Ind AS 108 follows the way senior management actually runs the business. It does not begin with a list of industries or a 10% calculation. The first question is: which business results does the chief operating decision maker regularly review when allocating resources and assessing performance?
The current requirements are in ICAI's 2025–26 Ind AS 108 text. ICAI's educational-material page also explains the management approach.
A clean sequence for the exercise
| Step | Question | Output |
|---|---|---|
| 1 | Who or what performs the CODM function? | Document the decision-making function, not merely a job title. |
| 2 | Which components meet all three operating-segment conditions? | A complete list of operating segments. |
| 3 | Can any segments be aggregated? | A documented aggregation conclusion. |
| 4 | Which segments meet any 10% test? | The first list of reportable segments. |
| 5 | Do those segments cover at least 75% of external revenue? | Add segments if necessary, then finalise the reportable list. |
1. Identify the CODM and operating segments
The chief operating decision maker (CODM) is a function. It may be performed by a CEO, COO, a group of executive directors or another body. Its purpose is to allocate resources and assess segment performance.
A component is an operating segment only when all three conditions below are met.
| Condition | Evidence to look for |
|---|---|
| Business activity | The component may earn revenue and incur expenses, including transactions with other components. |
| Regular CODM review | Its results are regularly reviewed for resource-allocation and performance decisions. |
| Discrete financial information | Separate financial information is available for that component. |
A start-up activity may be an operating segment even before it earns revenue. A corporate head office or support department is not automatically a segment merely because it incurs costs.
If the financial report includes both consolidated financial statements and the parent's separate financial statements, Ind AS 108 requires segment information only in the consolidated financial statements.
2. Aggregate only when the evidence supports it
Convenient presentation is not enough. Two or more operating segments may be aggregated only when aggregation is consistent with the standard's core principle, the segments have similar economic characteristics, and they are similar in the relevant areas: products or services, production processes, customer type, distribution method and regulatory environment.
The file should explain which segments were combined and which economic indicators—such as long-term margins—support the conclusion. If you are comparing this management approach with the framework for non-Ind AS financial statements, see the AS 17 reportable-segment guide.
3. Apply all three 10% tests
A segment becomes separately reportable if it passes any one of these tests.
| Test | 10% threshold | Important detail |
|---|---|---|
| Revenue | 10% of combined external and intersegment revenue of all operating segments | Use the segment's external revenue plus intersegment sales or transfers. |
| Profit or loss | 10% of the greater of total profits of profit-making segments and total losses of loss-making segments, both taken in absolute amount | Test the absolute amount of each segment's reported profit or loss. |
| Assets | 10% of combined assets of all operating segments | Use the asset measure reported to the CODM. |
A segment need not pass all three tests. Management may also report a below-threshold segment separately when that information would be useful to readers.
Worked example: five segments, all tests completed
Assume a company has five operating segments. Amounts are in ₹ crore.
| Segment | External revenue | Intersegment revenue | Reported revenue | Profit/(loss) | Assets |
|---|---|---|---|---|---|
| A | 50 | 5 | 55 | 8.0 | 100 |
| B | 20 | 0 | 20 | 3.0 | 40 |
| C | 12 | 0 | 12 | (2.0) | 30 |
| D | 10 | 0 | 10 | 0.8 | 25 |
| E | 8 | 0 | 8 | (0.4) | 5 |
| Total | 100 | 5 | 105 | 200 |
Revenue threshold: 10% × ₹105 crore = ₹10.50 crore. Segments A, B and C pass. D has reported revenue of ₹10 crore, so it does not pass this test.
Profit-or-loss threshold: profits are ₹8 + ₹3 + ₹0.8 = ₹11.80 crore. Losses are ₹2 + ₹0.4 = ₹2.40 crore in absolute amount. The greater amount is ₹11.80 crore, so the threshold is 10% × ₹11.80 crore = ₹1.18 crore. A, B and C pass because the absolute amount of each result exceeds ₹1.18 crore.
Asset threshold: 10% × ₹200 crore = ₹20 crore. A, B, C and D pass.
| Segment | Revenue test | Profit/loss test | Asset test | Reportable after 10% tests? |
|---|---|---|---|---|
| A | Pass | Pass | Pass | Yes |
| B | Pass | Pass | Pass | Yes |
| C | Pass | Pass | Pass | Yes |
| D | Fail | Fail | Pass | Yes |
| E | Fail | Fail | Fail | No |
4. Perform the 75% external-revenue check
The reportable segments A to D contribute ₹50 + ₹20 + ₹12 + ₹10 = ₹92 crore of the company's ₹100 crore external revenue. Coverage is therefore 92%, so the 75% rule is satisfied.
Notice the different denominators: the revenue 10% test used ₹105 crore, including intersegment revenue, while the 75% check used the company's ₹100 crore external revenue.
If the segments selected after the 10% tests covered only ₹70 crore of ₹100 crore external revenue, the company would add one or more remaining operating segments until coverage reached at least ₹75 crore. A segment can therefore become reportable under the 75% rule even when it fails every 10% test.
5. Finish the disclosures and reconciliations
- Explain how reportable segments were identified and disclose aggregation judgements.
- Report the CODM measure of segment profit or loss and the specified items regularly provided to the CODM.
- Report segment assets and liabilities when those measures are regularly provided to the CODM.
- Reconcile reportable-segment revenue, profit or loss, assets, liabilities and other material items to the entity's figures.
- Provide applicable entity-wide information for products and services, geographical areas and major customers.
When one external customer contributes 10% or more of entity revenue, disclose that fact, the total revenue from each such customer and the segment or segments reporting it. The customer's identity need not be disclosed.
A prior-year reportable segment may continue separately if management considers it significant. When a segment first becomes reportable in the current period, comparative information is generally restated unless the information is unavailable and developing it would be excessively costly.
For the audit evidence needed around allocations and reconciliations, the related segment-information audit guide provides a separate testing checklist.
Year-end working-paper checklist
- Identify the CODM function and retain the internal reports it reviews.
- Map every component against all three operating-segment conditions.
- Document each aggregation conclusion instead of assuming similarity.
- Calculate revenue, profit-or-loss and asset thresholds separately.
- Apply the 75% external-revenue check after the 10% tests.
- Revisit prior-year segments and comparative restatement.
- Prepare the segment note, entity-wide disclosures and reconciliations from the same controlled data.
The practical order matters: identify segments from the management view first, then use the thresholds. Starting with percentages can produce a neat calculation for the wrong set of components.
