Describe the factors for determination of “Reportable Segments” as per AS-17.
Paragraphs 27 to 29 of AS 17 on Segment Reporting deals with reportable segments.
Paragraph 27 requires that
a business segment or geographical segment should be identified as a reportable
segment if :
(i)
its revenue
from sales to external customers and from transactions with other segments is
10 percent or more of the total revenue, external and internal, of all
segments; or
(ii)
its segment result, whether profit or
loss, is 10 percent or more of-
(a)
the combined result of all segments in
profit, or
(b)
the combined result of all segments in
loss, whichever is greater in absolute amount; or
(iii)
its segment assets are 10 percent or more
of the total assets of all segments.
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.
If total external revenue
attributable to reportable segments constitutes less than 75% of the total
enterprise revenue, additional segments should be identified as reportable
segments, even if they do not meet the 10 percent thresholds specified in
paragraph 27 of the standard, until at least 75 percent of the total enterprise
revenue is included in reportable segments.
Paragraph 23 of AS 18 on Related Party Disclosures requires that if there have been transactions between related parties, during
the existence of the a related party relationship, the reporting enterprise should disclose the following :
(i)
the name of the transacting related party;
(ii)
a description of the relationship between
the parties;
(iii)
a description of the nature of
transactions;
(iv) volume
of the transactions either as an amount or as an appropriate proportion;
(v)
any other
elements of the related party transactions necessary for an understanding of
the financial statements;
(vi) the amounts or appropriate proportions of outstanding items
pertaining to related parties at the balance sheet date and provisions for doubtful
debts due from such parties at that date;
(vii)
amounts written
off or written back in the period in respect of debts due from or to related
parties.
Point (v) requires
disclosure of ‘any other elements of the related party transactions necessary
for an understanding of the financial statements. An example of such a
disclosure would be an indication that the transfer of a major asset had taken
place at an amount materially different from that obtainable on normal
commercial terms.
AccountingStandard 19 has divided the lease into two types viz. (i) Finance Lease and
(ii) Operating Lease.
Finance Lease :
A lease is classified as a finance lease
if it transfers substantially all the risks and rewards incident to
ownership. title may or may not eventually be transferred. At the inception of
a finance lease, the lessee should recognise the lease as an asset and a
liability. Such recognition should be at an amount equal to the fair value of
the leased asset at the inception of the lease. However, if the fair value of
the leased asset exceeds the present value of the minimum lease payments from
the standpoint of the lessee, the amount recorded as an asset and liability
should be the present value of the minimum lease payments from the standpoint
of the lessee.
Operating
Lease : A lease is classified as an operating lease if it does not transfer
substantially all the risks and rewards incident to ownership. Lease
payments under an operating lease should be recognised as an expense in the
statement of profit and loss on a straight line basis over the lease term
unless another systematic basis is more representative of the time pattern of
the user’s benefit.
When Capitalisation of borrowing cost should cease as per Accounting Standard 16?
Capitalisation of borrowing costs should cease when substantially all the activities necessary to prepare the qualifying asset for its
intended use or sale are complete.
An asset is normally ready
for its intended use or sale when its physical construction or production is
complete even though routine administrative work might still continue. If minor
modifications such as the decoration of a property to the user’s specification,
are all that are outstanding, this indicates that substantially all the
activities are complete.
When the construction of a
qualifying asset is completed in parts and a completed part is capable of being
used while construction continues for the other parts, capitalisation of
borrowing costs in relation to a part should cease when substantially all the
activities necessary to prepare that part for its intended use or sale are
complete.
A Business Segment: A business segment is a distinguishable component of an enterprise that is engaged in providing an
individual product or service or a group of related products or services and that is subject to risks and returns that are different from
those of other business segments. Factors that should be considered in determining whether products or services are related
include:
(a) the nature of the products or services;
(b) the
nature of the production processes;
(c) the
type or class of customers for the products or services;
(d) the
methods used to distribute the products or provide the services and
A geographical
segment: A geographical segment is a
distinguishable component of an enterprise that is engaged in providing
product or services within a particular economic environment and that is
subject to risks and returns that are different from those of
components
operating in other economic environments. Factors that should be considered in
identifying geographical segments
include:
Briefly describe, how do you calculate
"Diluted Earnings per Share" as per Accounting Standard 20.
For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders and
the weighted average number of shares outstanding during the period should be adjusted for the effects of all dilutive potential equity
shares.
An
enterprise should assume the exercise of dilutive options and other dilutive
potential equity shares of the enterprise. The assumed proceeds from these
issues should be considered to have been received from the issue of shares at
fair value. The difference between the number of shares issuable and the number
of shares that would have been issued at fair value should be treated as an
issue of equity shares for no consideration.
Important Question and Answers on Accounting Standards (Part-I)
(a) similarity
of economic and political conditions;
(b) relationships
between operations in different geographical areas;
(c) proximity
of operations;
(d) special
risks associated with operations in a particular area;
(e) exchange
control regulations; and
(f)
the underlying currency risks.
For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders and
the weighted average number of shares outstanding during the period should be adjusted for the effects of all dilutive potential equity
shares.
The amount of net profit or
loss for the period attributable to equity shareholders should be adjusted,
after taking into account any attributable change in tax expense for the
period.
The number of equity shares
should be the aggregate of the weighted average number of equity shares (as per
paragraphs 15 and 22 of AS 20) and the weighted average number of equity shares
which would be issued on the conversion of all the dilutive potential equity
shares into equity shares. Dilutive potential equity shares should be deemed to
have been converted into equity shares at the beginning of the period or, if
issued later, the date of the issue of the potential equity shares.
Important Question and Answers on Accounting Standards (Part-III)