Ind AS 108 is often remembered for the 10% tests, but the standard does not begin with percentages. It begins with how management actually views the business. The practical sequence is: identify the chief operating decision maker, identify the components whose results that decision maker regularly reviews, consider whether any operating segments may be aggregated, apply the quantitative reportability tests, then check whether reportable segments cover at least 75% of the entity's external revenue.
ICAI explains the management approach in its Educational Material on Ind AS 108 landing page. The current requirements can be checked in ICAI's 2025-2026 Ind AS Compendium, Volume I and the linked official Ind AS 108 text.
Step 1: Identify the chief operating decision maker
The chief operating decision maker, or CODM, is a function rather than a job title. Its function is to allocate resources to operating segments and assess their performance. Depending on the entity, that function may be performed by a chief executive officer, chief operating officer, a group of executive directors or another decision-making body.
Segment reporting therefore follows the information regularly reviewed for resource-allocation and performance decisions. Finance teams should start with the internal reporting pack and accountability structure rather than inventing segments from the statutory financial statements.
Step 2: Identify operating segments using the three-part test
Under Ind AS 108, a component is an operating segment when all three features are present:
- it engages in business activities from which it may earn revenues and incur expenses, including transactions with other components of the same entity;
- its operating results are regularly reviewed by the CODM for resource-allocation and performance-assessment decisions; and
- discrete financial information is available for the component.
A start-up activity can be an operating segment before earning revenue if the other conditions are met. A corporate headquarters or functional department, however, is not automatically an operating segment merely because it incurs costs.
Step 3: Do not aggregate segments too quickly
Two or more operating segments may be aggregated only when aggregation is consistent with the core principle, the segments have similar economic characteristics, and they are similar in the specified areas: products and services, production processes, type or class of customer, distribution or service-delivery methods and, where relevant, the regulatory environment.
Similarity should be documented, not assumed. The standard also requires disclosure of management's judgments in applying the aggregation criteria, including the operating segments aggregated and the economic indicators considered.
Step 4: Apply the three 10% reportability tests
After identifying operating segments and any permitted aggregation, an operating segment is separately reportable if it meets any one of the following quantitative thresholds:
- Revenue test: reported revenue, including external revenue and intersegment sales or transfers, is at least 10% of the combined internal and external revenue of all operating segments.
- Profit or loss test: the absolute amount of the segment's reported profit or loss is at least 10% of the greater, in absolute amount, of the combined profit of all profit-making operating segments and the combined loss of all loss-making operating segments.
- Asset test: segment assets are at least 10% of the combined assets of all operating segments.
A segment does not have to pass all three tests; passing one is enough. A below-threshold segment may also be separately reported when management believes that information would be useful to users.
Step 5: Apply the 75% external-revenue coverage rule
The 10% tests are not the end of the exercise. If the external revenue of the segments identified as reportable is less than 75% of the entity's total revenue, additional operating segments must be identified as reportable, even if they do not meet a 10% threshold, until at least 75% of the entity's revenue is included in reportable segments.
Activities and operating segments that remain non-reportable are combined into an all other segments category, separate from other reconciliation items, and the sources of revenue in that category are described.
Worked example: from operating segments to reportable segments
Assume an entity has five operating segments. Their external revenues are Rs. 50 crore, Rs. 20 crore, Rs. 12 crore, Rs. 10 crore and Rs. 8 crore. The first segment also has Rs. 5 crore of intersegment revenue, so combined internal and external revenue of all operating segments is Rs. 105 crore. The revenue threshold is therefore Rs. 10.5 crore.
On the revenue test alone, the first three segments are reportable because their reported revenues are Rs. 55 crore, Rs. 20 crore and Rs. 12 crore. Assume the fourth and fifth segments also fail the separate profit-or-loss and asset tests. The first three segments together contribute Rs. 82 crore of the entity's Rs. 100 crore external revenue, so they already cover 82% of external revenue. The 75% coverage requirement is satisfied and no extra segment needs to be added merely to meet that rule.
If the first three had covered only 70% of entity revenue, an additional operating segment would have to be added until coverage reached at least 75%, even if it failed all three 10% tests.
What happens when reportability changes between years?
A prior-year reportable segment should continue to be reported separately when management judges it to remain of continuing significance even if it drops below the thresholds. When a segment becomes reportable in the current period, comparative segment data is generally restated unless the information is unavailable and the cost to develop it would be excessive.
Key disclosures after the segment list is final
Ind AS 108 also requires information about how reportable segments were identified, segment profit or loss and specified items, and reconciliations of segment totals to entity amounts. Segment assets and liabilities are reported when those measures are regularly provided to the CODM, subject to the standard's detailed requirements.
Entity-wide disclosures also cover products and services, geographical areas and major customers. If a single external customer contributes 10% or more of entity revenue, the entity discloses that fact, the total revenue from each such customer and the segment or segments reporting it; the customer's identity need not be disclosed.
Practical year-end checklist
- Identify who or what performs the CODM function and retain evidence of that conclusion.
- Obtain the internal reports regularly reviewed by the CODM.
- Map components against the three operating-segment characteristics.
- Document any proposed aggregation against every relevant aggregation criterion.
- Run the revenue, profit-or-loss and asset 10% tests using consistent source data.
- Check that reportable segments cover at least 75% of entity external revenue.
- Reconsider prior-year reportable segments and comparative restatement requirements.
- Prepare the required segment, reconciliation and entity-wide disclosures, including major-customer concentration where applicable.
Common mistakes to avoid
- Starting with the 10% thresholds before identifying operating segments from CODM reporting.
- Aggregating components because they are convenient to present without documenting similar economic characteristics and the other criteria.
- Forgetting that intersegment revenue is included in the revenue threshold calculation.
- Applying the revenue test but overlooking the independent profit-or-loss and asset tests.
- Stopping after the 10% tests and missing the 75% external-revenue coverage requirement.
Practical takeaway
Ind AS 108 is a management-view standard first and a threshold standard second. Begin with the CODM and the internal information that drives resource-allocation decisions, identify genuine operating segments, justify any aggregation, apply each 10% test, then perform the 75% coverage check. A documented sequence makes the final segment note easier to prepare, audit and defend.
