A Presentation on

Operating Segments

Bilal Shah
Faizan Toor
Fizza Batool
Muddassir Mehmood
Operating Segments
History
 19th January 2006 IASB issued ED 8 Operating
Segments
 30th November 2006 Issuance Date of IFRS
 1st January 2009 Effective Date of IFRS 8
 16th April 2009 IFRS 8 Amended for Annual
Improvement
 1st January 2010 Effective Date of April 2009
Amendment to IFRS 8
CORE PRINCIPLES

 An entity shall disclose

information to enable users of
its financial statements to
evaluate the nature and
financial effects of the business
activities in which it engages
and the economic environments
in which it operates.
SCOPE
 IFRS 8 applies to individual and consolidated financial
statement of Company with a parent.

 Whose debt or equity is quoted on a public security

market.
 That is in the process of becoming quoted
Definitions
 Operating segments
 An operating segment is a component of an entity:

(a) that engages in business activities from which it

may earn revenues and incur expenses

(b) whose operating results are regularly reviewed by

the entity’s chief operating decision maker to make
decisions about resources to be allocated to the
segment and assess its performance, and

(c) for which discrete financial information is available.

 Chief operating decision makers

 Defines a function rather than an individual with a

specific title.

 Allocate resources

 Assess the operating results of the segments of an

entity.

Example: CEO,COO, Board Of Directors and its

committees
Quantitative Thresholds
 Assets are 10% or more of the combined assets

 Revenue is 10% or more of the combined revenue

 Profit or loss (in absolute amount) is 10% or more of

the greater of
a) Combined profit of all reporting segments that did not
reported a loss.
b) Combined loss of all operating segments that reported a
loss.
 Aggregation criteria
Two or more operating segments may be aggregated into a
single operating segment if they have similar economic
characteristics and the segments are similar in each of
the following respects:

a) The nature of product and service.

b) The nature of production processes

c) The type or class of customer for their product

and services

d) The methods used to distribute their

products or provide their services; and

e) If applicable, the nature of the regulatory

environment, for example, banking,
insurance or public utilities.
 Reportable Segments
 Entity shall report separately information
about each operating segment that:

a) Has been defined in accordance with the

definition defined above

b) Or is aggregated with other standard

c) Or exceed the quantities threshold

 75% Rule
 If total external revenue (of
reported segments) < 75% of
entity's revenue

a) Additional segments are reported

b) Even if they do not meet 10% Rule

Until total external revenue (of reported
segments) = 75% of entity's revenue.
 Measurement

 The IFRS requires the amount reported for each segment item
to be the measure reported to the chief operating decision
maker for the purposes of allocating resources to that
segment and assessing its performance.
 IFRS 8 does not define segment revenue, segment expense,
segment result, segment assets or segment liabilities, but
does require an explanation of how segment profit or loss,
segment assets and segment liabilities are measured for each
operating segment.
Identification of Operating segment
 Identify CODM

Is BC Generating Not an
Revenue & Incurring NO
Operating
Expenses segment
Yes
CODM review
performance of No Not an Operating
OS segment

Yes

Discrete
Financial Not an Operating
Information No segment
Available
Yes
 Meet
aggregation Yes Aggregate
Criteria Operating segment
if desired

No

Meet
quantities Disclose as
Yes Reportable
Threshold
Rule segment
No
 Some OS have
similar economic
characteristic & meet Combine the
yes operating
majority of
aggregation criteria segments if
desired &
disclose the
operating
segment
No

Dose the
revenue of Aggregate
reportable Remaining
segment a/c for yes segments into
75% of combine All other
revenue segments
category.
No
identify additional operating
segments & aggregate with
other reportable segments
until external revenue of all
segments > 75% of
combined returns

Yes

Disclose as
Reportable
segment
 Disclosure
 General information
(a) Factors used to identify the entity’s reportable
segments,
 For example, whether management has chosen to organize the
entity around differences in products and services, geographical
areas, regulatory environments, or a combination of factors and
whether operating segments have been aggregated), and

(b) Types of products and services from which each

reportable segment derives its revenues.

 Measure of Profit & loss, total asset & liability of each

reportable segment
 Revenue – internal & external
 Interest Revenue & Interest Expense
 Depreciation & Amortization
 Material Item of Income & expense disclosed separately
 Material non-cash items
 Additions to non-Current Assets.
 Reconciliation
 The total of the reportable segments' revenues to the entity's revenue
 The total of the reportable segments' profit or loss to the entity's
profit or loss
 The total of the reportable segments' assets to the entity's assets
 Where separately identified, the total of the reportable segments'
liabilities to the entity's liabilities and
 The total of the reportable segments' amounts for every other
material item disclosed to the corresponding amount for the entity.