2. What is segment reporting :-
Segment reporting is the reporting of the operating
segments of a company in the disclosures accompanying its
financial statements. Segment reporting is required for
publicly-held entities. and is not requires for privately held
ones. Segment reporting is intended to give information to
investors and creditors regarding the financial results and
position of the most important operating units of a company,
which they can use a the basis for decision related to the
Under generally Accepted Accounting principles(GAAP), an
operating segment engages in business activities from which it
may earn revenue and incur expenses, has discrete financial
information available and whose results are regularly reviewed
by the entity’s chief operating decision maker for performance
assessment and resource allocation decision.
3. Segment reporting rules
Follow these rules to determine which
segment need to be reported:-
1. Aggregate the results of two or more segments if they have similar
products, services, processes, customers, distribution methods,
and regulatory environments.
2. Report a segment if it has atleast 10% of the revenues,10% of the
profit or loss, or 10% of the combined assets of the entity.
3. If the total revenue of the segments you have selected under the
preceding criteria comprise less than 75% of the entity’s total
revenue , then add more segment until you reach that threshold
4. You can add more segments beyond the minimum just noted. But
consider a reduction if the total exceeds ten segments.
4. Objectives of Segmention
The objectives of segment
reporting are desribed as under-
* For a better understanding of the performance and evaluation of
the organization’s results.
* To provide the information to the stakeholders about the
important units of the organization to evaluate and make
decisions about the investment.
* To make the accounts more transparent and understandable.
* To make better decisions by taking in mind the business from
* For a better analysis of the risk and returns of the organization.
* To analyze the most profitable or Loss-making units.