 lakh, including external and inter-segment operating sales only. (correct answer)
3. ₹232 lakh, including interest income but excluding investment gains and extraordinary items.
4. ₹228 lakh, including dividend income but excluding the extraordinary insurance recovery.

Answer: B — ₹220 lakh, including external and inter-segment operating sales only.

Explanation. Segment revenue comprises directly attributable enterprise revenue, reasonably allocable enterprise revenue and revenue from transactions with other segments. Thus, ₹180 lakh external sales plus ₹40 lakh inter-segment sales equals ₹220 lakh. Interest income, dividend income and investment disposal gains are excluded for a non-financial segment, as is extraordinary income. These exclusions are expressly provided in paragraph 5.5. The trap is treating every credit in the Statement of Profit and Loss as segment revenue.

Where it goes wrong. Including interest, dividend, investment disposal gains or extraordinary income in non-financial segment revenue.

Authority. AS 17 para 5.5

Question 17 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Scenario. The following profitability information is available for five business segments of Apex Industries Ltd. (₹ lakh): P profit ₹420; Q profit ₹90; R profit ₹40; S loss ₹310; and T loss ₹70. Which segments satisfy the 10% profitability test under AS 17?

The following profitability information is available for five business segments of Apex Industries Ltd. (₹ lakh): P profit ₹420; Q profit ₹90; R profit ₹40; S loss ₹310; and T loss ₹70. Which segments satisfy the 10% profitability test under AS 17?

1. P, Q and R, because only the combined positive segment result is considered.
2. P, Q, R, S and T, because both individual profits and losses are netted.
3. P, Q, S and T, because the threshold is ₹55 lakh based on combined profits. (correct answer)
4. P and S only, because the profitability threshold is calculated using net enterprise loss.

Answer: C — P, Q, S and T, because the threshold is ₹55 lakh based on combined profits.

Explanation. Combined profits are ₹420 + ₹90 + ₹40 = ₹550 lakh. Combined losses are ₹310 + ₹70 = ₹380 lakh. The greater absolute amount is ₹550 lakh, so the reportability threshold is ₹55 lakh. P, Q, S and T have individual results whose absolute values equal or exceed ₹55 lakh. R, with ₹40 lakh, fails. The principal trap is netting losses against profits to arrive at a smaller threshold, which is not permitted.

Where it goes wrong. Netting aggregate segment profits and losses before calculating the profitability threshold.

Authority. AS 17 para 27(b)

Question 18 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Scenario. A company's internal asset report assigns the following amounts to its five divisions (₹ crore): A ₹650 including deferred tax asset ₹50; B ₹500 including deferred tax asset ₹30; C ₹400 including deferred tax asset ₹20; D ₹250 including deferred tax asset ₹10; and E ₹150 including deferred tax asset ₹10. Head-office assets of ₹200 crore are outside the divisions. What is the asset-test threshold and which divisions qualify?

A company's internal asset report assigns the following amounts to its five divisions (₹ crore): A ₹650 including deferred tax asset ₹50; B ₹500 including deferred tax asset ₹30; C ₹400 including deferred tax asset ₹20; D ₹250 including deferred tax asset ₹10; and E ₹150 including deferred tax asset ₹10. Head-office assets of ₹200 crore are outside the divisions. What is the asset-test threshold and which divisions qualify?

1. ₹183 crore; divisions A, B, C and D qualify after excluding tax and head-office assets. (correct answer)
2. ₹195 crore; divisions A, B, C and D qualify using gross assets before exclusions.
3. ₹215 crore; divisions A, B and C qualify using total enterprise assets.
4. ₹180 crore; divisions A, B, C, D and E qualify after deducting head-office assets.

Answer: A — ₹183 crore; divisions A, B, C and D qualify after excluding tax and head-office assets.

Explanation. Gross divisional assets are ₹1,950 crore. Deduct deferred tax assets of ₹120 crore to arrive at segment assets of ₹1,830 crore. Head-office assets are excluded because they are not segment operating assets. The threshold is 10% × ₹1,830 crore = ₹183 crore. Net segment assets are A ₹600 crore, B ₹470 crore, C ₹380 crore, D ₹240 crore and E ₹140 crore. Hence A to D qualify, while E does not.

Where it goes wrong. Including deferred tax assets or head-office assets in the segment-asset calculation.

Authority. AS 17 paras 5.8 and 15; AS 17 para 27(c)

Question 19 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Scenario. A segment was identified as reportable in FY 2024-25 because it satisfied the 10% revenue threshold. In FY 2025-26, its revenue, segment result and assets all fall below the respective 10% thresholds. The company proposes removing it from segment disclosures immediately. Which treatment is correct?

A segment was identified as reportable in FY 2024-25 because it satisfied the 10% revenue threshold. In FY 2025-26, its revenue, segment result and assets all fall below the respective 10% thresholds. The company proposes removing it from segment disclosures immediately. Which treatment is correct?

1. Remove the segment because all three quantitative criteria fail in the current year.
2. Retain it only if its revenue continues to exceed 10% of total segment revenue.
3. Remove it but disclose its closing assets as an unallocated reconciling item.
4. Continue treating it as reportable notwithstanding that all current-year quantitative tests fail. (correct answer)

Answer: D — Continue treating it as reportable notwithstanding that all current-year quantitative tests fail.

Explanation. AS 17 paragraph 31 expressly provides that a segment identified as reportable in the immediately preceding period because it satisfied the relevant 10% thresholds should continue as a reportable segment for the current period, even if its revenue, result and assets no longer meet those thresholds. The purpose is to preserve continuity and comparability in segment information. The trap is treating the 10% tests as requiring fresh qualification in every reporting period.

Where it goes wrong. Removing a previously reportable segment merely because its current-period figures fall below every quantitative threshold.

Authority. AS 17 para 31

Question 20 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Scenario. Division A of a manufacturing enterprise transfers goods worth ₹42 lakh to Division B at the actual internal invoice price. This represents a cost-plus-5% transfer price. The prevailing market value of the same goods is ₹48 lakh. What should the enterprise report as inter-segment revenue under AS 17?

Division A of a manufacturing enterprise transfers goods worth ₹42 lakh to Division B at the actual internal invoice price. This represents a cost-plus-5% transfer price. The prevailing market value of the same goods is ₹48 lakh. What should the enterprise report as inter-segment revenue under AS 17?

1. ₹48 lakh, because market value must be used for all internal segment transfers.
2. ₹42 lakh, based on the actual internal pricing policy, with the pricing basis disclosed. (correct answer)
3. ₹40 lakh, because cost must be reported after eliminating the internal profit element.
4. ₹45 lakh, because a transfer-price adjustment is necessary to reflect an average market margin.

Answer: B — ₹42 lakh, based on the actual internal pricing policy, with the pricing basis disclosed.

Explanation. AS 17 paragraph 53 requires inter-segment transfers to be measured on the basis actually used by the enterprise to price those transfers. Accordingly, the transaction is recorded at ₹42 lakh, the invoice value charged between divisions. AS 17 does not compulsorily require market price, cost or any particular transfer-pricing formula. The actual basis, here cost plus 5%, must be disclosed. The trap is substituting an external market price for the actual internal transfer price.

Where it goes wrong. Replacing the actual transfer-pricing policy with market value when reporting segment revenue.

Authority. AS 17 para 53

Question 21 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Scenario. A non-financial company's business division reports external sales of ₹240 lakh and inter-segment sales of ₹40 lakh. Its direct operating expenditure is ₹150 lakh, selling expenditure is ₹18 lakh, depreciation is ₹12 lakh and a reasonable allocation of segment-specific R&D expenditure is ₹10 lakh. The division also bears unallocated head-office costs of ₹20 lakh and interest expense of ₹8 lakh. Interest income is ₹5 lakh and gain on sale of investments is ₹3 lakh. Calculate the segment result.

A non-financial company's business division reports external sales of ₹240 lakh and inter-segment sales of ₹40 lakh. Its direct operating expenditure is ₹150 lakh, selling expenditure is ₹18 lakh, depreciation is ₹12 lakh and a reasonable allocation of segment-specific R&D expenditure is ₹10 lakh. The division also bears unallocated head-office costs of ₹20 lakh and interest expense of ₹8 lakh. Interest income is ₹5 lakh and gain on sale of investments is ₹3 lakh. Calculate the segment result.

1. ₹77 lakh, after deducting head-office expenditure and interest expense.
2. ₹85 lakh, after including interest income and excluding corporate expenses.
3. ₹90 lakh, after including reasonably allocated operating expenses and excluding unallocated finance items. (correct answer)
4. ₹95 lakh, after deducting only direct operating expenditure and depreciation.

Answer: C — ₹90 lakh, after including reasonably allocated operating expenses and excluding unallocated finance items.

Explanation. Segment revenue is ₹240 + ₹40 = ₹280 lakh. Segment expenses comprise direct expenditure ₹150 lakh, selling costs ₹18 lakh, depreciation ₹12 lakh and reasonably allocable R&D costs ₹10 lakh, totalling ₹190 lakh. Therefore, segment result is ₹280 − ₹190 = ₹90 lakh. Unallocated head-office costs and interest expense are excluded for this non-financial segment. Interest income and investment disposal gains are also excluded from segment revenue.

Where it goes wrong. Deducting enterprise-wide head-office expenses or interest costs while computing a non-financial segment's operating result.

Authority. AS 17 paras 5.5, 5.6 and 5.7

Question 22 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Scenario. A diversified enterprise is preparing primary segment disclosures for three reportable business segments. Which combination represents the required information under AS 17?

A diversified enterprise is preparing primary segment disclosures for three reportable business segments. Which combination represents the required information under AS 17?

1. External and inter-segment revenue, segment result, assets, liabilities, capital expenditure, depreciation, significant non-cash expenses and relevant reconciliations. (correct answer)
2. External revenue, segment EBITDA, market capitalisation, dividend yield and the closing share price for each division.
3. External revenue, net profit after tax, cash balance and tax payments without separate asset or liability disclosures.
4. Segment liabilities, employee strength, geographical customer concentration and inter-segment profit without capital expenditure information.

Answer: A — External and inter-segment revenue, segment result, assets, liabilities, capital expenditure, depreciation, significant non-cash expenses and relevant reconciliations.

Explanation. Paragraph 40 requires segment revenue split between external and inter-segment transactions, segment result, assets, liabilities, capital expenditure on long-term-use assets, depreciation and amortisation, and significant other non-cash expenses. Paragraph 46 further requires reconciliation of segment revenue, result, assets and liabilities with the corresponding enterprise totals. EBITDA or post-tax profit may be additional information but cannot replace the prescribed disclosures. The trap is assuming that a performance indicator alone satisfies the primary format.

Where it goes wrong. Substituting EBITDA, net profit or selected performance indicators for the mandatory primary segment disclosures.

Authority. AS 17 paras 39-40; AS 17 para 46

Question 23 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Scenario. A multinational enterprise's internal matrix reporting system separately evaluates product-based risks and geographical risks. Both dimensions have a strong influence on its returns. Management proposes presenting both business and geographical segments as primary formats with full disclosures on each basis. What is the position under AS 17?

A multinational enterprise's internal matrix reporting system separately evaluates product-based risks and geographical risks. Both dimensions have a strong influence on its returns. Management proposes presenting both business and geographical segments as primary formats with full disclosures on each basis. What is the position under AS 17?

1. Matrix reporting is compulsory whenever an enterprise operates in more than one country.
2. Matrix reporting is prohibited because an enterprise can use only one primary reporting format.
3. Geographical reporting must always be primary whenever management uses an international matrix.
4. Matrix presentation is permitted but not required; business segments should ordinarily be primary under the specified matrix approach. (correct answer)

Answer: D — Matrix presentation is permitted but not required; business segments should ordinarily be primary under the specified matrix approach.

Explanation. Under paragraph 20(a), where risks and returns are strongly affected by both products and geographical areas, as evidenced by matrix management reporting, business segments are selected as primary and geography as secondary. Paragraph 22 states that a matrix presentation providing full disclosures under both dimensions may be useful but is neither required nor prohibited. Thus, management may adopt it. The trap is treating the usefulness of matrix disclosure as a mandatory requirement.

Where it goes wrong. Confusing the permitted matrix presentation with a compulsory dual-primary reporting requirement.

Authority. AS 17 para 20(a); AS 17 para 22

Question 24 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Scenario. A company has adopted geographical segments based on the location of its customers as its primary reporting format. Its factories and operating assets are situated in different geographical areas from the customers. Which additional secondary information should be disclosed under AS 17?

A company has adopted geographical segments based on the location of its customers as its primary reporting format. Its factories and operating assets are situated in different geographical areas from the customers. Which additional secondary information should be disclosed under AS 17?

1. Only external revenue by customer location, because the asset location is irrelevant under the primary reporting format.
2. Carrying amount of segment assets and capital expenditure by asset location for qualifying geographical segments. (correct answer)
3. Only segment liabilities and depreciation by asset location, because revenue is already reported in the primary format.
4. Complete primary-format disclosures for every geographical region, regardless of the quantitative criteria.

Answer: B — Carrying amount of segment assets and capital expenditure by asset location for qualifying geographical segments.

Explanation. Where geographical primary segments are based on customer locations but operating assets are located in different geographical areas, paragraph 51 requires supplementary asset-based geographical information. This includes the total carrying amount of segment assets and the cost incurred to acquire segment assets expected to be used for more than one period, by asset location, for qualifying geographical segments. The trap is assuming that a customer-based primary format eliminates the need for information about materially different asset locations.

Where it goes wrong. Overlooking secondary asset-location disclosures when the primary geographical format is based on customer locations.

Authority. AS 17 paras 47 and 51

Question 25 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Scenario. A company identifies a previously non-reportable business segment as reportable in FY 2025-26 because it crosses the 10% segment revenue threshold. The segment did not satisfy any 10% test in FY 2024-25, for which comparative information is presented. What should the company do?

A company identifies a previously non-reportable business segment as reportable in FY 2025-26 because it crosses the 10% segment revenue threshold. The segment did not satisfy any 10% test in FY 2024-25, for which comparative information is presented. What should the company do?

1. Continue aggregating the previous-year figures because the segment was not reportable in that year.
2. Disclose only current-year figures because previous-year segment information is outside AS 17.
3. Restate preceding-period comparative segment information separately unless doing so is impracticable. (correct answer)
4. Restate previous-year segment data only when the segment also crossed the 75% overall revenue threshold.

Answer: C — Restate preceding-period comparative segment information separately unless doing so is impracticable.

Explanation. AS 17 paragraph 32 provides that when a segment becomes reportable in the current period by satisfying the relevant 10% criteria, previous-period comparative information should be restated to show that segment separately, unless restatement is impracticable. This enhances comparability between reporting periods. Its failure to qualify in the preceding period does not automatically justify continued aggregation. The 75% overall test is a separate reportability requirement and is not a condition for restating comparative information.

Where it goes wrong. Assuming that prior-period comparative figures cannot be restated because the segment was not independently reportable in that earlier period.

Authority. AS 17 para 32