Description
The study is confined to Alucast Foundries Belgaum Pvt. Ltd. It is a study describing the Segment Reporting system, wherein the profit and losses generated by every segment would be studies to provide a detailed segment report in order to understand which of the product categories is actually doing well.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
Executive Summary
TTLE
Segment Reporting in a Foundry (Alucast Foundries Belgaum Pvt. Ltd.)
!EE" F#R T$E ST%"&
Many enterprises provide groups of products and services or operate in
geographical areas that are su!ect to differing rates of profitaility" opportunities
for gro#th" future prospects" and ris$s. %nformation aout different types of
products and services of an enterprise & often called segment information & is
relevant to assessing the ris$s and returns of a diversified and'or multi&location
enterprise ut may not e determinale from the aggregated data. (herefore"
reporting of segment information is #idely regarded as necessary for meeting the
needs of users of financial statements.
#B'E(T)ES #F T$E ST%"&
• (o study the foundry (Alucast Foundries Belgaum Pvt. Ltd.)
• (o study and understand AS )* and its applicaility to a foundry
• (o segment P+L account as per AS)*
• (o calculate profitaility of each segment
S(#PE #F T$E ST%"&
(he study is confined to Alucast Foundries Belgaum Pvt. Ltd. %t is a study
descriing the Segment Reporting system" #herein the profit and losses generated
y every segment #ould e studies to provide a detailed segment report in order
to understand #hich of the product categories is actually doing #ell.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
SA*PLE "ES+!
(he study of the Segment reporting techni,ue #ith regards to Alucast Foundries
Pvt. Ltd. is ased on Secondary data. (he secondary data is ta$en from pulished
material.
*ET$#"#L#+&
• -alculate investment" cost and revenue for ma!or product categories
• %dentify segments in the set up
• -alculate profitaility on each of the segments
• -onclude
& .hich of the product categories is actually doing #ell and #hich is not
& %f segment reporting is eneficial for such organi/ations as Alucast
L*TAT#!S
). (he time allotted to undergo the concurrent pro!ect #as not sufficient to study
all the aspects of the organi/ation.
0. (here is no compulsion to maintain the oo$s of accounts #ith regards to
costing records according to the la# for small scale industries" therefore the
study got limited to availale ra# information.
1. (he Accounting Standard )* is not mandatory for the organi/ation hence data
regarding different segments got limited to the availale information.
2. (he ,uantity details otained are appro3imated values as the accurate ,uantity
details at different stages are difficult to asses #ithout the maintenance of
records at every stage of the process of casting.
4. (he study done in the pro!ect is purely for academic purpose only.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
RES%LTS
As per the PA( values in the segment report the first segment 5entilated 6isc
appears to e performing etter than the other t#o segments. Alucast needs to do
some analysis on the Fly#heel segment in order to see that all the segments are
performing as per their plans.
S%++EST#!S
Segment reporting system should e installed in the day to day accounting of
companies irrespective of #hether it is mandatory or not.
F%T%RE S(#PE
(he System of segment reporting has een e3perimented on only one of the
locations of Alucast %ndustries. (he study may e continued to include all the
geographic segments
!"E,
($APTER PART(%LARS
PA+E
!#.
Ac-no.ledgement
Executive Summary
% A /rie0 1istory o0 metal 0orming )
%% Foundry ndustry 1
%%% (ompany Pro0ile 2
%ntroduction
Share holders
7steemed customers
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
Registered office and #or$s
Plant and Machinery used
8ours and environment
S$ills and personal ,ualities
%5 Process 0lo. 0or t1e production o0 casting 9
-asting
Sand -asting
6esign
Pattern ma$ing
Mould ma$ing
Machine moulding
8and moulding
-ore ma$ing
Melting and pouring
Pouring
Shot lasting" fettling and painting
5 (ost Accounting )*
%ntroduction
Scope of cost accounting
:!ectives of cost accounting
Advantages of cost accounting
Limitations of cost accounting
(raditional costing today
;o -osting
5% Accounting Standard and Financial Statements 0*
%ntroduction
:!ectives of Accounting Standards
Advantages of Accounting Standards
6isadvantages of Accounting Standards
:!ectives and funtions of the Accounting Standards Board
Rationale of Accounting Standards
%nternational harmoni/ation of Accounting Standards
Accounting Standards setting in %ndia
-omposition of Accounting Standards Board
(he Accounting Standards setting process
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
Present status of Accounting Standards in %ndia in
harmoni/ation #ith the %nternational Accounting Standards
-ompliance #ith Accounting Standards
:!ective of Financial Statements
Financial Position" Performance and -ash
<otes and Supplementary Schedules
7lements of Financial Statements
Financial Position
Assets
Laiilities
7,uity
Performance
%ncome
73penses
-apital maintenance ad!ustments
Recognition of the elements of financial statements
(he proaility of future economic enefits
Reliaility of measurement
Recognition of Assets
Recognition of Liailities
Recognition of %ncome
Recognition of 73penses
5%% Accounting Standard (AS234) 4=
Segment Report
:!ectives
Scope
6efinition
%dentifying reportale segments
Business and >eographical Segments
Reportale Segments
Segment accounting policy
6isclosure
Primary reporting format
Secondary segment information
%llustrative segment disclosures
ther 6isclosures)
%llustrative % (6etermination of Reportale Segments)
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
%llustrative %% (Segment Report)
%llustrative %%% (Summary of Re,uired 6isclosure)
A diagrammatic representation of segment reporting
5%%% (alculations and Segment Report 94
-ost Sheet
-alculation of Profit after (a3
Segment Report
%? (onclusion 99
Re0erences and Bi/liograp1y 9@
-8AP(7R %
A Brief 8istory of Metal Forming
(he earliest human eing inhaited the earth over )=="=== years ago.
Archaeological studies have revealed that he had already discovered the
phenomenon of fire and learnt to use it for his o#n enefit. Surprisingly it too$
him another @4 thousand years efore he discovered ho# to use fire to e3tract
metal from the earthAs crust and put it to use. %nitially metals #ere used for
adornment B coms" nec$laces and racelets for e3ample" #hich #ere made from
gold and silver" the easiest of metals to e3tract from their ores. (hen he discovered
the more common and useful copper" #hich he learned to harden y alloying it
#ith other metals to form ron/e. (he >ree$s and the Romans in the centuries
immediately efore -hrist ecame the first true masters of the art of casting
metalC their eautiful ron/e sculptures" coins" ornaments and utensils are the
legacies #e continue to admire. Last of all came iron" the most common metal ut
the most difficult to #or$" Dnli$e the other metals #hose relatively lo# melting
points allo#ed them to e cast in moulds" iron had to e forged" that is heated to
ma$e it soft and then eaten into the necessary shapes. %t #as to e several
hundred years efore the discovery of a method of attaining temperatures
sufficiently high to $eep iron molten long enough to cast into shapes.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
<evertheless the %ron Age #as truly the eginning of history. .hen man learned
to shape this metal he egan to transform life. For the first time he had made
himself materials that could perform miracles in providing tools" utensils and
#eapons and" in the distant future" machines.
%n )*=@ Araham 6ary developed co$e at -oalroo$dale" very often regarded as
the irthplace of the industrial revolution. %n fact if it #ere not for coal and the
s$ill of iron casting it may not have een a revolution B !ust a prolonged
evolution. %t #as the co$e used to smelt iron that gave the great inventors the
material from #hich they could ma$e their machines" the most revolutionary
eing the steam engine developed y ;ames .att in the )*E=As. %n )*9= the #orld
sa# its first iron ridge made from cast materialC then over the turn of the century
the great iron #or$s really came into their o#n as steam #as harnessed to po#er
iron locomotives and ships. (housands of miles of cast iron rail#ays #ere laid
and scores of iron ridges #ere uilt across rivers and straits. Steel" #hich had
een made in relatively small amounts since )*11 #hen Ben!amin 8untsman
developed his crucile process" suddenly ecame freely availale #hen Sir 8enry
Bessemer invented his famous converter in )944 #hich made large scale
production possile.
7lectric motors" motor cars" diesel engines" underground rail#ays" photography"
the #ireless" the computerC all appeared in this most inventive of centuries" :n the
domestic front vacuum cleaners" #ater closets" icycles and scores of other
products #ere invented. And the men of metal contriuted their s$ills to them all.
(he t#entieth century opened up #ith the first successful po#ered flight and the
introduction of the mass production of motor cars. (echni,ues of metal casting
changed to cater for the enormous demands of these ne# industries and more so
#hen" #ithin a fe# years" oth modes of transport #ere eing used in the first all&
metal #ar et#een )@)2 and )@)9. Aluminium" introduced to the metal industry
in )@=@" provided the strong light#eight material that #as to satisfy manAs long
time universal yearning to fly. Dltimately its derivatives opened up the very
heavens for him. Space e3ploration commenced in the )@4=As" man landed on the
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
moon in )@E@ and countless satellites and space proes #ere pro!ected into the
universe. :nce again the art of metal molding came into its o#n as an essential
part of the aerospace industry.
(oday the casting industry contriutes to information technology" food
production" telecommunications" nuclear po#er and #orld finance. %t can e
confidently predicted that as the human race continues its progress" #hatever ne#
materials are utili/ed" the casting industry #ill e there to serve it. .hoever enters
the metal casting usiness today #ill doutless help to ta$e it into its seventh
millennium as possily manAs oldest and most essential s$ill.
-8AP(7R %%
Foundry %ndustry
Since the days of the first horseless carriage" engineers have relied upon the
metal&casting process to po#er" control and staili/e their ever&demanding
vehicles. (he automoile depends on castings" from the engine to the ra$es. %t
also presents a platform for casting design to shine.
(he aility of fluid to assume the shape of its container is e3ploited y casting
processes" #hich involve melting and pouring li,uid metal into a sand or metal
mould and allo#ing it to solidify" yielding a shape close to that of the desired
product. Metal casting continues to e the preferred process for intricate shapes of
any si/e and #eight #ith varying #all thic$ness and internal features. (he flo# of
molten metal in the mould and suse,uent solidification affect casting ,uality.
(his can e controlled y appropriate design of the mould" including the cavities
corresponding to the casting" gating channels and feeders.
(he %ndian Foundry %ndustry occupies a special place in shaping the countryAs
economy. %ndia is currently among the )= largest producers of ferrous and non&
ferrous castings and has over E4== foundries in the small" medium" and large scale
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
sectors. Appro3imately @=F are in the small scale. %ndia e3ports annually aove
Rs.*=='& crores #orth of castings to countries li$e DSA" D.G." -anada" >ermany
etc.
(he future holds great promise for the metal casting industry. <e# advances have
allo#ed the industry to employ materials such as aluminum" magnesium"
titanium" /inc" advanced copper& ased" and advanced ferrous alloys to produce
thin #all" high&strength castings #ith higher precision castings and more comple3
shapes. But to remain competitive and maintain a viale domestic industry"
challenges must e overcome in industry recognition" casting design" processing
efficiency" and employment attractiveness.
-8AP(7R %%%
-ompany Profile
%<(R:6D-(%:<
Alucast Foundries Belgaum Pvt. Ltd. 7stalished in )@@E. Alucast Foundries is
the ma!or driving force ehind the smooth and troule free #heeling of the
countryAs passenger cars. :ne of the largest and speciali/ed manufacturers of
ra$e discs for passenger cars. Alucast Foundries speciali/es in the high precision
product. (he Bra$e discs are of the solid and ventilated type and are supplied in
either fully finished or semi&finished forms. (he proved technology for porosity
free castings has een put to use" along #ith less than 4F Ferrite control and
asence of carides. Advanced -<- machines provide a fine finish to all castings.
Fly .heels and Pressure Plates for -lutches" ranging from 2 to 2= $gs. in #eight"
are the other ma!or products in this category. Alucast Foundries supplies different
grades of ra$e discs vi/. f> 04=" >8 )@=" >>>04 stc.
(his speciali/ed field of casting has" off late" ecome a routine& part and parcel B
of the product range of Alucast foundries. .ith the est technology and e3pert
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
manpo#er" a #ide range of products in the category have een instrumental in the
smooth operations of many a core sector. Alucast Foundries maintain a modularity
of more than 94 F #ell formed nodules and controlled proportions of Pearite and
Ferrite in the availale matri3" are the asic of this fla#less ,uality castings.
5arious grades such as 2==')0" 2==')4" 24=')4" 4=='*" E=='1 and *=='0 are among
the casting manufactured. A #ide product range pertaining to international
standards is a silent feature of Alucast Foundries. 8us" 7nd -ollars and other
castings for 7arth moving machinery" adhering to 6%<" BS" %S and AS(M have
een ma$ing their mar$ in the domestic as #ell as the overseas mar$ets.
Area coveredH 2 acresC Built up areaH 1="=== s,. feet
Po#er consumptionH E4= $ilo #atts
%nstalled capacityH 1=== M(
.or$ing capitalH )"0="=="===C 73port creditH 9="=="===
%S:H ;uly 0===C %S: (echnical Specification certificateH Septemer 0==2
(otal share holdingH 40"=="===
S$ARE $#L"ERS
). Mr. San!ay Bichu (M6)
0. Mrs. Purnima Bichu (6%R)
1. Mr. 5.>. Gul$arni (6%R)
2. Mr. >opal Bichu
4. Mrs. Sudha B. Bichu
E. 6r. Mrs. 8ema Gul$arni
*. Mr. <i$hil Gul$arni
ESTEE*E" (%ST#*ERS
• Galyani Bra$es Ltd.
• B-S%L" ;alagaon
• A3letech" DG
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
• %(M
• L+( Gomatsu
• <>7F
• %L;%< Automotive Pvt. Ltd.
RE+STERE" #FF(E A!" 5#R6S
#00iceH 5or-s7
B')E GSS%6- %nd. 7state" EE2'0 .agh#ade Road"
Angol Belgaum 5illage Mache" Belgaum
%ndia B 4@===9 %ndia B 4@==)2
Phone <o.H 022=@E*" 40=0=0@ Phone <o.H 02))2@)
Fa3 <o. H 022)=@9
7mail H alucastIsanharnet.in
PLA!T A!" *A($!ER& %SE"
• Sand mi3er + Muller
• Molding machine
• Sand cooler
• -onveyer
• -ore ma$ing machine + core oven
• -upola
• Spectrometer (Alloy (esting meter)
• %nduction furnace
• Automatic pouring machine
• Shot lasting
• -<- lathe
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
$#%RS A!" E!)R#!*E!T
Foundry process operators usually #or$ 29 hours a #ee$" often on a shift system"
#hich can include evenings and #ee$ends. :vertime is li$ely to e availale.
Foundries are not the dirty" dusty places they used to e and most have fume and
dust e3tractors. 8o#ever" the furnace area is hot" and some processes still cause a
certain amount of dust. (he use of lifting e,uipment has ta$en some of the hard
physical effort out of the #or$. Foundries can e dangerous places" and foundry
process operatives #ear safety clothing including overalls" safety shoes" hard hats"
eye shields" earplugs and gloves.
S6LLS A!" PERS#!AL 8%ALTES
Foundry process operators need
• to e good #ith their hands
• good hand&to&eye co&ordination
• a steady hand to carry out delicate #or$
• good communication s$ills
• the aility to #or$ under supervision
• to #or$ #ell as part of a team
• a fle3ile attitude to do a range of different !os
• a serious attitude to safety issues
• good physical fitness.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
-8AP(7R %5
Process flo# for the production of casting
(AST!+
-asting is a method for creating one or more copies of an original piece of
sculptural (three&dimensional) art#or$. -asting is a manufacturing process" in
#hich #e pour molten metal in the pre&made mouldC mould may e of sand or of
metal" and let it e solidified. After solidification and removal of the mould the
metal ta$es the desired shape. Four main elements are re,uired in the process of
casting pattern" mold" cores" and the part. (he pattern" the original template from
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
#hich the mold is prepared" creates a corresponding cavity in the casting material.
-ores are used to produce tunnels or holes in the finished mold" and the part is the
final output of the process.
SA!" (AST!+
Sand casting" #hich in a general sense involves the forming of a casting mold
#ith sand" includes conventional sand casting and evaporative pattern (lost&foam)
casting. %n sand casting" re&usale" permanent patterns are used to ma$e the sand
moulds. (he preparation and the onding of this sand mould are the critical step
and very often are the rate&controlling step of this process. (#o main routes are
used for onding the sand mouldsH
? (he Jgreen sandJ consists of mi3tures of sand" clay and moisture.
? (he Jdry sandJ consists of sand and synthetic inders cured thermally or
chemically.
%n conventional sand casting" the mold is formed around a pattern y ramming
sand" mi3ed #ith the proper onding agent" onto the pattern. (hen the pattern is
removed" leaving a cavity in the shape of the casting to e made. %f the casting is
to have internal cavities or undercuts" sand cores are used to ma$e them. Molten
metal is poured into the mold" and after it has solidified the mold is ro$en to
remove the casting. %n ma$ing molds and cores" various agents can e used for
onding the sand. (he agent most often used is a mi3ture of clay and #ater.
-asting ,uality is determined to a large e3tent y foundry techni,ue. Proper
metal&handling practice is necessary for otaining sound castings. -omple3
castings #ith varying #all thic$ness #ill e sound only if proper techni,ues are
used.
"ES+!
(he first production step for all castings ta$es place in the design office #here
ideas are converted into manufacturing dra#ings #hich guide the production team
to create the solid metal end products. 6esigners need a #ealth of information
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
efore they reach for their set s,uares. (he specified shape and si/e of the final
product is oviously needed ut #ith metal casting the designers needs to $no#
#hat stresses and conditions the products #ill have to #ithstand so that the
correct metal can e chosen. (hey #ill need to $no# ho# many castings are
needed. All these factors dictate #hich molding techni,ues to choose.
PATTER! *A6!+
:nce the customer and the rest of the production team have approved the design"
a pattern or model is made. (his can e produced in #ood" metal or plastic or
from a comination of all three. Patterns must e precise in their shape and finish"
for any mista$es are reproduced in the moulds #hich are made from them and
from #hich the final castings are formed. (hey must e made to allo# for the
shrin$age of the metal #hen it cools and they can include channels to allo# metal
to flo# into the casting shape. From the initial pattern a prototype or production
sample is usually made #ith #hich the customer can e3periment to ensure that the
final casting #ill e e3actly as re,uired.
*#%L" *A6!+
(he ne3t manufacturing step is moulding in #hich the pattern is pac$ed in a
moulding material" usually some type of sand" and then removed to leave the right
shape for the casting. Moulds can e made y hand" or machine. %n one casting
process the mould is made from a heat resistant metal. Moulds are usually made
in at least t#o parts and for very large castings they may even start out as large
holes dug into the sand floor of the foundry. 6ifferent types of sand are used for
moulding #ith additives li$e #ater and clay and various chemicals" depending on
the si/e of the mould and the types of metal that are eing cast. :ne important
feature of the mould is the running system #hich is a net#or$ of small channels
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
that leads the molten metal do#n into the casting shape. (he shapes and si/es of
these channels have to e carefully calculated to ensure that the molten metal does
not solidify efore it gets to the casting shape and to ma$e sure that it does not
flo# too fast #hen it could #ear a#ay the mould. Many castings are designed to
have cavities in them B engine loc$s" for e3ample. (hese voids" #hich have to e
as accurate as the outer moulds" are made y forming their shape in moulding
material. (he shapes" or cores as they are $no#n" are placed in the mould and
after the molten metal has solidified" the core material is removed leaving a
precisely shaped cavity ehind.
For mould preparation as per production plan a mi3ture of sand charge #hich
contains system sand" ne# sand" entonite" -L2 and de3trin is collected in the
uc$et. (he uc$et is raised and the sand is unloaded into the muller. Sand is
mi3ed for t#o minutes in dry condition #ith 4&)4 liters of #ater in the muller.
<e3t the sand is mi3ed for three minutes in #et condition. After this process is
completed the sand sample is measured and once the sample is ,ualified as per the
re,uired standards the mi3ture is dropped into the hopper.
*A($!E *#%L"!+
(o ma$e green sand moulds on the machine.
). (a$e inspected pattern and moulding pins from pattern shop
0. Fit pattern on machine #ith moulding pins and clean the pattern #ith diesel
spray and plumago po#der.
1. Place first o3 on match plate and sieve on it. (a$e some initial system sand
and sieve it through sieve. Remove sieve.
2. Fill the half o3 #ith system sand and !olt. Place the spruce cup on position
(for top o3 moulding only).
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
4. 6o !olting and ram the sand #ith pneumatic hand rammer.
E. Fill full o3 #ith sand and !olt. S,uee/e the sand and do simultaneous
!olting.
*. Remove spruce cup from top o3 and do random venting.
9. Lift the o3 #ith lifting rods and remove it from machine #ith electrical
hoist.
@. Before $eeping ottom o3 on pallet" clean pallets thoroughly. -lean the
ottom o3 mould #ith air. Place the stained core as specified and cores for
cored items.
)=. Ma$e proper venting for top o3" clean it #ith air and close the o3.
)). %nsert the closing pins into o3 ushes.
)0. Mar$ the o3 #ith heat numer and serial numer #ith chal$. Move the o3
for pouring.
$A!" *#%L"!+
(o ma$e green sand moulds and -:0 sand moulds manually.
a) +reen sand 1and moulding
). (a$e inspected pattern" propagating system for loose patterns and moulding
pins from pattern shop.
0. Select proper si/ed o3es and moulding pins.
1. Place pattern on ground and o3 on it. -lean the pattern #ith air and apply
diesel and plumago po#der.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
2. -over the patter #ith green sand mi3 upto 1=&2= mm appro3imately an
dram it properly.
4. -over this sand #ith a$ing sand and ram it properly till o3 fills
completely.
E. Ma$e proper venting and scrape the surface to remove access sand if any.
*. Repeat the procedure for top o3 moulding. For loose pattern moulding turn
the ottom o3 moulded #ith pattern and then mould the top o3 on it.
9. Remove pattern from mould.
@. -lose the o3es for pouring.
/) (#9 sand moulding
). (a$e inspected pattern" propagating system for loose patterns and moulding
pins from pattern shop.
0. Select proper si/ed o3es and moulding pins.
1. Place pattern on ground and o3 on it. -lean the pattern #ith air and apply
diesel and plumago po#der.
2. -over the patter #ith green sand mi3 upto 1=&2= mm appro3imately and
dram it properly.
4. -over this sand #ith a$ing sand and ram it properly till o3 fills
completely.
E. Ma$e proper venting and scrape the surface to remove access sand if any.
*. Pass -:0 gas through the vents for half minute appro3imately per vent.
9. Repeat the procedure for top o3 moulding. For loose pattern moulding" turn
the ottom o3 moulded #ith pattern and then mould the top o3 on it.
@. Remove pattern from mould.
)=. Paint the moulds #ith spirit paint y spraying.
)). 8eat the moulds #ith diesel or LP> urners.
)0. After cooling close the o3es.
(#RE *A6!+
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
>ood core ma$ing egins #ith high ,uality core sand preparation. (he
preparation of cores from sand mi3er consists of the follo#ing procedure
Preparation of sand mi3 for core ma$ing on compa3 machineH
(a$e 0= $gs. of dry sand of AFS numer 4=&44. Add =.0 to =.04 $g of Resin and
mi3 manually for 0&1 minutes. Add =.0 to =.04 $g. of inder and mi3 manually for
1&2 minutes. Feed the sand into hopper.
Preparation of sand mi3 for oil and -:0 core ma$ingH
:il sand coreH (a$e )2= $gs. of ne# sand of AFS numer E=&E4 in sand muller.
Add 2.4 to 4 liters of core oil and mi3 it for E minutes. Add 2.4 to 4 $gs. of
de3trin. 0.4 to 1 $gs. of Bentonite and mi3 for E minutes. Add =.4 to ).4 liters of
#ater in sand and mi3 for 1 minutes.
-:0 sand coreH (a$e )2= $gs. of dry sand of AFS numer 4=&44. Add )= $gs. of
sodium silicate and mi3 it for )0 minutes.
Preparation of cold o3 cores on compa3 machineH
(a$e the inspected core o3es from pattern shop. %nstall the core o3 on the
machine #ith proper fittings.
erate the cycle from control panel. (a$e out the
core from the machine. (he core hardness should e 4F #ith scratch hardness
tester" #ithin *4 to @4.
(o prepare -:0 and oil sand cores from sand mi3H
a) #il sand core7
). (a$e the inspected core o3 from pattern shop.
0. (a$e the sand mi3.
1. Fill core o3 #ith sand mi3 and ram #ith #ooden rammer.
2. After ramming scrap the e3cess sand from top surface.
4. Ma$e the proper venting in core.
E. Remove the core from core o3 and $eep them atch #ise.
*. 8eat the cores atch #ise in oven to remove moisture.
9. Paint the cores #ith spirit paint if applicale.
/) (#9 sand core7
). (a$e the inspected core o3 from pattern shop.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
0. (a$e the sand mi3.
1. Fill core o3 #ith sand mi3 and ram #ith #ooden rammer.
2. After ramming scrap the e3cess sand from top surface.
4. Ma$e the proper venting in core.
E. Pass the -:0 gas from the vents for half minute per vent.
*. Remove the core from core o3 and $eep them atch #ise.
9. Paint the cores #ith spirit paint y spray painting.
@. 8eat the cores #ith the help of diesel' LP> urner.
*ELT!+ and P#%R!+
(o operate the furnace for M7L(%<> metalH
). S#itch on the po#er supply to the furnace.
0. (a$e the furnace charge as per the charge sheet and melt it in furnace.
1. Slo#ly increase the po#er supply to full rating. Add the alloys into furnace
as per charge sheet for alloy addition add -% oring aout 04&1= $gs. if
availale.
2. Spread slag po#er over molten metal surface and remove slag.
4. Pour the sample in -7 cup for chec$ing - and Si F.
E. Pour one sample in die for spectrometer analysis
*. Pour one chill efore inoculation and another after inoculation.
9. Spread slag po#der over molten metal surface and remove slag.
@. Mg. treatment for S> ironH add 4.4 $gs. of FeSiMg and 0&1 $gs. -R-
punching at the ottom of treatment ladle. Place cover and clamp it. Pour the
metal.
P#%R!+
(here are t#o #ays of pouring metal. Manually pouring and poring #ith the help
of ladle. (o prepare ladle for pouring scrap clean the ladle completely. (a$e
silicate )= $gs." sand )2= $gs. and Bentonite ) $g. Apply thin layer of sodium
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
silicate from inside ladle. Ma$e the lining of sand appro3imately 04 mm. #ith flat
#ooden rammer. Ma$e spout of 04&1= mm on one side. Ma$e spout mouth at the
ottom 2=&4= mm in length" )4&0= mm in #idth. Spray sprit paint on lining. 8eat
the ladle #ith diesel or LP> urner to remove moisture.
S$#T BLAST!+: FETTL!+ ; PA!T!+H
S1ot /lastingH Load the castings on hanger 1== to 14= $gs. push the hanger inside
the machine and close the door tightly. Start the machine and timer. After time is
over" pull the hanger out from the machine. Remove castings and hand over to
fettling.
Fettling7 Remove all the e3cess material from castings y chipping and grinding.
Painting7 Apply rust preventive polymer paint to the non&machining areas of the
casting.
n today<s competitive mar-et: you can<t a00ord to miss t1e savings and
tec1nical advantages 0rom reclamation.
Modern foundries demand optimi/ed control over molding sand preparation in
order to minimi/e costs and ma3imi/e the performance of the molding sand
preparation system. (ightly controlled sand properties allo# for lo#&defect" high&
,uality mold and casting production. For optimal performance" molding sand
control must egin long efore final mulling. Molding sand at sha$eout can have
#ide variations in temperature" moisture content" and physical properties. 8ot
sand leads to casting scrap" mi3ing inefficiency" material handling and
environmental prolems. Precise control over final sand preparation demands
that et#een sha$eout and final mulling" the return sand is lo#ered in temperature
and homogeni/ed.
Sand is the largest foundry process #aste" typically constituting aout *=F of
total #aste volume. Fortunately" most foundry sands are reclaimale and can e
effectively reused.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
T1e /asic reasons 0or reclaiming sand
t<s (ost Saving7 (he costs of molding and core sand continue to increase
significantly and cut into foundry profitaility. (o lo#er the cost of producing a
casting foundries desire to reduce total sand cost #hich includes the purchase
cost" delivery cost" unloading" storing" handling and disposal costs including" in
some instances" ever more e3pensive landfill fees.
t<s Environmentally Responsi/le7 7nvironmentally" itKs ecoming increasingly
more difficult to dispose of great ,uantities of #aste sand into a landfill.
t $as Tec1nical Advantages7 (echnically" reclamation is of interest ecause
many foundries report that etter castings can e made at lo#er costs" from
reclaimed sand
-8AP(7R 5
-ost Accounting
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
!TR#"%(T#!
-ost Accounting is the classifying" recording and appropriate allocation of
e3penditure for the determination of the costs of products or services" and for the
presentation of suitaly arranged data for purposes of control and guidance of
management. %t includes the ascertainment of the cost of every order" !o"
contract" process" service or unit as may e appropriate. %t deals #ith the cost of
production" selling and distriution" it is the provision of such analysis and
classification of e3penditure as #ill enale the total cost of any particular unit of
production or service to e ascertained #ith reasonale degree of accuracy and at
the same time to disclose e3actly ho# such total cost is e3ecuted so as to control
and reduce its cost.
(hus" -ost Accounting relates to the collection" classification" ascertainment of
cost and its accounting and control relating to the various elements of cost. %t
estalishes udgets and standard costs and actual cost of operations" processes"
departments or products and the analysis of variances" profitaility and social use
of funds.
-ost Accounting is the application of costing and cost accounting principles"
methods and techni,ues to the science" art and practice of cost control and the
ascertainment of profitaility. %t includes the presentation of information derived
there from for purposes of managerial decision&ma$ing. (hus L-ost Accountancy
is the science" art and practice of a cost accountantA. %t is a science ecause it is a
ody of systematic $no#ledge having certain principles #hich a cost accountant
should posses for proper discharge of his responsiilities. %t is an art as it re,uires
the aility and s$ill #ith #hich a cost accountant is ale to apply the principles of
cost accountancy to various managerial prolems. Practice includes the
continuous efforts of a cost account in the field of cost accountancy. Such efforts
also include the presentation of information for the purpose of managerial
decision&ma$ing and $eeping statistical records.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
S(#PE #F (#ST A((#%!T!+
). (ost Ascertainment7 %t deals #ith the collection and analysis of e3penses"
the measurement of production of the different products at the different
stages of manufacture and the lin$ing up of production #ith the e3penses.
0. (ost Accounting7 %t is the process of accounting for cost #hich egins #ith
recording of e3penditure and ends #ith the preparation of statistical data. %t
is a formal mechanism y means of #hich costs of products and services are
ascertained and controlled.
1. (ost (ontrol7 -ost -ontrol is the guidance and regulation y e3ecutive
action of the costs of operating and underta$ing. %t aims at guiding the actual
to#ards the line of targetsC regulates the actuals if they deviate or vary from
the targetsC this guidance and regulation is done y an e3ecutive action.
#B'E(T)ES #F (#ST A((#%!T!+
(he :!ectives of cost accounting are ascertainment of cost" fi3ation of
selling price" proper recording and presentation of cost data to the management
for measuring efficiency and for cost control. (he aim is to $no# the methods y
#hich e3penditure on materials" #ages and overhead is recorded" classified and
allocated so that the cost of products and services may e accurately ascertainedC
these costs may e related to sales and profitaility may e determined.
a. (o ascertain the cost per unit of the different products manufactured y a
usiness concern.
. (o provide a correct analysis of cost oth y processes or operations and y
different elements of cost.
c. (o disclose sources of #astage #hether of material" time or e3pense or in
the use of machinery" e,uipment and tools and to prepare such reports #hich
may e necessary to control such #astage.
d. (o provide re,uisite data and serve as a guide to price fi3ing of products
manufactured or services rendered.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
e. (o ascertain the profitaility of each of the products and advise the
management as to ho# these profits can e ma3imi/ed.
f. (o e3ercise effective control of stoc$s of ra# materials" #or$&in&progress"
consumale stores and finished goods in order to minimi/e the capital
loc$ed up in these stoc$s.
g. (o reveal sources of economy y installing and implementing a system of
cost control for materials" laor and overheads.
h. (o advise management on future e3pansion policies and proposed capital
pro!ects.
i. (o prevent and interpret data for management planning" decision&ma$ing
and control.
!. (o help in the preparation of udgets and implementation of udgetary
control.
$. (o organi/e an effective information system so that different levels of
management may get the re,uired information at the right time in right form
for carrying out their individual responsiilities in an effective manner.
l. (o guide management in the formulation and implementation of incentive
onus plans ased on productivity and cost savings.
m. (o supply useful data to the management to ta$e various financial decisions
such as introduction of ne# products" replacement of laor y machine etc.
n. (o help in supervising the #or$ing of punched card accounting or data&
processing through computers.
o. (o organi/e the internal audit system to ensure effective #or$ing of different
departments.
p. (o organi/e cost reduction programs #ith the help of different&departmental
managers.
,. (o provide speciali/ed services of cost audit in order to prevent the errors
and frauds and to facilitate prompt and reliale information to the
management.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
r. (o find out costing profit or loss y identifying #ith revenues the cost of
those products or services y selling #hich the revenues have resulted.
A")A!TA+ES #F (#ST A((#%!T!+
). 8elps in optimum utili/ation of men" material and machine.
0. %dentifies the areas re,uiring corrective actions.
1. 8elps management in formulation of policies.
2. Presents a tailor&made solution for the prolem.
4. 8elps management in ma$ing short&term decisions y use of techni,ues
li$e marginal costing" etc.
E. Provides useful data for final accounts y giving cost of closing stoc$ of
ra#&materials" #or$&in&progress and finished products.
*. Provides a data ase for reference y government" #age triunals and
trade unions.
9. 8elps in formation of cost centers and responsiility centers to e3ercise
control
@. 8elps to face increasing difficulties in setting prices and improving
efficiency.
)=. Facilitates use of speciali/ed techni,ues li$e cost reduction" value
analysis" operations research and management y e3ception.
)). (hreads its #ay through every phase of usiness and influences the ma$e&
up of the entire enterprises #ith regards to its products" its mar$et and its
methods of operation.
)0. Focuses attention on the profitaility of each product and service unli$e
financial accounting" #hich presents profitaility for company as a #hole.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
L*TAT#!S #F (#ST A((#%!T!+
(he limitations of cost accounting system are &
). %t is not an e3act science and involves inherent element of !udgement.
0. -ost varies #ith purpose. (herefore" cost collected for one purpose #ill not
e suitale for another purpose.
1. -ost accounting presents the ase for ta$ing the est decision. %t does not
give outright the solutions of the prolems.
2. Most of the cost accounting techni,ues are ased on some pre&assumed
notions.
4. (he area most vulnerale to criticism is coat accounting is aritary
apportionment of common costs.
E. 6ifferent vie#s are held y different cost accountants aout the items to e
included in cost.
(an cost pro0essionals overcome cost accounting limitations=
(he ans#er can e Mes and <o depending upon #hat you are loo$ing for.
(he !o of a cost professional is to dovetail cost accounting information to suit
management o!ective. (here may e so many factors detailed aove #hich can
limit ,uality of his information. 8o#ever this does not mean that cost accounting
and cost professional fail in their o!ective to provide accurate cost estimation.
(he role of cost professional is to identify" collect" measure" analy/e"
prepare and interpret cost accounting information intended for specific use y the
management. (here are so many different tools availale in cost accounting"
#hich over the period have helped industry to perform in a etter #ay and ase
their decisions on information generated y the cost professionals. %t is the
selection of right mi3 of tools and e3perience #hich can e instrumental in
reducing impact of the limitations and optimi/e effectiveness of the cost
accounting in general and a cost professional in particular.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
TRA"T#!AL (#ST!+ T#"A&
6espite the fact that it is over *4 years old" most companies still use
standard cost systems oth to value inventory for financial statement purposes and
for many other management purposes as #ell. .hile it has some advantages for
financial statement purposes (simplicity" consistency" #ell understood y
auditors)" it is" at est" meaningless and" at #orst" misleading as a tool to assist in
ma$ing effective management decisions. %tAs ecause the usiness case for #hich
it is eing used today is not the usiness case for #hich it #as designed. Standard
cost accounting #as designed for a company that hadH
)) 8omogeneous products"
0) Large direct costs compared to indirect costs"
1) Limited aility to collect data and
2) Lo# Jelo# the lineJ costs.
(odayAs company typically hasH
)) A #ide variety and comple3ity of products and services"
0) 8igh overhead costs compared to direct laor"
1) An overaundance of data and
2) Sustantial non product costs that can dramatically affect true product"
distriution channel and customer profitaility.
(he typical manufacturing company is still aritrarily attaching overhead to
products using 6irect Laor as the driver. (hey are often allocating the largest
cost (overhead) ased on the smallest (direct laor). Because of product variety
and product line comple3ity" one homogeneous overhead rate is no longer an
appropriate average.
Finally" today" #e have high tech" high speed data collection and reporting tools.
.ith the proper system" gathering and manipulation of data in multiple comple3
#ays is no longer an issue. .ith these tools at the disposal of a usiness
organi/ation" #hy still use a cost accounting system that #as developed over *=
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
years agoN .ith the advent of certified financial statements" accounting systems
ecame more structured to comply #ith the demands of e3ternal sta$eholders
(e.g. shareholders" governments" lenders" etc.) and the purpose of cost accounting
systems changed along #ith the rest of accounting. (he primary purpose of cost
accounting in the financial accounting system today is to value inventory for
financial statement purposes" not" as it #as in )@02" a tool to aid in sound usiness
decisions.
'#B2#R"ER (#ST!+
;o&order costing is used #hen different types of products" !os" or atches are
produced" typically over a rather short period of time. %n a !o&order costing
system" direct materials costs and direct laor costs are usually JtracedJ directly to
!os. :verhead is applied to !os using a predetermined rate. Actual overhead
costs are not JtracedJ to !os. 73amples of industries in #hich !o&order costing is
used include special order printing" shipuilding" construction" hospitals"
professional services such as la# firms" and movie studios. 7ach !o has its o#n
!o cost sheet on #hich are recorded the costs that have een charged to the !o.
(he !o cost sheet #ill have some code or descriptive data to identify the
particular !o and #ill contain spaces to collect costs of materials" laor" and
overhead. .hen a !o is started" materials that #ill e re,uired to complete the
!o are #ithdra#n from the storeroom. (he document that authori/es these
#ithdra#als and that specifies the types and amounts of materials #ithdra#n is
called the materials re,uisition form. (he materials re,uisition form identifies the
!o to #hich the materials are to e charged. -are must e ta$en #hen charging
materials to distinguish et#een direct and indirect materials. Laor costs are
recorded on a document called a time tic$et or a time sheet. 7ach employee
records the amount of time he or she spends on each !o and each tas$ on a time
tic$et. (he time spent on a particular !o is considered direct laor and its cost is
JtracedJ to that !o. (he cost of time spent on other tas$s" not traceale to any
particular !o" is usually considered part of manufacturing overhead.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
Manufacturing overhead includes all of those costs incurred in the manufacturing
process #hich are not JtracedJ to a particular !o. %n practice" manufacturing
overhead usually consists of all manufacturing costs other than direct materials
and direct laor. Since manufacturing overhead costs are not traced to !os" they
must e allocated to !os if asorption costing is used.
#vervie. o0 (ost Flo.s
(he asic flo# of costs in a !o&order system egins y recording the costs of
material" laor" and manufacturing overhead.
a. 6irect material and direct laor costs are deited to the .or$ in Process
account. Any indirect material or indirect laor costs are deited to the
Manufacturing :verhead control account" along #ith any other actual
manufacturing overhead costs incurred during the period. Manufacturing
overhead is applied to .or$ in Process using the predetermined rate. (he
offsetting credit entry is to the Manufacturing :verhead control account.
. (he cost of finished units is credited to .or$ in Process and deited to the
Finished >oods inventory account.
c. .hen units are sold" their costs are credited to Finished >oods and deited to
-ost of >ood Sold.
T1e *anu0acturing #ver1ead (ontrol Account
Manufacturing :verhead is a temporary control account.
a. As stated aove" actual overhead costs are recorded on the deit side of the
Manufacturing :verhead control account. :verhead costs applied to .or$ in
Process using predetermined rates are recorded on the credit side of the
account.
. Any discrepancy et#een overhead costs incurred and overhead costs applied
sho#s up as a alance in the Manufacturing :verhead control account at the
end of the period. A deit alance is called under applied overhead and a credit
alance is called over applied overhead.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
%nder2 and over applied #ver1ead
Since the predetermined overhead rate is ased entirely on estimated data" there
#ill almost al#ays e a difference et#een the actual amount of overhead cost
incurred and the amount of overhead cost that is applied to the .or$ %n Process
account. (his difference is termed under applied or over applied overhead" and as
discussed aove" can e determined y the ending alance in the Manufacturing
:verhead control account. An under applied alance occurs #hen more overhead
cost is actually incurred than is applied to the .or$ %n Process account. An over
applied alance results from applying more overhead to .or$ %n Process than is
actually incurred.
3. (ause o0 under2 and over applied over1ead. .hen a predetermined overhead
rate is used" it is implicitly assumed that the overhead cost is variale #ith (i.e."
proportional to) the allocation ase. For e3ample" if the predetermined overhead
rate is O0= per direct laor&hour" it is implicitly assumed that the actual overhead
costs #ill increase y O0= for each additional direct laor&hour that is incurred. %f"
ho#ever" some of the overhead is fi3ed #ith respect to the allocation ase" this
#ill not happen and there #ill e a discrepancy et#een the actual total amount of
the overhead and the overhead that is applied using the O0= rate. %n addition" the
actual total overhead can differ from the estimated total overhead ecause of poor
controls over overhead spending or ecause of inaility to accurately forecast
overhead costs.
9. "isposition o0 under2 and over applied #ver1ead. (#o approaches to
dealing #ith an under& or over applied overhead alance in the accounts are
illustrated in the te3t.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
a. (he simplest approach is to close out the under& or over applied overhead to
-ost of >oods Sold. (his is the method that is used in most of the e3ercises
and prolems ecause it is easiest for students to understand and master.
. (he second approach is to allocate the under& or over applied alance to -ost of
>oods Sold and to the .or$ in Process and Finished >oods inventory
accounts. (he asis of allocation is the amount of overhead applied during the
period in the ending alance of each of these accounts. (his method is
e,uivalent to #aiting until the end of the period to allocate the actual overhead
costs ased on the actual amount of the allocation ase incurred.
>. T1e E00ect o0 under2 and over applied #ver1ead on !et ncome.
a. %f overhead is under applied" less overhead has een applied to inventory than
has actually een incurred. 7nough overhead must e applied retroactively to
-ost of >oods Sold (and perhaps ending inventories) to eliminate this
discrepancy. Since -ost of >oods Sold is increased" under applied overhead
reduces net income.
. %f overhead is over applied" more overhead has een applied to inventory than
has actually een incurred. 7nough overhead must e removed retroactively
from -ost of >oods Sold (and perhaps ending inventories) to eliminate this
discrepancy. Since -ost of >oods Sold is decreased" over applied overhead
increases net income.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
-8AP(7R 5%
Accounting Standard and Financial Statements
!TR#"(%T#!
Accounting Standards are #ritten documents" policy documents issued y e3pert
accounting ody or >overnment or other regulatories ody covering the aspects
of recognition" measurement" treatment" presentation and disclosure of accounting
transaction in the financial statement. Accounting Standards in %ndia are issued y
the %nstitute of -hartered Accountants of %ndia (%-A%).
#B'E(T)ES #F A((#!T!+ STA!"AR"S
:!ective of Accounting Standards is to standardi/e the diverse accounting
policies and practices #ith the vie# to eliminate to the e3tent possile the non
comparaility of financial statements and add the reliaility to the financial
statements.
A")A!TA+ES #F A((#%!T!+ STA!"AR"S
• Standards reduce to a reasonale e3tent or eliminate altogether confusion
variation in the accounting treatments used to prepare the financial statements.
• (here are certain areas #here important information is not re,uired y la# to
e disclosed" standards may call for disclosure eyond that re,uired y la#.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
• %t facilitates comparison of financial statements of different companies
situated at different places.
"SA")A!TA+ES #F A((#!T!+ STA!"AR"S
• (here may e a trend to#ards rigidity and a#ay from fle3iility in applying
Accounting Standards.
• 6ifferences in Accounting Standards are ound to e ecause of differences in
the traditions and legal system from one country to another.
• Accounting Standards cannot override the la#. (he standards are re,uired to
e framed #ithin the amit of prevailing statute even though it is not an
acceptale standard.
#B'E(T)ES A!" F%!(T#!S #F T$E A((#!T!+ STA!"AR"S
B#AR"
). (he follo#ing are the o!ectives of the Accounting Standards Board
a. (o conceive of and suggest areas in #hich Accounting Standards need to
e developed
. (o formulate Accounting Standards #ith a vie# to assisting the -ouncil of
the %-A% in evolving and estalishing Accounting Standards in %ndia
c. (o e3amine ho# far the relevant %nternational Accounting
Standard'%nternational Financial Reporting Standard (see paragraph 1
elo#) can e adapted #hile formulating the Accounting Standard and to
adapt the same
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
d. (o revie#" at regular intervals" the Accounting Standards from the point of
vie# of acceptance or changed conditions" and" if necessary" revise the
same
e. (o provide" from time to time" interpretations and guidance on Accounting
Standards
f. (o carry out such other functions relating to Accounting Standards
0. (he main function of the ASB is to formulate Accounting Standards so that
such standards may e estalished y the %-A% in %ndia. .hile formulating the
Accounting Standards" the ASB #ill ta$e into consideration the applicale
la#s" customs" usages and usiness environment prevailing in %ndia.
1. (he %-A%" eing a full&fledged memer of the %nternational Federation of
Accountants (%FA-)" is e3pected" inter alia" to actively promote the
%nternational Accounting Standards BoardAs (%ASB) pronouncements in the
country #ith a vie# to facilitate gloal harmoni/ation of accounting
standards. Accordingly" #hile formulating the Accounting Standards" the ASB
#ill give due consideration to %nternational Accounting Standards (%ASs)
issued y the %nternational Accounting Standards -ommittee (predecessor
ody to %ASB) or %nternational Financial Reporting Standards (%FRSs) issued
y the %ASB" as the case may e" and try to integrate them" to the e3tent
possile" in the light of the conditions and practices prevailing in %ndia.
2. (he Accounting Standards are issued under the authority of the -ouncil of the
%-A%. (he ASB has also een entrusted #ith the responsiility of propagating
the Accounting Standards and of persuading the concerned parties to adopt
them in the preparation and presentation of financial statements. (he ASB #ill
provide interpretations and guidance on issues arising from Accounting
Standards. (he ASB #ill also revie# the Accounting Standards at periodical
intervals and" if necessary" revise the same.
RAT#!ALE #F A((#!T!+ STA!"AR"S
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
Accounting Standards are formulated #ith a vie# to harmoni/e different
accounting policies and practices in use in a country. (he o!ective of Accounting
Standards is" therefore" to reduce the accounting alternatives in the preparation of
financial statements #ithin the ounds of rationality" therey ensuring
comparaility of financial statements of different enterprises #ith a vie# to
provide meaningful information to various users of financial statements to enale
them to ma$e informed economic decisions.
!TER!AT#!AL $AR*#!?T#! #F A((#!T!+ STA!"AR"S
Recogni/ing the need for international harmoni/ation of accounting standards" in
)@*1" the %nternational Accounting Standards -ommittee (%AS-) #as estalished.
(he %AS- has een restructured as %nternational Accounting Standards Board
(%ASB). (he o!ectives of %AS- include promotion of the %nternational
Accounting Standards for #orld#ide acceptance and oservance so that the
accounting standards in different countries are harmoni/ed. %n recent years" need
for international harmoni/ation of Accounting Standards follo#ed in different
countries has gro#n consideraly as the cross&order transfers of capital are
ecoming increasingly common.
A((#!T!+ STA!"AR"S SETT!+ ! !"A
(he %nstitute of -hartered Accountants of %ndia (%-A%) eing a memer ody of
the then %AS-" constituted the Accounting Standards Board (ASB) on 0)st April"
)@**" #ith a vie# to harmoni/e the diverse accounting policies and practices in
use in %ndia. After the avo#ed adoption of lierali/ation and gloali/ation as the
corner stones of %ndian economic policies in early L@=s" the Accounting Standards
have increasingly assumed importance. .hile formulating accounting standards"
the ASB ta$es into consideration the applicale la#s" customs" usages and
usiness environment prevailing in the country.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
(he ASB also gives due consideration to %nternational Financial Reporting
Standards' %nternational Accounting Standards issued y %ASB and tries to
integrate them" to the e3tent possile" in the light of conditions and practices
prevailing in %ndia. Although the Accounting Standards Board is a ody
constituted y the -ouncil of the %nstitute of -hartered Accountants of %ndia" it is
independent in the formulation of accounting standards since in case the -ouncil
considers it necessary that certain modifications e made in the draft accounting
standards formulated y the ASB" it can only e done in consultation #ith the
ASB.
(#*P#ST#! #F A((#!T!+ STA!"AR"S B#AR"
(he composition of the ASB is road&ased #ith a vie# to ensuring participation
of all interest&groups in the standard&setting process. (hese interest groups include
industry" representatives of various departments of government and regulatory
authorities" financial institutions and academic and professional odies. %ndustry
is represented on the ASB y their ape3 level associations" vi/." Associated
-hamers of -ommerce (ASS:-8AM)" Federation of %ndian -hamers of
-ommerce and %ndustry (F%--%) and -onfederation of %ndian %ndustries (-%%). As
regards government departments and regulatory authorities" Reserve Ban$ of
%ndia" Ministry of -ompany Affairs" -entral Board of 6irect (a3es" -omptroller
+ Auditor >eneral of %ndia" -ontroller >eneral of Accounts" Securities and
73change Board of %ndia and -entral Board of 73cise and -ustoms are
represented on the ASB. Besides these interest&groups" representatives of
academic and professional institutions such as Dniversities" %ndian %nstitutes of
Management" %nstitute of -ost and .or$s Accountants of %ndia and %nstitute of
-ompany Secretaries of %ndia are also represented on the ASB. Apart from these
interest&groups" memers of the -entral -ouncil of %-A% are also on the ASB.
T$E A((#%!T!+ STA!"AR"S SETT!+ PR#(ESS
Segment Reporting in a Foundry (Alucast Foundries Belgaum
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(he accounting standard setting" y its very nature" involves reaching an optimal
alance of the re,uirements of financial information for various interest groups
having a sta$e in financial reporting. .ith a vie# to reach consensus" to the e3tent
possile" as to the re,uirements of the relevant interest&groups and therey
ringing aout general acceptance of the Accounting Standards among such
groups" considerale research" consultations and discussions #ith the
representatives of the relevant interest&groups at different stages of standard
formulation ecomes necessary. (he standard&setting procedure of the ASB" as
riefly outlined elo#" is designed in such a #ay so as to ensure such consultation
and discussionsH
P%dentification of the road areas y the ASB for formulating the Accounting ?
Standards.
P -onstitution of the study groups y the ASB for preparing the preliminary ?
drafts of the proposed Accounting Standards.
P -onsideration of the preliminary draft prepared y the study group y the ASB ?
and revision" if any" of the draft on the asis of delierations at the ASB.
P -irculation of the draft" so revised" among the -ouncil memers of the %-A% ?
and )0 specified outside odies such as Standing -onference of Pulic
7nterprises (S-7)" %ndian Ban$sA Association" -onfederation of %ndian
%ndustry (-%%)" Securities and 73change Board of %ndia (S7B%)" -omptroller
and Auditor >eneral of %ndia (-+ A>)" and Ministry of -ompany Affairs" for
comments.
P Meeting #ith the representatives of specified outside odies to ascertain their ?
vie#s on the draft of the proposed Accounting Standard.
P Finali/ation of the 73posure 6raft of the proposed Accounting Standard on the ?
asis of comments received and discussion #ith the representatives of
specified outside odies.
P %ssuance of the 73posure 6raft inviting pulic comments. ?
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P -onsideration of the comments received on the 73posure 6raft and ?
finali/ation of the draft Accounting Standard y the ASB for sumission to the
-ouncil of the %-A% for its consideration and approval for issuance.
P -onsideration of the draft Accounting Standard y the -ouncil of the %nstitute" ?
and if found necessary" modification of the draft in consultation #ith the ASB.
P (he Accounting Standard" so finali/ed" is issued under the authority of the ?
-ouncil.
PRESE!T STAT%S #F A((#!T!+ STA!"AR"S ! !"A !
$AR*#!?AT#! 5T$ T$E !TER!AT#!AL A((#!T!+
STA!"AR"S
So far" 0@ %ndian Accounting Standards on the follo#ing su!ects have een
issued y the %nstituteH
AS ) 6isclosure of Accounting Policies
AS 0 5aluation of %nventories
AS 1 -ash Flo# Statements
AS 2 -ontingencies and 7vents :ccurring after the Balance Sheet 6ate
AS 4 <et Profit or Loss for the Period" Prior Period %tems and -hanges in
Accounting Policies
AS E 6epreciation Accounting
AS * -onstruction -ontracts (revised 0==0)
AS 9 Accounting for Research and 6evelopment (#ithdra#n pursuant to the
issuance of AS 0E)
AS @ Revenue Recognition
AS )= Accounting for Fi3ed Assets
AS )) (he 7ffects of -hanges in Foreign 73change Rates (revised 0==1)
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AS )0 Accounting for >overnment >rants
AS )1 Accounting for %nvestments
AS )2 Accounting for Amalgamations
AS )4 Accounting for Retirement Benefits in the Financial Statements of
7mployers (recently revised and titled as 7mployee Benefits)
AS )E Borro#ing -osts
AS )* Segment Reporting
AS )9 Related Party 6isclosures
AS )@ Leases
AS 0= 7arnings per Share
AS 0) -onsolidated Financial Statements
AS 00 Accounting for (a3es on %ncome
AS 01 Accounting for %nvestments in Associates in -onsolidated Financial
Statements
AS 02 6iscontinuingerations
AS 04 %nterim Financial Reporting
AS 0E %ntangile Assets
AS 0* Financial Reporting of %nterests in ;oint 5entures
AS 09 %mpairment of Assets
AS 0@ Provisions" -ontingent Liailities and -ontingent Assets
AS 1= Financial %nstrumentsH Recognition and Measurement
AS 1) Financial %nstrumentsH Presentation
AS 10 Financial %nstrumentsH 6isclosures
(#*PLA!(E 5T$ A((#!T!+ STA!"AR"S
Accounting Standards issued y the %-A% had got legal recognition through
insertion of sections 0))(1A)" (1B) and (1-) in the -ompanies Act" )@4E" #hich
may e prescried y the -entral >overnment in consultation #ith the <ational
Advisory -ommittee on Accounting Standards. Recent development in this regard
is Accounting Standards )to * and @ to 0@ as recommended y the %-A%" have
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
een prescried y Ministry of -ompany Affairs" >overnment of %ndia vide its
notification dated 6ecemer" *" 0==E" in the >a/ette of %ndia. (his notification
provides that every company and its auditor(s) shall comply #ith the notified
Accounting Standards. (he Securities and 73change Board of %ndia (S7B%)
through the listing agreement re,uires that listed companies shall mandatorily
comply #ith all the Accounting Standards issued y %-A% from time to time.
Also" the %nsurance Regulatory and 6evelopment Authority (%R6A) re,uires
insurance companies to follo# the Accounting Standards issued y the %-A%.
Apart from the corporate odies" the -ouncil of the %nstitute of -hartered
Accountants of %ndia has made various accounting standards mandatory in respect
of certain non&corporate entities such as partnership firms" sole&proprietary
concerns'individuals" societies registered under the Societies Registration Act"
trusts" associations of persons" and 8indu Dndivided Families" #here financial
statements of such entities are statutorily re,uired to e audited" for e3ample"
under Section 22AB of the %ncome&ta3" )@E). (he -ouncil has cast a duty on its
memers to e3amine compliance #ith the Accounting Standards in the financial
statements covered y their audit in the event of any deviations therefrom" to
ma$e ade,uate disclosures in their audit reports so that the users of the financial
statements may e a#are of such deviations.
#B'E(T)ES #F F!A!(AL STATE*E!TS
(he o!ective of financial statements is to provide information aout the financial
position" performance and cash flo#s of an enterprise that is useful to a #ide
range of users in ma$ing economic decisions.
Financial statements prepared for this purpose meet the common needs of most
users. 8o#ever" financial statements do not provide all the information that users
may need to ma$e economic decisions since (a) they largely portray the financial
effects of past events" and () do not necessarily provide non&financial
information.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
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Financial statements also sho# the results of the ste#ardship of management" or
the accountaility of management for the resources entrusted to it. (hose users
#ho #ish to assess the ste#ardship or accountaility of management do so in
order that they may ma$e economic decisionsC these decisions may include" for
e3ample" #hether to hold or sell their investment in the enterprise or #hether to
reappoint or replace the management.
F!A!(AL P#ST#!: PERF#R*A!(E A!" (AS$
(he economic decisions that are ta$en y users of financial statements re,uire an
evaluation of the aility of an enterprise to generate cash and cash e,uivalents and
of the timing and certainty of their generation. (his aility ultimately determines"
for e3ample" the capacity of an enterprise to pay its employees and suppliers"
meet interest payments" repay loans" and ma$e distriutions to its o#ners. Dsers
are etter ale to evaluate this aility to generate cash and cash e,uivalents if they
are provided #ith information that focuses on the financial position" performance
and cash flo#s of an enterprise.
(he financial position of an enterprise is affected y the economic resources it
controls" its financial structure" its li,uidity and solvency" and its capacity to adapt
to changes in the environment in #hich it operates.
%nformation aout the economic resources controlled y the enterprise and its
capacity in the past to alter these resources is useful in predicting the aility of the
enterprise to generate cash and cash e,uivalents in the future. %nformation aout
financial structure is useful in predicting future orro#ing needs and ho# future
profits and cash flo#s #ill e distriuted among those #ith an interest in the
enterpriseC it is also useful in predicting ho# successful the enterprise is li$ely to
e in raising further finance. %nformation aout li,uidity and solvency is useful in
predicting the aility of the enterprise to meet its financial commitments as they
fall due. Li,uidity refers to the availaility of cash in the near future to meet
financial commitments over this period. Solvency refers to the availaility of cash
over the longer term to meet financial commitments as they fall due.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
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%nformation aout the performance of an enterprise" in particular its profitaility"
is re,uired in order to assess potential changes in the economic resources that it is
li$ely to control in the future. %nformation aout variaility of performance is
important in this respect. %nformation aout performance is useful in predicting
the capacity of the enterprise to generate cash flo#s from its e3isting resource
ase. %t is also useful in forming !udgments aout the effectiveness #ith #hich the
enterprise might employ additional resources.
%nformation concerning cash flo#s of an enterprise is useful in order to evaluate
its investing" financing and operating activities during the reporting period. (his
information is useful in providing the users #ith a asis to assess the aility of the
enterprise to generate cash and cash e,uivalents and the needs of the enterprise to
utili/e those cash flo#s.
%nformation aout financial position is primarily provided in a alance sheet.
%nformation aout performance is primarily provided in a statement of profit and
loss. %nformation aout cash flo#s is provided in the financial statements y
means of a cash flo# statement.
(he component parts of the financial statements are interrelated ecause they
reflect different aspects of the same transactions or other events. Although each
statement provides information that is different from the others" none is li$ely to
serve only a single purpose nor to provide all the information necessary for
particular needs of users.
!otes and Supplementary Sc1edules
(he financial statements also contain notes and supplementary schedules and
other information. For e3ample" they may contain additional information that is
relevant to the needs of users aout the items in the alance sheet and statement of
profit and loss. (hey may include disclosures aout the ris$s and uncertainties
affecting the enterprise and any resources and oligations not recogni/ed in the
alance sheet (such as mineral reserves). %nformation aout usiness and
Segment Reporting in a Foundry (Alucast Foundries Belgaum
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geographical segments and the effect of changing prices on the enterprise may
also e provided in the form of supplementary information.
ELE*E!TS #F F!A!(AL STATE*E!TS
Financial statements portray the financial effects of transactions and other events
y grouping them into road classes according to their economic characteristics.
(hese road classes are termed the elements of financial statements. (he elements
directly related to the measurement of financial position in the alance sheet are
assets" liailities and e,uity. (he elements directly related to the measurement of
performance in the statement of profit and loss are income and e3penses. (he cash
flo# statement usually reflects elements of statement of profit and loss and
changes in alance sheet elementsC accordingly" this Frame#or$ identifies no
elements that are uni,ue to this statement.
(he presentation of these elements in the alance sheet and the statement of profit
and loss involves a process of su&classification. For e3ample" assets and
liailities may e classified y their nature or function in the usiness of the
enterprise in order to display information in the manner most useful to users for
purposes of ma$ing economic decisions.
F!A!(AL P#ST#!
(he elements directly related to the measurement of financial position are assets"
liailities and e,uity. (hese are defined as follo#sH
(a) An asset is a resource controlled y the enterprise as a result of past events
from #hich future economic enefits are e3pected to flo# to the enterprise.
() A liability is a present oligation of the enterprise arising from past events" the
settlement of #hich is e3pected to result in an outflo# from the enterprise of
resources emodying economic enefits.
(c) Equity is the residual interest in the assets of the enterprise after deducting all
its liailities.
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(he definitions of an asset and a liaility identify their essential features ut do
not attempt to specify the criteria that need to e met efore they are recogni/ed
in the alance sheet. (hus" the definitions emrace items that are not recogni/ed
as assets or liailities in the alance sheet ecause they do not satisfy the criteria
for recognition.
%n particular" the e3pectation that future economic enefits #ill flo# to or from an
enterprise must e sufficiently certain to meet the proaility criterion efore an
asset or liaility is recogni/ed.
%n assessing #hether an item meets the definition of an asset" liaility or e,uity"
consideration needs to e given to its underlying sustance and economic reality
and not merely its legal form. (hus" for e3ample" in the case of hire purchase" the
sustance and economic reality are that the hire purchaser ac,uires the economic
enefits of the use of the asset in return for entering into an oligation to pay for
that right an amount appro3imating to the fair value of the asset and the related
finance charge. 8ence" the hire purchase gives rise to items that satisfy the
definition of an asset and a liaility and are recogni/ed as such in the hire
purchaserAs alance sheet.
ASSETS
(he future economic enefit emodied in an asset is the potential to contriute"
directly or indirectly" to the flo# of cash and cash e,uivalents to the enterprise.
(he potential may e a productive one that is part of the operating activities of the
enterprise. %t may also ta$e the form of convertiility into cash or cash e,uivalents
or a capaility to reduce cash outflo#s" such as #hen an alternative
manufacturing process lo#ers the costs of production.
An enterprise usually employs its assets to produce goods or services capale of
satisfying the #ants or needs of customersC ecause these goods or services can
satisfy these #ants or needs" customers are prepared to pay for them and hence
contriute to the cash flo#s of the enterprise. -ash itself renders a service to the
enterprise ecause of its command over other resources.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
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(he future economic enefits emodied in an asset may flo# to the enterprise in a
numer of #ays. For e3ample" an asset may eH
(a) used singly or in comination #ith other assets in the production of goods or
services to e sold y the enterpriseC
() e3changed for other assetsC
(c) used to settle a liailityC or
(d) distriuted to the o#ners of the enterprise.
Many assets" for e3ample" plant and machinery" have a physical form. 8o#ever"
physical form is not essential to the e3istence of an assetC hence patents and
copyrights" for e3ample" are assets if future economic enefits are e3pected to
flo# from them and if they are controlled y the enterprise.
Many assets" for e3ample" receivales and property" are associated #ith legal
rights" including the right of o#nership. %n determining the e3istence of an asset"
the right of o#nership is not essentialC thus" for e3ample" an item held under a hire
purchase is an asset of the hire purchaser since the hire purchaser controls the
enefits #hich are e3pected to flo# from the item. Although the capacity of an
enterprise to control enefits is usually the result of legal rights" an item may
nonetheless satisfy the definition of an asset even #hen there is no legal control.
For e3ample" $no#&ho# otained from a development activity may meet the
definition of an asset #hen" y $eeping that $no#& ho# secret" an enterprise
controls the enefits that are e3pected to flo# from it.
(he assets of an enterprise result from past transactions or other past events.
7nterprises normally otain assets y purchasing or producing them" ut other
transactions or events may also generate assetsC e3amples include land received
y an enterprise from government as part of a programme to encourage economic
gro#th in an area and the discovery of mineral deposits. (ransactions or other
events e3pected to occur in the future do not in themselves give rise to assetsC
hence" for e3ample" an intention to purchase inventory does not" of itself" meet the
definition of an asset.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
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(here is a close association et#een incurring e3penditure and otaining assets
ut the t#o do not necessarily coincide. 8ence" #hen an enterprise incurs
e3penditure" this may provide evidence that future economic enefits #ere sought
ut is not conclusive proof that an item satisfying the definition of an asset has
een otained. Similarly" the asence of a related e3penditure does not preclude
an item from satisfying the definition of an asset and thus ecoming a candidate
for recognition in the alance sheet.
LABLTES
An essential characteristic of a liaility is that the enterprise has a present
oligation. An oligation is a duty or responsiility to act or perform in a certain
#ay. :ligations may e legally enforceale as a conse,uence of a inding
contract or statutory re,uirement. (his is normally the case" for e3ample" #ith
amounts payale for goods and services received. :ligations also arise" ho#ever"
from normal usiness practice" custom and a desire to maintain good usiness
relations or act in an e,uitale manner. %f" for e3ample" an enterprise decides as a
matter of policy to rectify faults in its products even #hen these ecome apparent
after the #arranty period has e3pired" the amounts that are e3pected to e
e3pended in respect of goods already sold are liailities.
A distinction needs to e dra#n et#een a present oligation and a future
commitment. A decision y the management of an enterprise to ac,uire assets in
the future does not" of itself" give rise to a present oligation. An oligation
normally arises only #hen the asset is delivered or the enterprise enters into an
irrevocale agreement to ac,uire the asset. %n the latter case" the irrevocale
nature of the agreement means that the economic conse,uences of failing to
honour the oligation" for e3ample" ecause of the e3istence of a sustantial
penalty" leave the enterprise #ith little" if any" discretion to avoid the outflo# of
resources to another party.
(he settlement of a present oligation usually involves the enterprise giving up
resources emodying economic enefits in order to satisfy the claim of the other
Segment Reporting in a Foundry (Alucast Foundries Belgaum
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party. Settlement of a present oligation may occur in a numer of #ays" for
e3ample" yH
(a) payment of cashC
() transfer of other assetsC
(c) provision of servicesC
(d) replacement of that oligation #ith another oligationC or
(e) conversion of the oligation to e,uity.
An oligation may also e e3tinguished y other means" such as a creditor
#aiving or forfeiting its rights.
Liailities result from past transactions or other past events. (hus" for e3ample"
the ac,uisition of goods and the use of services give rise to trade creditors (unless
paid for in advance or on delivery) and the receipt of a an$ loan results in an
oligation to repay the loan. An enterprise may also recogni/e future reates
ased on annual purchases y customers as liailitiesC in this case" the sale of the
goods in the past is the transaction that gives rise to the liaility.
Some liailities can e measured only y using a sustantial degree of estimation.
Such liailities are commonly descried as LprovisionsA. 73amples include
provisions for payments to e made under e3isting #arranties and provisions to
cover pension oligations.
E8%T&
Although e,uity is defined in paragraph 2@ as a residual" it may e suclassified
in the alance sheet. For e3ample" funds contriuted y o#ners" reserves
representing appropriations of retained earnings" unappropriated retained earnings
and reserves representing capital maintenance ad!ustments may e sho#n
separately. Such classifications can e relevant to the decision ma$ing needs of
the users of financial statements #hen they indicate legal or other restrictions on
the aility of the enterprise to distriute or other#ise apply its e,uity. (hey may
Segment Reporting in a Foundry (Alucast Foundries Belgaum
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also reflect the fact that parties #ith o#nership interests in an enterprise have
differing rights in relation to the receipt of dividends or the repayment of capital.
(he creation of reserves is sometimes re,uired y la# in order to give the
enterprise and its creditors an added measure of protection from the effects of
losses. Reserves may also e created #hen ta3 la#s grant e3emptions from" or
reductions in" ta3ation liailities if transfers to such reserves are made. (he
e3istence and si/e of such reserves is information that can e relevant to the
decision&ma$ing needs of users. (ransfers to such reserves are appropriations of
retained earnings rather than e3penses.
(he amount at #hich e,uity is sho#n in the alance sheet is dependent on the
measurement of assets and liailities. <ormally" the aggregate amount of e,uity
only y coincidence corresponds #ith the aggregate mar$et value of the shares of
the enterprise or the sum that could e raised y disposing of either the net assets
on a piecemeal asis or the enterprise as a #hole on a going concern asis.
-ommercial" industrial and usiness activities are often underta$en y means of
enterprises such as sole proprietorships" partnerships and trusts and various types
of government usiness underta$ings. (he legal and regulatory frame#or$ for
such enterprises is often different from that applicale to corporate enterprises.
For e3ample" unli$e corporate enterprises" in the case of such enterprises" there
may e fe#" if any" restrictions on the distriution to o#ners or other eneficiaries
of amounts included in e,uity. <evertheless" the definition of e,uity and the other
aspects of this Frame#or$ that deal #ith e,uity are appropriate for such
enterprises.
PERF#R*A!(E
Profit is fre,uently used as a measure of performance or as the asis for other
measures" such as return on investment or earnings per share. (he elements
directly related to the measurement of profit are income and e3penses. (he
recognition and measurement of income and e3penses" and hence profit" depends
in part on the concepts of capital and capital maintenance used y the enterprise in
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
preparing its financial statements. (hese concepts are discussed in paragraphs )=)
to )=@.
%ncome and e3penses are defined as follo#sH
(a) Income is increase in economic enefits during the accounting period in the
form of inflo#s or enhancements of assets or decreases of liailities that result in
increases in e,uity" other than those relating to contriutions from e,uity
participants.
() Expenses are decreases in economic enefits during the accounting period in
the form of outflo#s or depletions of assets or incurrences of liailities that result
in decreases in e,uity" other than those relating to distriutions to e,uity
participants.
(he definitions of income and e3penses identify their essential features ut do not
attempt to specify the criteria that need to e met efore they are recogni/ed in the
statement of profit and loss.
%ncome and e3penses may e presented in the statement of profit and loss in
different #ays so as to provide information that is relevant for economic decision&
ma$ing. For e3ample" it is a common practice to distinguish et#een those items
of income and e3penses that arise in the course of the ordinary activities of the
enterprise and those that do not. (his distinction is made on the asis that the
source of an item is relevant in evaluating the aility of the enterprise to generate
cash and cash e,uivalents in the future. .hen distinguishing et#een items in this
#ay" consideration needs to e given to the nature of the enterprise and its
operations. %tems that arise from the ordinary activities of one enterprise may e
e3traordinary in respect of another.
6istinguishing et#een items of income and e3pense and comining them in
different #ays also permits several measures of enterprise performance to e
displayed. (hese have differing degrees of inclusiveness.
For e3ample" the statement of profit and loss could display gross margin" profit
from ordinary activities efore ta3ation" profit from ordinary activities after
ta3ation" and net profit.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
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!(#*E
(he definition of income encompasses oth revenue and gains. Revenue arises in
the course of the ordinary activities of an enterprise and is referred to y a variety
of different names including sales" fees" interest" dividends" royalties and rent.
>ains represent other items that meet the definition of income and may" or may
not" arise in the course of the ordinary activities of an enterprise. >ains represent
increases in economic enefits and as such are no different in nature from
revenue. 8ence" they are not regarded as a separate element in this Frame#or$.
(he definition of income includes unreali/ed gains. >ains also include" for
e3ample" those arising on the disposal of fi3ed assets. .hen gains are recogni/ed
in the statement of profit and loss" they are usually displayed separately ecause
$no#ledge of them is useful for the purpose of ma$ing economic decisions.
5arious $inds of assets may e received or enhanced y incomeC e3amples include
cash" receivales and goods and services received in e3change for goods and
services supplied. %ncome may also result in the settlement of liailities. For
e3ample" an enterprise may provide goods and services to a lender in settlement
of an oligation to repay an outstanding loan.
E,PE!SES
(he definition of e3penses encompasses those e3penses that arise in the course of
the ordinary activities of the enterprise" as #ell as losses. 73penses that arise in
the course of the ordinary activities of the enterprise include" for e3ample" cost of
goods sold" #ages" and depreciation. (hey ta$e the form of an outflo# or
depletion of assets or enhancement of liailities.
Losses represent other items that meet the definition of e3penses and may" or may
not" arise in the course of the ordinary activities of the enterprise. Losses represent
decreases in economic enefits and as such they are no different in nature from
other e3penses. 8ence" they are not regarded as a separate element in this
Frame#or$.
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Losses include" for e3ample" those resulting from disasters such as fire and flood"
as #ell as those arising on the disposal of fi3ed assets. (he definition of e3penses
also includes unreali/ed losses. .hen losses are recogni/ed in the statement of
profit and loss" they are usually displayed separately ecause $no#ledge of them
is useful for the purpose of ma$ing economic decisions.
(APTAL *A!TE!A!(E A"'%ST*E!TS
(he revaluation or restatement of assets and liailities gives rise to increases or
decreases in e,uity. .hile these increases or decreases meet the definition of
income and e3penses" they are not included in the statement of profit and loss
under certain concepts of capital maintenance. %nstead" these items are included in
e,uity as capital maintenance ad!ustments or revaluation reserves.
RE(#+!T#! #F T$E ELE*E!TS #F F!A!(AL STATE*E!TS
Recognition is the process of incorporating in the alance sheet or statement of
profit and loss an item that meets the definition of an element and satisfies the
criteria for recognition set out. %t involves the depiction of the item in #ords and
y a monetary amount and the inclusion of that amount in the totals of alance
sheet or statement of profit and loss. %tems that satisfy the recognition criteria
should e recogni/ed in the alance sheet or statement of profit and loss. (he
failure to recogni/e such items is not rectified y disclosure of the accounting
policies used nor y notes or e3planatory material.
An item that meets the definition of an element should e recogni/ed ifH
(a) it is proale that any future economic enefit associated #ith the item #ill
flo# to or from the enterpriseC and
() the item has a cost or value that can e measured #ith reliaility.
%n assessing #hether an item meets these criteria and therefore ,ualifies for
recognition in the financial statements" regard needs to e given to the materiality
considerations. (he interrelationship et#een the elements means that an item that
meets the definition and recognition criteria for a particular element" for e3ample"
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
an asset" automatically re,uires the recognition of another element" for e3ample"
income or a liaility.
T$E PR#BABLT& #F F%T%RE E(#!#*( BE!EFTS
(he concept of proaility is used in the recognition criteria to refer to the degree
of uncertainty that the future economic enefits associated #ith the item #ill flo#
to or from the enterprise. (he concept is in $eeping #ith the uncertainty that
characteri/es the environment in #hich an enterprise operates. Assessments of the
degree of uncertainty attaching to the flo# of future economic enefits are made
on the asis of the evidence availale #hen the financial statements are prepared.
For e3ample" #hen it is proale that a receivale #ill e reali/ed" it is then
!ustifiale" in the asence of any evidence to the contrary" to recogni/e the
receivale as an asset. For a large population of receivales" ho#ever" some
degree of non&payment is normally considered proaleC hence" an e3pense
representing the e3pected reduction in economic enefits is recogni/ed.
RELABLT& #F *EAS%RE*E!T
(he second criterion for the recognition of an item is that it possesses a cost or
value that can e measured #ith reliaility. %n many cases" cost or value must e
estimatedC the use of reasonale estimates is an essential part of the preparation of
financial statements and does not undermine their reliaility. .hen" ho#ever" a
reasonale estimate cannot e made" the item is not recogni/ed in the alance
sheet or statement of profit and loss. For e3ample" the damages payale in a
la#suit may meet the definitions of a liaility and an e3pense as #ell as the
proaility criterion for recognitionC ho#ever" if it is not possile to measure the
claim relialy" it should not e recogni/ed as a liaility or as an e3pense. An item
that" at a particular point in time" fails to meet the recognition criteria may ,ualify
for recognition at a later date as a result of suse,uent circumstances or events.
An item that possesses the essential characteristics of an element ut fails to meet
the criteria for recognition may nonetheless #arrant disclosure in the notes"
Segment Reporting in a Foundry (Alucast Foundries Belgaum
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e3planatory material or supplementary schedules. (his is appropriate #hen
$no#ledge of the item is considered to e relevant to the evaluation of the
financial position" performance and cash flo#s of an enterprise y the users of
financial statements. (hus" in the e3ample given" the e3istence of the claim #ould
need to e disclosed in the notes" e3planatory material or supplementary
schedules.
RE(#+!T#! #F ASSETS
An asset is recogni/ed in the alance sheet #hen it is proale that the future
economic enefits associated #ith it #ill flo# to the enterprise and the asset has a
cost or value that can e measured relialy.
An asset is not recogni/ed in the alance sheet #hen e3penditure has een
incurred for #hich it is considered improale that economic enefits #ill flo# to
the enterprise eyond the current accounting period. %nstead" such a transaction
results in the recognition of an e3pense in the statement of profit and loss. (his
treatment does not imply either that the intention of management in incurring
e3penditure #as other than to generate future economic enefits for the enterprise
or that management #as misguided.
(he only implication is that the degree of certainty that economic enefits #ill
flo# to the enterprise eyond the current accounting period is insufficient to
#arrant the recognition of an asset.
RE(#+!T#! #F LABLTES
A liaility is recogni/ed in the alance sheet #hen it is proale that an outflo# of
resources emodying economic enefits #ill result from the settlement of a
present oligation and the amount at #hich the settlement #ill ta$e place can e
measured relialy. %n practice" oligations under contracts that are e,ually
proportionately unperformed (for e3ample" liailities for inventory ordered ut
not yet received) are generally not recogni/ed as liailities in the financial
statements. 8o#ever" such oligations may meet the definition of liailities and"
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
provided the recognition criteria are met in the particular circumstances" may
,ualify for recognition. %n such circumstances" recognition of liailities entails
recognition of related assets or e3penses.
RE(#+!T#! #F !(#*E
%ncome is recogni/ed in the statement of profit and loss #hen an increase in future
economic enefits related to an increase in an asset or a decrease of a liaility has
arisen that can e measured relialy. (his means" in effect" that recognition of
income occurs simultaneously #ith the recognition of increases in assets or
decreases in liailities (for e3ample" the net increase in assets arising on a sale of
goods or services or the decrease in liailities arising from the #aiver of a det
payale).
(he procedures normally adopted in practice for recogni/ing income" for
e3ample" the re,uirement that revenue should e earned" are applications of the
recognition criteria in this Frame#or$. Such procedures are generally directed at
restricting the recognition as income to those items that can e measured relialy
and have a sufficient degree of certainty.
RE(#+!T#! #F E,PE!SES
73penses are recogni/ed in the statement of profit and loss #hen a decrease in
future economic enefits related to a decrease in an asset or an increase of a
liaility has arisen that can e measured relialy. (his means" in effect" that
recognition of e3penses occurs simultaneously #ith the recognition of an increase
of liailities or a decrease in assets (for e3ample" the accrual of employeesA
salaries or the depreciation of plant and machinery).
Many e3penses are recogni/ed in the statement of profit and loss on the asis of a
direct association et#een the costs incurred and the earning of specific items of
income. (his process" commonly referred to as the matching of costs #ith
revenues" involves the simultaneous or comined recognition of revenues and
e3penses that result directly and !ointly from the same transactions or other
Segment Reporting in a Foundry (Alucast Foundries Belgaum
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eventsC for e3ample" the various components of e3pense ma$ing up the cost of
goods sold are recogni/ed at the same time as the income derived from the sale of
the goods. 8o#ever" the application of the matching concept under this
Frame#or$ does not allo# the recognition of items in the alance sheet #hich do
not meet the definition of assets or liailities.
.hen economic enefits are e3pected to arise over several accounting periods
and the association #ith income can only e roadly or indirectly determined"
e3penses are recogni/ed in the statement of profit and loss on the asis of
systematic and rational allocation procedures. (his is often necessary in
recogni/ing the e3penses associated #ith the using up of assets such as plant and
machinery" good#ill" patents and trademar$sC in such cases" the e3pense is
referred to as depreciation or amorti/ation. (hese allocation procedures are
intended to recogni/e e3penses in the accounting periods in #hich the economic
enefits associated #ith these items are consumed or e3pire.
An e3pense is recogni/ed immediately in the statement of profit and loss #hen
e3penditure produces no future economic enefits. An e3pense is also recogni/ed
to the e3tent that future economic enefits from e3penditure do not ,ualify" or
cease to ,ualify" for recognition in the alance sheet as an asset.
An e3pense is recogni/ed in the statement of profit and loss in those cases also
#here a liaility is incurred #ithout the recognition of an asset" for e3ample" in
the case of a liaility under a product #arranty.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
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-8AP(7R 5%%
Accounting Standard (AS&)*)
SE+*E!T REP#RT
Accounting Standard (AS) )*" LSegment ReportingA" issued y the -ouncil of the
%nstitute of -hartered Accountants of %ndia" comes into effect in respect of
accounting periods commencing on or after ).2.0==).
(his Standard is mandatory in nature in respect of accounting periods
commencing on or after )&2&0==2 for the enterprises #hich fall in any one or
more of the follo#ing categories" at any time during the accounting periodH
(i) 7nterprises #hose e,uity or det securities are listed #hether in %ndia or
outside %ndia.
(ii) 7nterprises #hich are in the process of listing their e,uity or det securities as
evidenced y the oard of directorsA resolution in this regard.
) Accounting Standards are intended to apply only to items #hich are material.
0 Reference may e made to the section titled LAnnouncements of the -ouncil
regarding status of various documents issued y the %nstitute of -hartered
Accountants of %ndiaA appearing at the eginning of this -ompendium for a
detailed discussion on the implications of the mandatory status of an
accounting standard.
1 AS )* #as originally made mandatory in respect of accounting periods
commencing on or after )&2&0==) for the follo#ing enterprisesH
(i) 7nterprises #hose e,uity or det securities are listed on a recogni/ed stoc$
e3change in %ndia" and enterprises that are in the process of issuing e,uity or
det securities that #ill e listed on a recogni/ed stoc$ e3change in %ndia as
evidenced y the oard of directorsA resolution in this regard.
(ii) All other commercial" industrial and usiness reporting enterprises" #hose
turnover for the accounting period e3ceeds Rs. 4= crores.
(iii) Ban$s including co&operative an$s.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
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(iv) Financial institutions.
(v) 7nterprises carrying on insurance usiness.
(vi) All commercial" industrial and usiness reporting enterprises" #hose turnover
for the immediately preceding accounting period on the asis of audited
financial statements e3ceeds Rs. 4= crore. (urnover does not include Lother
incomeA.
(vii) All commercial" industrial and usiness reporting enterprises having
orro#ings" including pulic deposits" in e3cess of Rs. )= crore at any time
during the accounting period.
(viii) 8olding and susidiary enterprises of any one of the aove at any time
during the accounting period.
(he enterprises #hich do not fall in any of the aove categories are not re,uired
to apply this Standard.
.here an enterprise has een covered in any one or more of the aove categories
and suse,uently" ceases to e so covered" the enterprise #ill not ,ualify for
e3emption from application of this Standard" until the enterprise ceases to e
covered in any of the aove categories for t#o consecutive years.
.here an enterprise has previously ,ualified for e3emption from application of
this Standard (eing not covered y any of the aove categories) ut no longer
,ualifies for e3emption in the current accounting period" this Standard ecomes
applicale from the current period. 8o#ever" the corresponding previous period
figures need not e disclosed.
An enterprise" #hich" pursuant to the aove provisions" does not disclose segment
information" should disclose the fact.
(he follo#ing is the te3t of the Accounting Standard.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
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#B'E(T)ES
(he o!ective of this Statement is to estalish principles for reporting financial
information" aout the different types of products and services an enterprise
produces and the different geographical areas in #hich it operates. Such
information helps users of financial statementsH
(a) etter understand the performance of the enterpriseC
() etter assess the ris$s and returns of the enterpriseC and
(c) ma$e more informed !udgments aout the enterprise as a #hole.
Many enterprises provide groups of products and services or operate in
geographical areas that are su!ect to differing rates of profitaility" opportunities
for gro#th" future prospects" and ris$s. %nformation aout different types of
products and services of an enterprise and its operations in different geographical
areas & often called segment information & is relevant to assessing the ris$s and
returns of a diversified or multi&locational enterprise ut may not e determinale
from the aggregated data. (herefore" reporting of segment information is #idely
regarded as necessary for meeting the needs of users of financial statements.
S(#PE
). (his Statement should e applied in presenting general purpose financial
statements.
0. (he re,uirements of this Statement are also applicale in case of consolidated
financial statements.
1. An enterprise should comply #ith the re,uirements of this Statement fully and
not selectively.
2. %f a single financial report contains oth consolidated financial statements and
the separate financial statements of the parent" segment information need e
presented only on the asis of the consolidated financial statements. %n the
conte3t of reporting of segment information in consolidated financial
Segment Reporting in a Foundry (Alucast Foundries Belgaum
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statements" the references in this Statement to any financial statement items
should construed to e the relevant item as appearing in the consolidated
financial statements.
"EF!T#!
(he follo#ing terms are used in this Statement #ith the meanings specifiedH
A /usiness segment is a distinguishale 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 su!ect to ris$s and returns that are different from
those of other usiness segments. Factors that should e considered in
determining #hether products or services are related includeH
(a) the nature of the products or servicesC
() the nature of the production processesC
(c) the type or class of customers for the products or servicesC
(d) the methods used to distriute the products or provide the servicesC and
(e) if applicale" the nature of the regulatory environment" for e3ample" an$ing"
insurance" or pulic utilities.
A geograp1ical segment is a distinguishale component of an enterprise that is
engaged in providing products or services #ithin a particular economic
environment and that is su!ect to ris$s and returns that are different from those of
components operating in other economic environments. Factors that should e
considered in identifying geographical segments includeH
(a) similarity of economic and political conditionsC
() relationships et#een operations in different geographical areasC
(c) pro3imity of operationsC
(d) special ris$s associated #ith operations in a particular areaC
(e) e3change control regulationsC and
(f) the underlying currency ris$s.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
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A reporta/le segment is a usiness segment or a geographical segment identified
on the asis of foregoing definitions for #hich segment information is re,uired to
e disclosed y this Statement.
Enterprise revenue is revenue from sales to e3ternal customers as reported in the
statement of profit and loss.
Segment revenue is the aggregate of
(i) the portion of enterprise revenue that is directly attriutale to a segment"
(ii) the relevant portion of enterprise revenue that can e allocated on a reasonale
asis to a segment" and
(iii) revenue from transactions #ith other segments of the enterprise.
Segment revenue does not includeH
(a) e3traordinary items as defined in AS 4" <et Profit or Loss for the Period" Prior
Period %tems and -hanges in Accounting PoliciesC
() interest or dividend income" including interest earned on advances or loans to
other segments unless the operations of the segment are primarily of a financial
natureC and
(c) gains on sales of investments or on e3tinguishment of det unless the
operations of the segment are primarily of a financial nature.
Segment expense is the aggregate of
(i) the e3pense resulting from the operating activities of a segment that is directly
attriutale to the segment" and
(ii) the relevant portion of enterprise e3pense that can e allocated on a reasonale
asis to the segment" including e3pense relating to transactions #ith other
segments of the enterprise.
Segment expense does not includeH
Segment Reporting in a Foundry (Alucast Foundries Belgaum
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(a) e3traordinary items as defined in AS 4" <et Profit or Loss for the Period" Prior
Period %tems and -hanges in Accounting PoliciesC
() interest e3pense" including interest incurred on advances or loans from other
segments" unless the operations of the segment are primarily of a financial
natureC
(c) losses on sales of investments or losses on e3tinguishment of det unless the
operations of the segment are primarily of a financial natureC
(d) income ta3 e3penseC and
(e) general administrative e3penses" head&office e3penses" and other e3penses that
arise at the enterprise level and relate to the enterprise as a #hole. 8o#ever"
costs are sometimes incurred at the enterprise level on ehalf of a segment.
Such costs are part of segment e3pense if they relate to the operating activities
of the segment and if they can e directly attriuted or allocated to the segment
on a reasonale asis.
Segment result is segment revenue less segment e3pense.
Segment assets are those operating assets that are employed y a segment in its
operating activities and that either are directly attriutale to the segment or can
e allocated to the segment on a reasonale asis.
%f the segment result of a segment includes interest or dividend income" its
segment assets include the related receivales" loans" investments" or other
interest or dividend generating assets. Segment assets do not include income ta3
assets. Segment assets are determined after deducting related allo#ances'
provisions that are reported as direct offsets in the alance sheet of the enterprise.
Segment lia/ilities are those operating liailities that result from the operating
activities of a segment and that either are directly attriutale to the segment or
can e allocated to the segment on a reasonale asis.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
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%f the segment result of a segment includes interest e3pense" its segment liailities
include the related interest&earing liailities. Segment liailities do not include
income ta3 liailities.
Segment accounting policies are the accounting policies adopted for preparing
and presenting the financial statements of the enterprise as #ell as those
accounting policies that relate specifically to segment reporting.
A single usiness segment does not include products and services #ith
significantly differing ris$s and returns. .hile there may e dissimilarities #ith
respect to one or several of the factors listed in the definition of usiness segment"
the products and services included in a single usiness segment are e3pected to e
similar #ith respect to a ma!ority of the factors. Similarly" a single geographical
segment does not include operations in economic environments #ith significantly
differing ris$s and returns. A geographical segment may e a single country" a
group of t#o or more countries" or a region #ithin a country. (he ris$s and returns
of an enterprise are influenced oth y the geographical location of its operations
(#here its products are produced or #here its service rendering activities are
ased) and also y the location of its customers (#here its products are sold or
services are rendered). (he definition allo#s geographical segments to e ased
on eitherH
(a) the location of production or service facilities and other assets of an enterpriseC
or
() the location of its customers.
(he organi/ational and internal reporting structure of an enterprise #ill normally
provide evidence of #hether its dominant source of geographical ris$s results
from the location of its assets (the origin of its sales) or the location of its
customers (the destination of its sales). Accordingly" an enterprise loo$s to this
structure to determine #hether its geographical segments should e ased on the
location of its assets or on the location of its customers.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
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6etermining the composition of a usiness or geographical segment involves a
certain amount of !udgment. %n ma$ing that !udgment" enterprise management
ta$es into account the o!ective of reporting financial information y segment as
set forth in this Statement and the ,ualitative characteristics of financial
statements as identified in the Frame#or$ for the Preparation and Presentation of
Financial Statements issued y the %nstitute of -hartered Accountants of %ndia.
(he ,ualitative characteristics include the relevance" reliaility" and comparaility
over time of financial information that is reported aout the different groups of
products and services of an enterprise and aout its operations in particular
geographical areas" and the usefulness of that information for assessing the ris$s
and returns of the enterprise as a #hole.
(he predominant sources of ris$s affect ho# most enterprises are organi/ed and
managed. (herefore" the organi/ational structure of an enterprise and its internal
financial reporting system are normally the asis for identifying its segments.
(he definitions of segment revenue" segment e3pense" segment assets and
segment liailities include amounts of such items that are directly attriutale to a
segment and amounts of such items that can e allocated to a segment on a
reasonale asis. An enterprise loo$s to its internal financial reporting system as
the starting point for identifying those items that can e directly attriuted" or
reasonaly allocated" to segments. (here is thus a presumption that amounts that
have een identified #ith segments for internal financial reporting purposes are
directly attriutale or reasonaly allocale to segments for the purpose of
measuring the segment revenue" segment e3pense" segment assets" and segment
liailities of reportale segments.
%n some cases" ho#ever" a revenue" e3pense" asset or liaility may have een
allocated to segments for internal financial reporting purposes on a asis that is
understood y enterprise management ut that could e deemed aritrary in the
perception of e3ternal users of financial statements. Such an allocation #ould not
constitute a reasonale asis under the definitions of segment revenue" segment
e3pense" segment assets" and segment liailities in this Statement. -onversely" an
Segment Reporting in a Foundry (Alucast Foundries Belgaum
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enterprise may choose not to allocate some item of revenue" e3pense" asset or
liaility for internal financial reporting purposes" even though a reasonale asis
for doing so e3ists. Such an item is allocated pursuant to the definitions of
segment revenue" segment e3pense" segment assets" and segment liailities in this
Statement.
73amples of segment assets include current assets that are used in the operating
activities of the segment and tangile and intangile fi3ed assets. %f a particular
item of depreciation or amorti/ation is included in segment e3pense" the related
asset is also included in segment assets. Segment assets do not include assets used
for general enterprise or head&office purposes. Segment assets include operating
assets shared y t#o or more segments if a reasonale asis for allocation e3ists.
Segment assets include good#ill that is directly attriutale to a segment or that
can e allocated to a segment on a reasonale asis" and segment e3pense
includes related amorti/ation of good#ill. %f segment assets have een revalued
suse,uent to ac,uisition" then the measurement of segment assets reflects those
revaluations.
73amples of segment liailities include trade and other payales" accrued
liailities" customer advances" product #arranty provisions" and other claims
relating to the provision of goods and services. Segment liailities do not include
orro#ings and other liailities that are incurred for financing rather than
operating purposes. (he liailities of segments #hose operations are not primarily
of a financial nature do not include orro#ings and similar liailities ecause
segment result represents an operating" rather than a net of& financing" profit or
loss. Further" ecause det is often issued at the head office level on an enterprise&
#ide asis" it is often not possile to directly attriute" or reasonaly allocate" the
interest&earing liailities to segments.
Segment revenue" segment e3pense" segment assets and segment liailities are
determined efore intra&enterprise alances and intra&enterprise transactions are
eliminated as part of the process of preparation of enterprise financial statements"
Segment Reporting in a Foundry (Alucast Foundries Belgaum
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e3cept to the e3tent that such intra&enterprise alances and transactions are #ithin
a single segment.
.hile the accounting policies used in preparing and presenting the financial
statements of the enterprise as a #hole are also the fundamental segment
accounting policies" segment accounting policies include" in addition" policies that
relate specifically to segment reporting" such as identification of segments"
method of pricing inter&segment transfers" and asis for allocating revenues and
e3penses to segments.
"E!TF&!+ REP#RTABLE SE+*E!TS
Primary and Secondary Segment Reporting Formats
(he dominant source and nature of ris$s and returns of an enterprise should
govern #hether its primary segment reporting format #ill e usiness segments or
geographical segments. %f the ris$s and returns of an enterprise are affected
predominantly y differences in the products and services it produces" its primary
format for reporting segment information should e usiness segments" #ith
secondary information reported geographically. Similarly" if the ris$s and returns
of the enterprise are affected predominantly y the fact that it operates in different
countries or other geographical areas" its primary format for reporting segment
information should e geographical segments" #ith secondary information
reported for groups of related products and services.
%nternal organi/ation and management structure of an enterprise and its system of
internal financial reporting to the oard of directors and the chief e3ecutive officer
should normally e the asis for identifying the predominant source and nature of
ris$s and differing rates of return facing the enterprise and" therefore" for
determining #hich reporting format is primary and #hich is secondary" e3cept as
provided in suparagraphs (a) and () elo#H
Segment Reporting in a Foundry (Alucast Foundries Belgaum
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(a) if ris$s and returns of an enterprise are strongly affected oth y differences in
the products and services it produces and y differences in the geographical areas
in #hich it operates" as evidenced y a Lmatri3 approachA to managing the
company and to reporting internally to the oard of directors and the chief
e3ecutive officer" then the enterprise should use usiness segments as its primary
segment reporting format and geographical segments as its secondary reporting
formatC and
() if internal organi/ational and management structure of an enterprise and its
system of internal financial reporting to the oard of directors and the chief
e3ecutive officer are ased neither on individual products or services or groups of
related products'services nor on geographical areas" the directors and management
of the enterprise should determine #hether the ris$s and returns of the enterprise
are related more to the products and services it produces or to the geographical
areas in #hich it operates and should" accordingly" choose usiness segments or
geographical segments as the primary segment reporting format of the enterprise"
#ith the other as its secondary reporting format.
For most enterprises" the predominant source of ris$s and returns determines ho#
the enterprise is organi/ed and managed. :rgani/ational and management
structure of an enterprise and its internal financial reporting system normally
provide the est evidence of the predominant source of ris$s and returns of the
enterprise for the purpose of its segment reporting. (herefore" e3cept in rare
circumstances" an enterprise #ill report segment information in its financial
statements on the same asis as it reports internally to top management. %ts
predominant source of ris$s and returns ecomes its primary segment reporting
format. %ts secondary source of ris$s and returns ecomes its secondary segment
reporting format.
A Lmatri3 presentationA Q oth usiness segments and geographical segments as
primary segment reporting formats #ith full segment disclosures on each asis &&
#ill often provide useful information if ris$s and returns of an enterprise are
strongly affected oth y differences in the products and services it produces and
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
y differences in the geographical areas in #hich it operates. (his Statement does
not re,uire" ut does not prohiit" a Lmatri3 presentationA.
%n some cases" organi/ation and internal reporting of an enterprise may have
developed along lines unrelated to oth the types of products and services it
produces" and the geographical areas in #hich it operates. %n such cases" the
internally reported segment data #ill not meet the o!ective of this Statement.
Accordingly" it re,uires the directors and management of the enterprise to
determine #hether the ris$s and returns of the enterprise are more product'service
driven or geographically driven and to accordingly choose usiness segments or
geographical segments as the primary asis of segment reporting. (he o!ective is
to achieve a reasonale degree of comparaility #ith other enterprises" enhance
understandaility of the resulting information" and meet the needs of investors"
creditors" and others for information aout product'service&related and
geographically related ris$s and returns.
B%S!ESS A!" +E#+RAP$(AL SE+*E!TS
Business and geographical segments of an enterprise for e3ternal reporting
purposes should e those organi/ational units for #hich information is reported to
the oard of directors and to the chief e3ecutive officer for the purpose of
evaluating the unitAs performance and for ma$ing decisions aout future
allocations of resources.
%f internal organi/ational and management structure of an enterprise and its
system of internal financial reporting to the oard of directors and the chief
e3ecutive officer are ased neither on individual products or services or groups of
related products'services nor on geographical areas" it re,uires that the directors
and management of the enterprise should choose either usiness segments or
geographical segments as the primary segment reporting format of the enterprise
ased on their assessment of #hich reflects the primary source of the ris$s and
returns of the enterprise" #ith the other as its secondary reporting format. %n that
case" the directors and management of the enterprise should determine its usiness
segments and geographical segments for e3ternal reporting purposes ased on the
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
factors in the definitions of this Statement" rather than on the asis of its system of
internal financial reporting to the oard of directors and chief e3ecutive officer"
consistent #ith the follo#ingH
(a) if one or more of the segments reported internally to the directors and
management is a usiness segment or a geographical segment ased on the factors
in the definitions" ut others are not" su¶graph () elo# should e applied
only to those internal segments that do not meet the definitions (that is" an
internally reported segment that meets the definition should not e further
segmented)C
() for those segments reported internally to the directors and management that do
not satisfy the definitions" management of the enterprise should loo$ to the ne3t
lo#er level of internal segmentation that reports information along product and
service lines or geographical lines" as appropriate under the definitionsC and
(c) if such an internally reported lo#er&level segment meets the definition of
usiness segment or geographical segment ased on the factors" the criteria for
identifying reportale segments should e applied to that segment.
Dnder this Statement" most enterprises #ill identify their usiness and
geographical segments as the organi/ational units for #hich information is
reported to the oard of the directors (particularly the non&e3ecutive directors" if
any) and to the chief e3ecutive officer (the senior operating decision ma$er" #hich
in some cases may e a group of several people) for the purpose of evaluating
each unitAs performance and for ma$ing decisions aout future allocations of
resources. 7ven if an enterprise must apply this ecause its internal segments are
not along product'service or geographical lines" it #ill consider the ne3t lo#er
level of internal segmentation that reports information along product and service
lines or geographical lines rather than construct segments solely for e3ternal
reporting purposes. (his approach of loo$ing to organi/ational and management
structure of an enterprise and its internal financial reporting system to identify the
usiness and geographical segments of the enterprise for e3ternal reporting
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
purposes is sometimes called the Lmanagement approachA" and the organi/ational
components for #hich information is reported internally are sometimes called
Loperating segmentsA.
REP#RTABLE SE+*E!TS
A usiness segment or geographical segment should e identified as a reportale
segment ifH
(a) its revenue from sales to e3ternal customers and from transactions #ith other
segments is )= per cent or more of the total revenue" e3ternal and internal" of
all segmentsC or
() its segment result" #hether profit or loss" is )= per cent or more of B
(i) the comined result of all segments in profit" or
(ii) the comined result of all segments in loss" #hichever is greater in asolute
amountC or
(c) its segment assets are )= per cent or more of the total assets of all segments.
A usiness segment or a geographical segment #hich is not a reportale segment
may e designated as a reportale segment despite its si/e at the discretion of the
management of the enterprise. %f that segment is not designated as a reportale
segment" it should e included as an unallocated reconciling item.
%f total e3ternal revenue attriutale to reportale segments constitutes less than
*4 per cent of the total enterprise revenue" additional segments should e
identified as reportale segments" even if they do not meet the )= per cent
thresholds" until at least *4 per cent of total enterprise revenue is included in
reportale segments.
(he )= per cent thresholds in this Statement are not intended to e a guide for
determining materiality for any aspect of financial reporting other than identifying
reportale usiness and geographical segments.
%llustration % to this Statement presents an illustration of the determination of
reportale segments.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
A segment identified as a reportale segment in the immediately preceding period
ecause it satisfied the relevant )= per cent thresholds should continue to e a
reportale segment for the current period not#ithstanding that its revenue" result"
and assets all no longer meet the )= per cent thresholds.
%f a segment is identified as a reportale segment in the current period ecause it
satisfies the relevant )= per cent thresholds" preceding period segment data that is
presented for comparative purposes should" unless it is impracticale to do so" e
restated to reflect the ne#ly reportale segment as a separate segment" even if that
segment did not satisfy the )= per cent thresholds in the preceding period.
SE+*E!T A((#%!T!+ P#L(ES
Segment information should e prepared in conformity #ith the accounting
policies adopted for preparing and presenting the financial statements of the
enterprise as a #hole.
(here is a presumption that the accounting policies that the directors and
management of an enterprise have chosen to use in preparing the financial
statements of the enterprise as a #hole are those that the directors and
management elieve are the most appropriate for e3ternal reporting purposes.
Since the purpose of segment information is to help users of financial statements
etter understand and ma$e more informed !udgments aout the enterprise as a
#hole" this Statement re,uires the use" in preparing segment information" of the
accounting policies adopted for preparing and presenting the financial statements
of the enterprise as a #hole. (hat does not mean" ho#ever" that the enterprise
accounting policies are to e applied to reportale segments as if the segments
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
#ere separate stand&alone reporting entities. A detailed calculation done in
applying a particular accounting policy at the enterprise&#ide level may e
allocated to segments if there is a reasonale asis for doing so. Pension
calculations" for e3ample" often are done for an enterprise as a #hole" ut the
enterprise&#ide figures may e allocated to segments ased on salary and
demographic data for the segments.
(his Statement does not prohiit the disclosure of additional segment information
that is prepared on a asis other than the accounting policies adopted for the
enterprise financial statements provided that
(a) the information is reported internally to the oard of directors and the chief
e3ecutive officer for purposes of ma$ing decisions aout allocating resources to
the segment and assessing its performance and
() the asis of measurement for this additional information is clearly descried.
Assets and liailities that relate !ointly to t#o or more segments should e
allocated to segments if" and only if" their related revenues and e3penses also are
allocated to those segments.
(he #ay in #hich asset" liaility" revenue" and e3pense items are allocated to
segments depends on such factors as the nature of those items" the activities
conducted y the segment" and the relative autonomy of that segment. %t is not
possile or appropriate to specify a single asis of allocation that should e
adopted y all enterprisesC nor is it appropriate to force allocation of enterprise
asset" liaility" revenue" and e3pense items that relate !ointly to t#o or more
segments" if the only asis for ma$ing those allocations is aritrary. At the same
time" the definitions of segment revenue" segment e3pense" segment assets" and
segment liailities are interrelated" and the resulting allocations should e
consistent. (herefore" !ointly used assets and liailities are allocated to segments
if" and only if" their related revenues and e3penses also are allocated to those
segments. For e3ample" an asset is included in segment assets if" and only if" the
related depreciation or amorti/ation is included in segment e3pense.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
"S(L#S%RE
(he previous paragraphs specify the disclosures re,uired for reportale segments
for primary segment reporting format of an enterprise. (hey identify the
disclosures re,uired for secondary reporting format of an enterprise. 7nterprises
are encouraged to ma$e all of the primary&segment disclosures identified for each
reportale secondary segment although they re,uire consideraly less disclosure
on the secondary asis. (he aove paragraphs address several other segment
disclosure matters. %llustration %% to this Statement illustrates the application of
these disclosure standards.
PR*AR& REP#RT!+ F#R*AT
(he disclosure re,uirements should e applied to each reportale segment ased
on primary reporting format of an enterprise.
An enterprise should disclose the follo#ing for each reportale segmentH
(a) segment revenue" classified into segment revenue from sales to e3ternal
customers and segment revenue from transactions #ith other segmentsC
() segment resultC
(c) total carrying amount of segment assetsC
(d) total amount of segment liailitiesC
(e) total cost incurred during the period to ac,uire segment assets that are
e3pected to e used during more than one period (tangile and intangile
fi3ed assets)C
(f) total amount of e3pense included in the segment result for depreciation and
amorti/ation in respect of segment assets for the periodC and
(g) total amount of significant non&cash e3penses" other than depreciation and
amorti/ation in respect of segment assets" that #ere included in segment
e3pense and" therefore" deducted in measuring segment result.
%t re,uires an enterprise to report segment result. %f an enterprise can compute
segment net profit or loss or some other measure of segment profitaility other
than segment result" #ithout aritrary allocations" reporting of such amount(s) in
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
addition to segment result is encouraged. %f that measure is prepared on a asis
other than the accounting policies adopted for the financial statements of the
enterprise" the enterprise #ill include in its financial statements a clear description
of the asis of measurement.
An e3ample of a measure of segment performance aove segment result in the
statement of profit and loss is gross margin on sales. 73amples of measures of
segment performance elo# segment result in the statement of profit and loss are
profit or loss from ordinary activities (either efore or after income ta3es) and net
profit or loss.
Accounting Standard 4" L<et Profit or Loss for the Period" Prior Period %tems and
-hanges in Accounting PoliciesA re,uires that R#hen items of income and e3pense
#ithin profit or loss from ordinary activities are of such si/e" nature or incidence
that their disclosure is relevant to e3plain the performance of the enterprise for the
period" the nature and amount of such items should e disclosed separatelyS.
73amples of such items include #rite do#ns of inventories" provisions for
restructuring" disposals of fi3ed assets and long&term investments" legislative
changes having retrospective application" litigation settlements" and reversal of
provisions. An enterprise is encouraged" ut not re,uired" to disclose the nature
and amount of any items of segment revenue and segment e3pense that are of
such si/e" nature" or incidence that their disclosure is relevant to e3plain the
performance of the segment for the period. Such disclosure is not intended to
change the classification of any such items of revenue or e3pense from ordinary
to e3traordinary or to change the measurement of such items. (he disclosure"
ho#ever" does change the level at #hich the significance of such items is
evaluated for disclosure purposes from the enterprise level to the segment level.
An enterprise that reports the amount of cash flo#s arising from operating"
investing and financing activities of a segment need not disclose depreciation and
amorti/ation e3pense and non&cash e3penses of such segment.
AS 1" -ash Flo# Statements recommends that an enterprise present a cash flo#
statement that separately reports cash flo#s from operating" investing and
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
financing activities. 6isclosure of information regarding operating" investing and
financing cash flo#s of each reportale segment is relevant to understanding the
enterpriseAs overall financial position" li,uidity" and cash flo#s. 6isclosure of
segment cash flo# is" therefore" encouraged" though not re,uired. An enterprise
that provides segment cash flo# disclosures need not disclose depreciation and
amorti/ation e3pense and noncash e3penses.
An enterprise should present reconciliation et#een the information disclosed for
reportale segments and the aggregated information in the enterprise financial
statements. %n presenting the reconciliation" segment revenue should e reconciled
to enterprise revenueC segment result should e reconciled to enterprise net profit
or lossC segment assets should e reconciled to enterprise assetsC and segment
liailities should e reconciled to enterprise liailities.
SE(#!"AR& SE+*E!T !F#R*AT#!
(he primary reporting format identifies the disclosure re,uirements to e applied
to each reportale segment ased on primary reporting format of an enterprise.
(he follo#ing paragraphs identify the disclosure re,uirements to e applied to
each reportale segment ased on secondary reporting format of an enterprise" as
follo#sH
(a) if primary format of an enterprise is usiness segments" the re,uired
secondary&format disclosures are identified in the net paragraphC
() if primary format of an enterprise is geographical segments ased on location
of assets (#here the products of the enterprise are produced or #here its service
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
rendering operations are ased)" the re,uired secondary&format disclosures are
identified in the ne3t t#o paragraphsC
(c) if primary format of an enterprise is geographical segments ased on the
location of its customers (#here its products are sold or services are rendered)" the
re,uired secondary&format disclosures are identified in the last t#o paragraphs of
the segment.
%f primary format of an enterprise for reporting segment information is usiness
segments" it should also report the follo#ing informationH
(a) segment revenue from e3ternal customers y geographical area ased on the
geographical location of its customers" for each geographical segment #hose
revenue from sales to e3ternal customers is )= per cent or more of enterprise
revenueC
() the total carrying amount of segment assets y geographical location of assets"
for each geographical segment #hose segment assets are )= per cent or more of
the total assets of all geographical segmentsC and
(c) the total cost incurred during the period to ac,uire segment assets that are
e3pected to e used during more than one period (tangile and intangile fi3ed
assets) y geographical location of assets" for each geographical segment #hose
segment assets are )= per cent or more of the total assets of all geographical
segments.
%f primary format of an enterprise for reporting segment information is
geographical segments (#hether ased on location of assets or location of
customers)" it should also report the follo#ing segment information for each
usiness segment #hose revenue from sales to e3ternal customers is )= per cent
or more of enterprise revenue or #hose segment assets are )= per cent or more of
the total assets of all usiness segmentsH
(a) segment revenue from e3ternal customersC
() the total carrying amount of segment assetsC and
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
(c) the total cost incurred during the period to ac,uire segment assets that are
e3pected to e used during more than one period (tangile and intangile fi3ed
assets).
%f primary format of an enterprise for reporting segment information is
geographical segments that are ased on location of assets" and if the location of
its customers is different from the location of its assets" then the enterprise should
also report revenue from sales to e3ternal customers for each customer&ased
geographical segment #hose revenue from sales to e3ternal customers is )= per
cent or more of enterprise revenue.
%f primary format of an enterprise for reporting segment information is
geographical segments that are ased on location of customers" and if the assets of
the enterprise are located in different geographical areas from its customers" then
the enterprise should also report the follo#ing segment information for each
asset&ased geographical segment #hose revenue from sales to e3ternal customers
or segment assets are )= per cent or more of total enterprise amountsH
(a) the total carrying amount of segment assets y geographical location of the
assetsC and
() the total cost incurred during the period to ac,uire segment assets that are
e3pected to e used during more than one period (tangile and intangile fi3ed
assets) y location of the assets.
LL%STRAT)E SE+*E!T "S(L#S%RES
%llustration %% to this Statement presents an illustration of the disclosures for
primary and secondary formats that are re,uired y this Statement.
#T$ER "S(L#S%RES
%n measuring and reporting segment revenue from transactions #ith other
segments" inter&segment transfers should e measured on the asis that the
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
enterprise actually used to price those transfers. (he asis of pricing inter&segment
transfers and any change therein should e disclosed in the financial statements.
-hanges in accounting policies adopted for segment reporting that have a material
effect on segment information should e disclosed. Such disclosure should
include a description of the nature of the change" and the financial effect of the
change if it is reasonaly determinale.
AS 4 re,uires that changes in accounting policies adopted y the enterprise should
e made only if re,uired y statute" or for compliance #ith an accounting
standard" or if it is considered that the change #ould result in a more appropriate
presentation of events or transactions in the financial statements of the enterprise.
-hanges in accounting policies adopted at the enterprise level that affect segment
information are dealt #ith in accordance #ith AS 4. AS 4 re,uires that any change
in an accounting policy #hich has a material effect should e disclosed. (he
impact of" and the ad!ustments resulting from" such change" if material" should e
sho#n in the financial statements of the period in #hich such change is made" to
reflect the effect of such change. .here the effect of such change is not
ascertainale" #holly or in part" the fact should e indicated. %f a change is made
in the accounting policies #hich has no material effect on the financial statements
for the current period ut #hich is reasonaly e3pected to have a material effect in
later periods" the fact of such change should e appropriately disclosed in the
period in #hich the change is adopted.
Some changes in accounting policies relate specifically to segment reporting.
73amples include changes in identification of segments and changes in the asis
for allocating revenues and e3penses to segments. Such changes can have a
significant impact on the segment information reported ut #ill not change
aggregate financial information reported for the enterprise. (o enale users to
understand the impact of such changes" this Statement re,uires the disclosure of
the nature of the change and the financial effect of the change" if reasonaly
determinale.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
An enterprise should indicate the types of products and services included in each
reported usiness segment and indicate the composition of each reported
geographical segment" oth primary and secondary" if not other#ise disclosed in
the financial statements.
(o assess the impact of such matters as shifts in demand" changes in the prices of
inputs or other factors of production" and the development of alternative products
and processes on a usiness segment" it is necessary to $no# the activities
encompassed y that segment. Similarly" to assess the impact of changes in the
economic and political environment on the ris$s and returns of a geographical
segment" it is important to $no# the composition of that geographical segment.
LL%STRAT#!
llustration on "etermination o0 Reporta/le Segments
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
(his e3ample is illustrative only and does not form part of the Accounting
Standard. (he purpose of this e3ample is to illustrate the application of the
Accounting Standard.
An enterprise operates through eight segments" namely" A" B" -" 6" 7" F" > and 8.
(he relevant information aout these segments is given in the follo#ing tale
(amounts in Rs.A===)H
Ta/le 4.37 "etermination o0 Reporta/le Segments (Amount in Rs. L===)
A B - 6 7 F > 8
(otal
Segments
(otal
7nterprise
SE+*E!T
RE)E!%E
73ternal
Sales
& 044 )4 )= )4 4= 0= 14 2==
%nter
segment
Sales
)== E= 1= 4 & & 4 & 0==
(otal
Revenue
)== 1)4 24 )4 )4 4= 04 14 E== 2==
(otal
Revenue of
each
segment as a
percentage
of total
revenue of
all segments
)E.* 40.4 *.4 0.4 0.4 9.1 2.0 4.9
SE+*E!T
RES%LT
Profit'(Loss)
4 (@=) )4 (4) 9 (4) 4 *
-omined
Result of all
Segments in
4 )4 9 4 * 2=
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
profits
-omined
Result of all
Segments in
loss
(@=) (4) (4) ()==)
Segment
Result as a
percentage
of the
greater of
the totals
arrived
aove in
asolute
amount (i.e."
)==)
4 @= )4 4 9 4 4 *
SE+*E!T
ASSETS
)4 2* 4 )) 1 4 4 @ )==
Segment
assets as a
percentage
of total
assets
of all
segments
)4 2* 4 )) 1 4 4 @
(he reportale segments of the enterprise #ill e identified as elo#H
a)" segments #hose total revenue from e3ternal sales and inter&segment sales is
)=F or more of the total revenue of all segments" e3ternal and internal" should e
identified as reportale segments. (herefore" Segments A and B are reportale
segments.
()" it is to e first identified #hether the comined result of all segments in profit
or the comined result of all segments in loss is greater in asolute amount. From
the tale" it is evident that comined result in loss (i.e." Rs.)=="===) is greater.
(herefore" the individual segment result as a percentage of Rs.)=="=== needs to
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
e e3amined. Segments B and - are reportale segments as their segment result is
more than the threshold limit of )=F.
(c) Segments A" B and 6 are reportale segments" as their segment assets are
more than )=F of the total segment assets.
(hus" Segments A" B" - and 6 are reportale segments in terms of the criteria laid
do#n in aove e3planation.
(he Statement gives an option to the management of the enterprise to designate
any segment as a reportale segment. %n the given case" it is presumed that the
management decides to designate Segment 7 as a reportale segment.
(he AS&)* re,uires that if total e3ternal revenue attriutale to reportale
segments identified as aforesaid constitutes less than *4F of the total enterprise
revenue" additional segments should e identified as reportale segments even if
they do not meet the )=F thresholds" until at least *4F of total enterprise revenue
is included in reportale segments.
(he total e3ternal revenue of Segments A" B" -" 6 and 7" identified aove as
reportale segments" is Rs.0"@4"===. (his is less than *4F of total enterprise
revenue of Rs.2"=="===. (he management of the enterprise is re,uired to designate
any one or more of the remaining segments as reportale segment(s) so that the
e3ternal revenue of reportale segments is at least *4F of the total enterprise
revenue. Suppose" the management designates Segment 8 for this purpose the
e3ternal revenue of reportale segments is more than *4F of the total enterprise
revenue. Segments A" B" -" 6" 7 and 8 are reportale segments. Segments F and
> #ill e sho#n as reconciling items.
LL%START#!
llustrative Segment "isclosures
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
(his e3ample is illustrative only and does not form part of the Accounting
Standard. (he purpose of this e3ample is to illustrate the application of the
Accounting Standard.
(his e3ample illustrates the segment disclosures that this Statement #ould re,uire
for a diversified multi&locational usiness enterprise. (his e3ample is intentionally
comple3 to illustrate most of the provisions of this Statement.
Ta/le 4.97 !F#R*AT#! AB#%T B%S!ESS SE+*E!TS (!#TE xx)
(Amounts in Rs. la$hs)
Paper
Products
:ffice
Products
Pulishing :ther
erations
7liminations -onsolidated
(otal
L=E L=* L=E L=* L=E L=* L=E L=* L=E L=* L=E L=*
RE)E!%E
73ternal
sales
44 4= 0= )* )@ )E * *
%nter&
segment
sales
)4 )= )= )2 0 2 0 0 (0@) (1=)
(otal
Revenue
*= E= 1= 1) 0) 0= @ @ (0@) (1=) )=) @=
RES%LT
Segment
result
0= )* @ * 0 ) = = ()) ()) 1= 02
Dnallocated
corporate
e3penses
(*) (@)
erating
profit
01 )4
%nterest
e3pense
(2) (2)
%nterest
income
0 1
%ncome
ta3es
(*) (2)
Paper
Products
:ffice
Products
Pulishing :ther
erations
7liminations -onsolidated
(otal
L=E L=* L=E L=* L=E L=* L=E L=* L=E L=* L=E L=*
Profit from
ordinary
activities
)2 )=
73traordinary
(1) (1)
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
lossH
uninsured
7arth,ua$e
damage to
factory
<et profit )2 *
#T$ER
!F#R*A2
2T#!
Segment
assets
42 4= 12 1= )= )= )= @ )=9 @@
Dnallocated
corporate
assets
E* 4E
(otal assets )*4 )44
Segment
liailities
04 )4 9 )) 9 9 ) ) 20 14
Dnallocated
corporate
liailities
2= 44
(otal
liailities
90 @=
-apital
e3penditure
)0 )= 1 4 4 2 1
6epreciation @ * @ * 4 1 1 2
<on&cash
e3penses
other than
6epreciation
9 0 * 1 0 0 0 )
!#TE ,,2B%S!ESS A!" +E#+RAP$(AL SE+*E!TS (A*#%!TS
! RS. LA6$S)
Business segments: For management purposes" the -ompany is organi/ed on a
#orld#ide asis into three ma!or operating divisions&paper products" office
products and pulishing & each headed y a senior vice president. (he divisions
are the asis on #hich the company reports its primary segment information. (he
paper products segment produces a road range of #riting and pulishing papers
and ne#sprint. (he office products segment manufactures laels" inders" pens"
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
and mar$ers and also distriutes office products made y others. (he pulishing
segment develops and sells oo$s in the fields of ta3ation" la# and accounting.
:ther operations include development of computer soft#are for standard and
speciali/ed usiness applications. Financial information aout usiness segments
is presented in the aove tale L%llustration %%A
+eograp1ical segments7 Although the -ompanyAs ma!or operating divisions are
managed on a #orld#ide asis" they operate in four principal geographical areas
of the #orld. %n %ndia" its home country" the -ompany produces and sells a road
range of papers and office products. Additionally" all of the -ompanyAs pulishing
and computer soft#are development operations are conducted in %ndia. %n the
7uropean Dnion" the -ompany operates paper and office products manufacturing
facilities and sales offices in the follo#ing countriesH France" Belgium" >ermany
and the D.G.erations in -anada and the Dnited States are essentially similar
and consist of manufacturing papers and ne#sprint that are sold entirely #ithin
those t#o countries.erations in %ndonesia include the production of paper pulp
and the manufacture of #riting and pulishing papers and office products" almost
all of #hich is sold outside %ndonesia" oth to other segments of the company and
to e3ternal customers.
Sales /y mar-etH (he follo#ing tale sho#s the distriution of the -ompanyAs
consolidated sales y geographical mar$et" regardless of #here the goods #ere
producedH
Ta/le 4.>H "istri/ution o0 t1e (ompany@s consolidated sales /y geograp1ical
mar-et (Amount in Rs. la$hs)
Sales Revenue /y
+eograp1ical *ar-et
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
(urrent &ear
(@AB)
Previous &ear
(@A4)
%ndia )@ 00
7uropean Dnion 1= 1)
-anada and the Dnited States 09 0)
Me3ico and South America E 0
Southeast Asia (principally ;apan and
(ai#an)
)9 )2
3A3 CA
Assets and additions to tangile and intangile fi3ed assets y geographical areaH
(he follo#ing tale sho#s the carrying amount of segment assets and additions to
tangile and intangile fi3ed assets y geographical area in #hich the assets are
located
Ta/le 4.D7 Tangi/le and intangi/le 0ixed assets /y geograp1ical area
(Amount in Rs. La$hs)
(arrying Amount o0
Segment Assets
Additions to Fixed
Assets and ntangi/le
Assets
-urrent
Mear (A=E)
Previous
Mear (A=*)
-urrent
Mear (A=E)
Previous
Mear (A=*)
%ndia *0 *9 9 4
7uropean Dnion 2* 1* 4 2
-anada and the Dnited 12 0= 2 1
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
States
%ndonesia 00 0= * E
)*4 )44 02 )9
Segment revenue and expense7 %n %ndia" paper and office products are
manufactured in comined facilities and are sold y a comined sales force. ;oint
revenues and e3penses are allocated to the t#o usiness segments on a reasonale
asis. All other segment revenue and e3pense are directly attriutale to the
segments.
Segment assets and lia/ilities7 Segment assets include all operating assets used
y a segment and consist principally of operating cash" detors" inventories and
fi3ed assets" net of allo#ances and provisions #hich are reported as direct offsets
in the alance sheet. .hile most such assets can e directly attriuted to
individual segments" the carrying amount of certain assets used !ointly y t#o or
more segments is allocated to the segments on a reasonale asis. Segment
liailities include all operating liailities and consist principally of creditors and
accrued liailities. Segment assets and liailities do not include deferred income
ta3es.
nter2segment trans0ers7 Segment revenue" segment e3penses and segment result
include transfers et#een usiness segments and et#een geographical segments.
Such transfers are accounted for at competitive mar$et prices charged to
unaffiliated customers for similar goods. (hose transfers are eliminated in
consolidation.
%nusual item7 Sales of office products to e3ternal customers in the current year
#ere adversely affected y a lengthy stri$e of transportation #or$ers in %ndia"
#hich interrupted product shipments for appro3imately four months. (he
-ompany estimates that sales of office products during the four&month period
#ere appro3imately half of #hat they #ould other#ise have een.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
Extraordinary loss7 As more fully discussed in <ote 3" the -ompany incurred an
uninsured loss of Rs.1"=="=== caused y earth,ua$e damage to a paper mill in
%ndia during the previous year.
LL%START#!
(he e3ample is illustrative only and does not form part of the Accounting
Standard. %ts purpose is to summari/e the disclosures re,uired y for each of the
three possile primary segment reporting formats.
Ta/le 4.E7 Summary o0 ReFuired "isclosure
PR*AR& F#R*AT S
B%S!ESS SE+*E!TS
PR*AR& F#R*AT S
+E#+RAP$(AL
SE+*E!TS B&
L#(AT#! #F ASSETS
PR*AR& F#R*AT
S +E#+RAP$(AL
SE+*E!TS B&
L#(AT#! #F
(%ST#*ERS
Required Primary Required Primary Required Primary
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
Disclosures Disclosures Disclosures
Revenue from e3ternal
customers y usiness
segment
Revenue from e3ternal
customers y location of
assets
Revenue from e3ternal
customers y location
of customers
Revenue from
transactions #ith other
segments y usiness
segment
Revenue from transactions
#ith other segments y
location of assets
Revenue from
transactions #ith other
segments y location of
customers
Segment result y
usiness segment
Segment result y location
of assets
Segment result y
location of customers
-arrying amount of
segment assets y
usiness segment
-arrying amount of
segment assets y location
of assets
-arrying amount of
segment assets y
location of customers
Segment liailities y
usiness segment
Segment liailities y
location of assets
Segment liailities y
location of customers
-ost to ac,uire tangile
and intangile fi3ed
assets y usiness
segment
-ost to ac,uire tangile
and intangile fi3ed assets
y location of assets
-ost to ac,uire tangile
and intangile fi3ed
assets y location of
customers
PR*AR& F#R*AT S
B%S!ESS SE+*E!TS
PR*AR& F#R*AT S
+E#+RAP$(AL
SE+*E!TS B&
L#(AT#! #F ASSETS
PR*AR& F#R*AT
S +E#+RAP$(AL
SE+*E!TS B&
L#(AT#! #F
(%ST#*ERS
Required Primary
Disclosures
Required Primary
Disclosures
Required Primary
Disclosures
6epreciation and
amorti/ation e3pense y
usiness segment
6epreciation and
amorti/ation e3pense y
location of assets
6epreciation and
amorti/ation e3pense
y location of
customers
<on&cash e3penses
other than depreciation
and amorti/ation y
<on&cash e3penses other
than depreciation and
amorti/ation y location
<on&cash e3penses
other than depreciation
and amorti/ation y
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
usiness segment of assets location of customers
Reconciliation of
revenue" result" assets"
and liailities y
usiness segment
Reconciliation of revenue"
result" assets" and
liailities
Reconciliation of
revenue" result" assets"
and liailities
Required Secondary
Disclosures
Required Secondary
Disclosures
Required Secondary
Disclosures
Revenue from e3ternal
customers y location of
customers
Revenue from e3ternal
customers y usiness
segment
Revenue from e3ternal
customers y usiness
segment
-arrying amount of
segment assets y
location of assets
-arrying amount of
segment assets y
usiness segment
-arrying amount of
segment assets y
usiness segment
-ost to ac,uire tangile
and intangile fi3ed
assets y location of
assets
-ost to ac,uire tangile
and intangile fi3ed assets
y usiness segment
-ost to ac,uire tangile
and intangile fi3ed
assets y usiness
segment
Revenue from e3ternal
customers y geographical
customers if different
from location of assets
-arrying amount of
segment assets y
location of assets if
different from location
of customers
-ost to ac,uire tangile
and intangile fi3ed
assets y location of
assets if different from
location of customers
Other Required
Disclosures
Other Required
Disclosures
Other Required
Disclosures
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
Basis of pricing
intersegment transfers
and any change therein
Basis of pricing
intersegment transfers and
any change therein
Basis of pricing
intersegment transfers
and any change therein
-hanges in segment
accounting policies
-hanges in segment
accounting policies
-hanges in segment
accounting policies
(ypes of products and
services in each usiness
segment
(ypes of products and
services in each usiness
segment
(ypes of products and
services in each
usiness segment
-omposition of each
geographical segment
-omposition of each
geographical segment
-omposition of each
geographical segment
Segment Reporting
Segment T 6istinguishale component of enterprise
Business Segment (BS)
%f BS is primary
>S #ill e
Secondary
>eographical Segment (>S)
%f >S is primary BS #ill
e Secondary
Location of
Assets
Location of
-ustomers
6ominance of Ris$'Return
:rgani/ational Structure
Reporting Structure'System
6efinition ased decision
Reportale Segment
*4F
enterprise
revenue
criteria
Segment
Revenue
U )=F of
all
segments
revenue
Management
-hoice
Segment
Revenue
U )=F of
higher of
segments
in
profit'loss
Segment
Assets U
)=F of
enterprise
assets
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
-hapter 5%%%
(alculations and Segment Report
6isclosuresH %n oth primary format and in secondary format
Previous year segment information to continue in current year
Previous year figures to e regrouped to fall in line #ith current year
Business Primary B >eographic SecondaryC
>eographic L:A Primary
(a) Business secondary (b) Geographic LOC secondary
:ther 6isclosuresH
Basis of transfer pricing
-hanges" if any" in accounting policies" types of products" services" composition of
each geographical or usiness segment
>eographic L:- Primary
(b) Business secondary (b) Geographic LOA secondary
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
(ale 9.)H -ost Sheet
Particulars )entilated "isc Solid "isc Fly.1eel
*ATERAL RE8%RE*E!T
P%> )0E.*4 )0E.*4 )0E.*4
MS )12.44 )12.44 )12.44
RR )09.E2 )09.E2 )09.E2
B:R%<> = = =
Total 39G.BD 39G.BD 39G.BD
ALL#&S RE8%RE*E!T
FeMn 0.)4 ).@4 ).@4
FeSi = = =
-P- =.0= = =
Fe-r =.@9 =.@) =.@)
-u = 9.=E 9.=E
%<:-DLA<( 1.04 0.9= 0.9=
Total B.EG 3>.49 3>.49
SA!" A""T)ES
B7<<%(7 2.2@ 0.0) 0.0)
<7. SA<6 0.=9 ).=2 ).=2
-:AL A66%(%57 4.@0 0.@@ 0.@@
Total 39.DC B.9D B.9D
(#RE (#STS
SA<6 A66%(%57S ).*E = =
R7S%< ).E@ = =
B%<67R 0.E= = =
-A(ALMS( ).@4 = =
Total G.AA = =
P:.7R D<%(S R7V'< D>.BG >C.CG >C.CG
F7((L%<> + S8
BLAS(%<>' G> E.9A E.9A E.9A
T#TAL "RE(T (#ST 9AD.EC 3C>.4G 3C>.4G
LAB
R -:S( )@.4= 00.*4 00.*4
R7PA%R + MA%<(7<A<-7 1.04 1.04 1.04
FR%7>8( ).E1 ).E1 ).E1
:57R 87A6 -:S(S )E.04 )E.04 )E.04
A6M%< + (7S(%<> -:S(S E.4= E.4= E.4=
T#TAL (#ST (per unit) 9E3.49 9DD.3B 9DD.3B
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
(ale 9.0H -alculation of Profit after (a3
Particulars
)entilated
"isc Solid "isc Fly.1eel Total
(otal -ost per unit 04).*0 022.)E 022.)E
Profit 20.09 2=.92 12.92
(otal Sales Price 0@2.== 094.== 0*@.==
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
<o. of units 0E94== )@14== )**24= E1@24=
(otal revenue *9@1@=== 44)2*4== 2@4=944= )914@4=4=
(otal -ost E*49E90= 2*022@E= 2110E)@0 )49)4*@*0
Profit efore interest"
ta3 and depreciation
(PB%(6) ))140)9= *@=042= E)90149 0421*=*9
LessH 6epreciation )@)1=== )@)1=== )@)1=== 4*1@===
Profit efore interest and
ta3 (PB%() @21@)9= 4@9@42= 20E@149 )@E@9=*9
LessH %nterest 204)*91 09=21E* )@@=)@E @=2E12*
Profit efore ta3 (PB() 4)9*1@* 1)94)*1 00*@)E0 )=E4)*1)
%ncome (a3 ))*9)*) ***=@) 44)292 04=E*2E
Profit after ta3 (PA() 2==@00E 02=9=90 )*0*E*9 9)22@94
(ale 9.1H Segment Report
Particulars
)entilated
"isc Solid "isc Fly.1eel Total
RE)E!%E
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
73ternal Sale *9@1@=== 44)2*4== 2@4=944= )914@4=4=
%nter&segment Sale = = = =
(otal Revenue 4GC>CAAA EE3D4EAA DCEAGEEA 3G>ECEAEA
RES%LT
Segment Result ))140)9= *@=042= E)90149 0421*=*9
Dnallocated corporate
e3p. @1*2E* @1*2E* @1*2E* 09)02=0
erating Profit )=2)2*)1 E@E4=*1 40229@) 00E02E*E
%nterest 204)*91 09=21E* )@@=)@E @=2E12*
%ncome&(a3 ))*9)*) ***=@) 44)292 04=E*2E
Profit from ordinary
activities = = = =
73traordinary = = = =
<et Profit 2==@00E 02=9=90 )*0*E*9 9)22@94
#T$ER
!F#R*AT#!
Segment Assets E99=42=E 2419009@ 100=E*9E )2E1@229=
Dnallocated corporate
Assets *E24=24 4=202*E 14*9410 )E0EE=41
(otal Assets *E24=24) 4=202*E4 14*941)9 )E0EE=411
Segment Liailities )=*14E240 *=9=@4*4 4=04)@4E 0092)*@92
Dnallocated corporate
liailities @=)@00= 4@2992* 200)*E0 )@)9@90@
(otal Liailities ))E1*4E*0 *E*49200 422*1*)9 02*E=*9)1
-apital 73penditure = = = =
6epreciation )@)1=== )@)1=== )@)1=== 4*1@===
-8AP(7R %?
(onclusion
). Segment reporting is not mandatory for companies that have a turnover of less
than 4 crores or have no stoc$ mar$et listed e,uity share. 8o#ever" from this
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
study it may e concluded that segment reporting is ,uite useful for financial
analysis and decision ma$ing.
0. Accounting Standards #hen implemented meticulously add to the
convenience of Financial Analyst.
1. %n the study the findings of one segment (product category) not doing as good
as the other t#o segments is not clear in consolidate income statement.
%nformation aout performance of products falling in similar ris$ and return
categories is a useful input in many a decision ma$ing situation.
2. Since it is not too e3pensive in terms of time" money and effort in maintaining
this accounting procedures that aid in reporting income segment #ise and the
enefit of doing so ma$e good for any additional resource e3penditure"
segment reporting should e adopted y foundries of Alucast $ind.
4. Alucast needs to do some analysis on the Fly#heel segment in order to ring
it in par #ith the other t#o segments" this #ould ensure that the company
performs e,ually #ell #ith all the customers.
Re0erences and Bi/liograp1y
Boo-s and *anuals
1. M. P. 5i!ay Gumar" First Lessons in Accounting Standards" Sno# .hite
Pulications" 0==4.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
2. 6. S. Ra#at" Students guide to Accounting Standards, (a3mann" 0==E.
. S. P. ;ain and G. L. <arang" !ost Accounting, Galyani Pulications" )@@=.
". M. M. Ghan + P. G. ;ain" Financial #anagement
$. 6r. S. <. Mahesh#ari" %rinciples o& #anagement Accounting, Sultan -hand"
0==4.
555 support
httpH''icai.org'icairoot'resources'asWinde3.!sp
httpH''###.smnpco.com'do#nload'as'as)*.html
httpH''icai.org'icairoot'pulications'complimentary'ca!ournalWmar=2'p@2E&)&
4=.pdf
httpH''###.thehinduusinessline.com'0==0'=4'09'stories'0==0=409=00))===.htm
httpH''###.#epindia.com'ap'0==0W0==1'page0W40.pdf
httpH''io.in'segrep1==E=4.asp
httpH''###.duncan#il.co.u$'pdfs'ias'ias)2.pdf
doc_327202259.doc
The study is confined to Alucast Foundries Belgaum Pvt. Ltd. It is a study describing the Segment Reporting system, wherein the profit and losses generated by every segment would be studies to provide a detailed segment report in order to understand which of the product categories is actually doing well.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
Executive Summary
TTLE
Segment Reporting in a Foundry (Alucast Foundries Belgaum Pvt. Ltd.)
!EE" F#R T$E ST%"&
Many enterprises provide groups of products and services or operate in
geographical areas that are su!ect to differing rates of profitaility" opportunities
for gro#th" future prospects" and ris$s. %nformation aout different types of
products and services of an enterprise & often called segment information & is
relevant to assessing the ris$s and returns of a diversified and'or multi&location
enterprise ut may not e determinale from the aggregated data. (herefore"
reporting of segment information is #idely regarded as necessary for meeting the
needs of users of financial statements.
#B'E(T)ES #F T$E ST%"&
• (o study the foundry (Alucast Foundries Belgaum Pvt. Ltd.)
• (o study and understand AS )* and its applicaility to a foundry
• (o segment P+L account as per AS)*
• (o calculate profitaility of each segment
S(#PE #F T$E ST%"&
(he study is confined to Alucast Foundries Belgaum Pvt. Ltd. %t is a study
descriing the Segment Reporting system" #herein the profit and losses generated
y every segment #ould e studies to provide a detailed segment report in order
to understand #hich of the product categories is actually doing #ell.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
SA*PLE "ES+!
(he study of the Segment reporting techni,ue #ith regards to Alucast Foundries
Pvt. Ltd. is ased on Secondary data. (he secondary data is ta$en from pulished
material.
*ET$#"#L#+&
• -alculate investment" cost and revenue for ma!or product categories
• %dentify segments in the set up
• -alculate profitaility on each of the segments
• -onclude
& .hich of the product categories is actually doing #ell and #hich is not
& %f segment reporting is eneficial for such organi/ations as Alucast
L*TAT#!S
). (he time allotted to undergo the concurrent pro!ect #as not sufficient to study
all the aspects of the organi/ation.
0. (here is no compulsion to maintain the oo$s of accounts #ith regards to
costing records according to the la# for small scale industries" therefore the
study got limited to availale ra# information.
1. (he Accounting Standard )* is not mandatory for the organi/ation hence data
regarding different segments got limited to the availale information.
2. (he ,uantity details otained are appro3imated values as the accurate ,uantity
details at different stages are difficult to asses #ithout the maintenance of
records at every stage of the process of casting.
4. (he study done in the pro!ect is purely for academic purpose only.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
RES%LTS
As per the PA( values in the segment report the first segment 5entilated 6isc
appears to e performing etter than the other t#o segments. Alucast needs to do
some analysis on the Fly#heel segment in order to see that all the segments are
performing as per their plans.
S%++EST#!S
Segment reporting system should e installed in the day to day accounting of
companies irrespective of #hether it is mandatory or not.
F%T%RE S(#PE
(he System of segment reporting has een e3perimented on only one of the
locations of Alucast %ndustries. (he study may e continued to include all the
geographic segments
!"E,
($APTER PART(%LARS
PA+E
!#.
Ac-no.ledgement
Executive Summary
% A /rie0 1istory o0 metal 0orming )
%% Foundry ndustry 1
%%% (ompany Pro0ile 2
%ntroduction
Share holders
7steemed customers
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
Registered office and #or$s
Plant and Machinery used
8ours and environment
S$ills and personal ,ualities
%5 Process 0lo. 0or t1e production o0 casting 9
-asting
Sand -asting
6esign
Pattern ma$ing
Mould ma$ing
Machine moulding
8and moulding
-ore ma$ing
Melting and pouring
Pouring
Shot lasting" fettling and painting
5 (ost Accounting )*
%ntroduction
Scope of cost accounting
:!ectives of cost accounting
Advantages of cost accounting
Limitations of cost accounting
(raditional costing today
;o -osting
5% Accounting Standard and Financial Statements 0*
%ntroduction
:!ectives of Accounting Standards
Advantages of Accounting Standards
6isadvantages of Accounting Standards
:!ectives and funtions of the Accounting Standards Board
Rationale of Accounting Standards
%nternational harmoni/ation of Accounting Standards
Accounting Standards setting in %ndia
-omposition of Accounting Standards Board
(he Accounting Standards setting process
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
Present status of Accounting Standards in %ndia in
harmoni/ation #ith the %nternational Accounting Standards
-ompliance #ith Accounting Standards
:!ective of Financial Statements
Financial Position" Performance and -ash
<otes and Supplementary Schedules
7lements of Financial Statements
Financial Position
Assets
Laiilities
7,uity
Performance
%ncome
73penses
-apital maintenance ad!ustments
Recognition of the elements of financial statements
(he proaility of future economic enefits
Reliaility of measurement
Recognition of Assets
Recognition of Liailities
Recognition of %ncome
Recognition of 73penses
5%% Accounting Standard (AS234) 4=
Segment Report
:!ectives
Scope
6efinition
%dentifying reportale segments
Business and >eographical Segments
Reportale Segments
Segment accounting policy
6isclosure
Primary reporting format
Secondary segment information
%llustrative segment disclosures
ther 6isclosures)%llustrative % (6etermination of Reportale Segments)
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
%llustrative %% (Segment Report)
%llustrative %%% (Summary of Re,uired 6isclosure)
A diagrammatic representation of segment reporting
5%%% (alculations and Segment Report 94
-ost Sheet
-alculation of Profit after (a3
Segment Report
%? (onclusion 99
Re0erences and Bi/liograp1y 9@
-8AP(7R %
A Brief 8istory of Metal Forming
(he earliest human eing inhaited the earth over )=="=== years ago.
Archaeological studies have revealed that he had already discovered the
phenomenon of fire and learnt to use it for his o#n enefit. Surprisingly it too$
him another @4 thousand years efore he discovered ho# to use fire to e3tract
metal from the earthAs crust and put it to use. %nitially metals #ere used for
adornment B coms" nec$laces and racelets for e3ample" #hich #ere made from
gold and silver" the easiest of metals to e3tract from their ores. (hen he discovered
the more common and useful copper" #hich he learned to harden y alloying it
#ith other metals to form ron/e. (he >ree$s and the Romans in the centuries
immediately efore -hrist ecame the first true masters of the art of casting
metalC their eautiful ron/e sculptures" coins" ornaments and utensils are the
legacies #e continue to admire. Last of all came iron" the most common metal ut
the most difficult to #or$" Dnli$e the other metals #hose relatively lo# melting
points allo#ed them to e cast in moulds" iron had to e forged" that is heated to
ma$e it soft and then eaten into the necessary shapes. %t #as to e several
hundred years efore the discovery of a method of attaining temperatures
sufficiently high to $eep iron molten long enough to cast into shapes.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
<evertheless the %ron Age #as truly the eginning of history. .hen man learned
to shape this metal he egan to transform life. For the first time he had made
himself materials that could perform miracles in providing tools" utensils and
#eapons and" in the distant future" machines.
%n )*=@ Araham 6ary developed co$e at -oalroo$dale" very often regarded as
the irthplace of the industrial revolution. %n fact if it #ere not for coal and the
s$ill of iron casting it may not have een a revolution B !ust a prolonged
evolution. %t #as the co$e used to smelt iron that gave the great inventors the
material from #hich they could ma$e their machines" the most revolutionary
eing the steam engine developed y ;ames .att in the )*E=As. %n )*9= the #orld
sa# its first iron ridge made from cast materialC then over the turn of the century
the great iron #or$s really came into their o#n as steam #as harnessed to po#er
iron locomotives and ships. (housands of miles of cast iron rail#ays #ere laid
and scores of iron ridges #ere uilt across rivers and straits. Steel" #hich had
een made in relatively small amounts since )*11 #hen Ben!amin 8untsman
developed his crucile process" suddenly ecame freely availale #hen Sir 8enry
Bessemer invented his famous converter in )944 #hich made large scale
production possile.
7lectric motors" motor cars" diesel engines" underground rail#ays" photography"
the #ireless" the computerC all appeared in this most inventive of centuries" :n the
domestic front vacuum cleaners" #ater closets" icycles and scores of other
products #ere invented. And the men of metal contriuted their s$ills to them all.
(he t#entieth century opened up #ith the first successful po#ered flight and the
introduction of the mass production of motor cars. (echni,ues of metal casting
changed to cater for the enormous demands of these ne# industries and more so
#hen" #ithin a fe# years" oth modes of transport #ere eing used in the first all&
metal #ar et#een )@)2 and )@)9. Aluminium" introduced to the metal industry
in )@=@" provided the strong light#eight material that #as to satisfy manAs long
time universal yearning to fly. Dltimately its derivatives opened up the very
heavens for him. Space e3ploration commenced in the )@4=As" man landed on the
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
moon in )@E@ and countless satellites and space proes #ere pro!ected into the
universe. :nce again the art of metal molding came into its o#n as an essential
part of the aerospace industry.
(oday the casting industry contriutes to information technology" food
production" telecommunications" nuclear po#er and #orld finance. %t can e
confidently predicted that as the human race continues its progress" #hatever ne#
materials are utili/ed" the casting industry #ill e there to serve it. .hoever enters
the metal casting usiness today #ill doutless help to ta$e it into its seventh
millennium as possily manAs oldest and most essential s$ill.
-8AP(7R %%
Foundry %ndustry
Since the days of the first horseless carriage" engineers have relied upon the
metal&casting process to po#er" control and staili/e their ever&demanding
vehicles. (he automoile depends on castings" from the engine to the ra$es. %t
also presents a platform for casting design to shine.
(he aility of fluid to assume the shape of its container is e3ploited y casting
processes" #hich involve melting and pouring li,uid metal into a sand or metal
mould and allo#ing it to solidify" yielding a shape close to that of the desired
product. Metal casting continues to e the preferred process for intricate shapes of
any si/e and #eight #ith varying #all thic$ness and internal features. (he flo# of
molten metal in the mould and suse,uent solidification affect casting ,uality.
(his can e controlled y appropriate design of the mould" including the cavities
corresponding to the casting" gating channels and feeders.
(he %ndian Foundry %ndustry occupies a special place in shaping the countryAs
economy. %ndia is currently among the )= largest producers of ferrous and non&
ferrous castings and has over E4== foundries in the small" medium" and large scale
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
sectors. Appro3imately @=F are in the small scale. %ndia e3ports annually aove
Rs.*=='& crores #orth of castings to countries li$e DSA" D.G." -anada" >ermany
etc.
(he future holds great promise for the metal casting industry. <e# advances have
allo#ed the industry to employ materials such as aluminum" magnesium"
titanium" /inc" advanced copper& ased" and advanced ferrous alloys to produce
thin #all" high&strength castings #ith higher precision castings and more comple3
shapes. But to remain competitive and maintain a viale domestic industry"
challenges must e overcome in industry recognition" casting design" processing
efficiency" and employment attractiveness.
-8AP(7R %%%
-ompany Profile
%<(R:6D-(%:<
Alucast Foundries Belgaum Pvt. Ltd. 7stalished in )@@E. Alucast Foundries is
the ma!or driving force ehind the smooth and troule free #heeling of the
countryAs passenger cars. :ne of the largest and speciali/ed manufacturers of
ra$e discs for passenger cars. Alucast Foundries speciali/es in the high precision
product. (he Bra$e discs are of the solid and ventilated type and are supplied in
either fully finished or semi&finished forms. (he proved technology for porosity
free castings has een put to use" along #ith less than 4F Ferrite control and
asence of carides. Advanced -<- machines provide a fine finish to all castings.
Fly .heels and Pressure Plates for -lutches" ranging from 2 to 2= $gs. in #eight"
are the other ma!or products in this category. Alucast Foundries supplies different
grades of ra$e discs vi/. f> 04=" >8 )@=" >>>04 stc.
(his speciali/ed field of casting has" off late" ecome a routine& part and parcel B
of the product range of Alucast foundries. .ith the est technology and e3pert
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
manpo#er" a #ide range of products in the category have een instrumental in the
smooth operations of many a core sector. Alucast Foundries maintain a modularity
of more than 94 F #ell formed nodules and controlled proportions of Pearite and
Ferrite in the availale matri3" are the asic of this fla#less ,uality castings.
5arious grades such as 2==')0" 2==')4" 24=')4" 4=='*" E=='1 and *=='0 are among
the casting manufactured. A #ide product range pertaining to international
standards is a silent feature of Alucast Foundries. 8us" 7nd -ollars and other
castings for 7arth moving machinery" adhering to 6%<" BS" %S and AS(M have
een ma$ing their mar$ in the domestic as #ell as the overseas mar$ets.
Area coveredH 2 acresC Built up areaH 1="=== s,. feet
Po#er consumptionH E4= $ilo #atts
%nstalled capacityH 1=== M(
.or$ing capitalH )"0="=="===C 73port creditH 9="=="===
%S:H ;uly 0===C %S: (echnical Specification certificateH Septemer 0==2
(otal share holdingH 40"=="===
S$ARE $#L"ERS
). Mr. San!ay Bichu (M6)
0. Mrs. Purnima Bichu (6%R)
1. Mr. 5.>. Gul$arni (6%R)
2. Mr. >opal Bichu
4. Mrs. Sudha B. Bichu
E. 6r. Mrs. 8ema Gul$arni
*. Mr. <i$hil Gul$arni
ESTEE*E" (%ST#*ERS
• Galyani Bra$es Ltd.
• B-S%L" ;alagaon
• A3letech" DG
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
• %(M
• L+( Gomatsu
• <>7F
• %L;%< Automotive Pvt. Ltd.
RE+STERE" #FF(E A!" 5#R6S
#00iceH 5or-s7
B')E GSS%6- %nd. 7state" EE2'0 .agh#ade Road"
Angol Belgaum 5illage Mache" Belgaum
%ndia B 4@===9 %ndia B 4@==)2
Phone <o.H 022=@E*" 40=0=0@ Phone <o.H 02))2@)
Fa3 <o. H 022)=@9
7mail H alucastIsanharnet.in
PLA!T A!" *A($!ER& %SE"
• Sand mi3er + Muller
• Molding machine
• Sand cooler
• -onveyer
• -ore ma$ing machine + core oven
• -upola
• Spectrometer (Alloy (esting meter)
• %nduction furnace
• Automatic pouring machine
• Shot lasting
• -<- lathe
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
$#%RS A!" E!)R#!*E!T
Foundry process operators usually #or$ 29 hours a #ee$" often on a shift system"
#hich can include evenings and #ee$ends. :vertime is li$ely to e availale.
Foundries are not the dirty" dusty places they used to e and most have fume and
dust e3tractors. 8o#ever" the furnace area is hot" and some processes still cause a
certain amount of dust. (he use of lifting e,uipment has ta$en some of the hard
physical effort out of the #or$. Foundries can e dangerous places" and foundry
process operatives #ear safety clothing including overalls" safety shoes" hard hats"
eye shields" earplugs and gloves.
S6LLS A!" PERS#!AL 8%ALTES
Foundry process operators need
• to e good #ith their hands
• good hand&to&eye co&ordination
• a steady hand to carry out delicate #or$
• good communication s$ills
• the aility to #or$ under supervision
• to #or$ #ell as part of a team
• a fle3ile attitude to do a range of different !os
• a serious attitude to safety issues
• good physical fitness.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
-8AP(7R %5
Process flo# for the production of casting
(AST!+
-asting is a method for creating one or more copies of an original piece of
sculptural (three&dimensional) art#or$. -asting is a manufacturing process" in
#hich #e pour molten metal in the pre&made mouldC mould may e of sand or of
metal" and let it e solidified. After solidification and removal of the mould the
metal ta$es the desired shape. Four main elements are re,uired in the process of
casting pattern" mold" cores" and the part. (he pattern" the original template from
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
#hich the mold is prepared" creates a corresponding cavity in the casting material.
-ores are used to produce tunnels or holes in the finished mold" and the part is the
final output of the process.
SA!" (AST!+
Sand casting" #hich in a general sense involves the forming of a casting mold
#ith sand" includes conventional sand casting and evaporative pattern (lost&foam)
casting. %n sand casting" re&usale" permanent patterns are used to ma$e the sand
moulds. (he preparation and the onding of this sand mould are the critical step
and very often are the rate&controlling step of this process. (#o main routes are
used for onding the sand mouldsH
? (he Jgreen sandJ consists of mi3tures of sand" clay and moisture.
? (he Jdry sandJ consists of sand and synthetic inders cured thermally or
chemically.
%n conventional sand casting" the mold is formed around a pattern y ramming
sand" mi3ed #ith the proper onding agent" onto the pattern. (hen the pattern is
removed" leaving a cavity in the shape of the casting to e made. %f the casting is
to have internal cavities or undercuts" sand cores are used to ma$e them. Molten
metal is poured into the mold" and after it has solidified the mold is ro$en to
remove the casting. %n ma$ing molds and cores" various agents can e used for
onding the sand. (he agent most often used is a mi3ture of clay and #ater.
-asting ,uality is determined to a large e3tent y foundry techni,ue. Proper
metal&handling practice is necessary for otaining sound castings. -omple3
castings #ith varying #all thic$ness #ill e sound only if proper techni,ues are
used.
"ES+!
(he first production step for all castings ta$es place in the design office #here
ideas are converted into manufacturing dra#ings #hich guide the production team
to create the solid metal end products. 6esigners need a #ealth of information
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
efore they reach for their set s,uares. (he specified shape and si/e of the final
product is oviously needed ut #ith metal casting the designers needs to $no#
#hat stresses and conditions the products #ill have to #ithstand so that the
correct metal can e chosen. (hey #ill need to $no# ho# many castings are
needed. All these factors dictate #hich molding techni,ues to choose.
PATTER! *A6!+
:nce the customer and the rest of the production team have approved the design"
a pattern or model is made. (his can e produced in #ood" metal or plastic or
from a comination of all three. Patterns must e precise in their shape and finish"
for any mista$es are reproduced in the moulds #hich are made from them and
from #hich the final castings are formed. (hey must e made to allo# for the
shrin$age of the metal #hen it cools and they can include channels to allo# metal
to flo# into the casting shape. From the initial pattern a prototype or production
sample is usually made #ith #hich the customer can e3periment to ensure that the
final casting #ill e e3actly as re,uired.
*#%L" *A6!+
(he ne3t manufacturing step is moulding in #hich the pattern is pac$ed in a
moulding material" usually some type of sand" and then removed to leave the right
shape for the casting. Moulds can e made y hand" or machine. %n one casting
process the mould is made from a heat resistant metal. Moulds are usually made
in at least t#o parts and for very large castings they may even start out as large
holes dug into the sand floor of the foundry. 6ifferent types of sand are used for
moulding #ith additives li$e #ater and clay and various chemicals" depending on
the si/e of the mould and the types of metal that are eing cast. :ne important
feature of the mould is the running system #hich is a net#or$ of small channels
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
that leads the molten metal do#n into the casting shape. (he shapes and si/es of
these channels have to e carefully calculated to ensure that the molten metal does
not solidify efore it gets to the casting shape and to ma$e sure that it does not
flo# too fast #hen it could #ear a#ay the mould. Many castings are designed to
have cavities in them B engine loc$s" for e3ample. (hese voids" #hich have to e
as accurate as the outer moulds" are made y forming their shape in moulding
material. (he shapes" or cores as they are $no#n" are placed in the mould and
after the molten metal has solidified" the core material is removed leaving a
precisely shaped cavity ehind.
For mould preparation as per production plan a mi3ture of sand charge #hich
contains system sand" ne# sand" entonite" -L2 and de3trin is collected in the
uc$et. (he uc$et is raised and the sand is unloaded into the muller. Sand is
mi3ed for t#o minutes in dry condition #ith 4&)4 liters of #ater in the muller.
<e3t the sand is mi3ed for three minutes in #et condition. After this process is
completed the sand sample is measured and once the sample is ,ualified as per the
re,uired standards the mi3ture is dropped into the hopper.
*A($!E *#%L"!+
(o ma$e green sand moulds on the machine.
). (a$e inspected pattern and moulding pins from pattern shop
0. Fit pattern on machine #ith moulding pins and clean the pattern #ith diesel
spray and plumago po#der.
1. Place first o3 on match plate and sieve on it. (a$e some initial system sand
and sieve it through sieve. Remove sieve.
2. Fill the half o3 #ith system sand and !olt. Place the spruce cup on position
(for top o3 moulding only).
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
4. 6o !olting and ram the sand #ith pneumatic hand rammer.
E. Fill full o3 #ith sand and !olt. S,uee/e the sand and do simultaneous
!olting.
*. Remove spruce cup from top o3 and do random venting.
9. Lift the o3 #ith lifting rods and remove it from machine #ith electrical
hoist.
@. Before $eeping ottom o3 on pallet" clean pallets thoroughly. -lean the
ottom o3 mould #ith air. Place the stained core as specified and cores for
cored items.
)=. Ma$e proper venting for top o3" clean it #ith air and close the o3.
)). %nsert the closing pins into o3 ushes.
)0. Mar$ the o3 #ith heat numer and serial numer #ith chal$. Move the o3
for pouring.
$A!" *#%L"!+
(o ma$e green sand moulds and -:0 sand moulds manually.
a) +reen sand 1and moulding
). (a$e inspected pattern" propagating system for loose patterns and moulding
pins from pattern shop.
0. Select proper si/ed o3es and moulding pins.
1. Place pattern on ground and o3 on it. -lean the pattern #ith air and apply
diesel and plumago po#der.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
2. -over the patter #ith green sand mi3 upto 1=&2= mm appro3imately an
dram it properly.
4. -over this sand #ith a$ing sand and ram it properly till o3 fills
completely.
E. Ma$e proper venting and scrape the surface to remove access sand if any.
*. Repeat the procedure for top o3 moulding. For loose pattern moulding turn
the ottom o3 moulded #ith pattern and then mould the top o3 on it.
9. Remove pattern from mould.
@. -lose the o3es for pouring.
/) (#9 sand moulding
). (a$e inspected pattern" propagating system for loose patterns and moulding
pins from pattern shop.
0. Select proper si/ed o3es and moulding pins.
1. Place pattern on ground and o3 on it. -lean the pattern #ith air and apply
diesel and plumago po#der.
2. -over the patter #ith green sand mi3 upto 1=&2= mm appro3imately and
dram it properly.
4. -over this sand #ith a$ing sand and ram it properly till o3 fills
completely.
E. Ma$e proper venting and scrape the surface to remove access sand if any.
*. Pass -:0 gas through the vents for half minute appro3imately per vent.
9. Repeat the procedure for top o3 moulding. For loose pattern moulding" turn
the ottom o3 moulded #ith pattern and then mould the top o3 on it.
@. Remove pattern from mould.
)=. Paint the moulds #ith spirit paint y spraying.
)). 8eat the moulds #ith diesel or LP> urners.
)0. After cooling close the o3es.
(#RE *A6!+
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
>ood core ma$ing egins #ith high ,uality core sand preparation. (he
preparation of cores from sand mi3er consists of the follo#ing procedure
Preparation of sand mi3 for core ma$ing on compa3 machineH
(a$e 0= $gs. of dry sand of AFS numer 4=&44. Add =.0 to =.04 $g of Resin and
mi3 manually for 0&1 minutes. Add =.0 to =.04 $g. of inder and mi3 manually for
1&2 minutes. Feed the sand into hopper.
Preparation of sand mi3 for oil and -:0 core ma$ingH
:il sand coreH (a$e )2= $gs. of ne# sand of AFS numer E=&E4 in sand muller.
Add 2.4 to 4 liters of core oil and mi3 it for E minutes. Add 2.4 to 4 $gs. of
de3trin. 0.4 to 1 $gs. of Bentonite and mi3 for E minutes. Add =.4 to ).4 liters of
#ater in sand and mi3 for 1 minutes.
-:0 sand coreH (a$e )2= $gs. of dry sand of AFS numer 4=&44. Add )= $gs. of
sodium silicate and mi3 it for )0 minutes.
Preparation of cold o3 cores on compa3 machineH
(a$e the inspected core o3es from pattern shop. %nstall the core o3 on the
machine #ith proper fittings.
erate the cycle from control panel. (a$e out thecore from the machine. (he core hardness should e 4F #ith scratch hardness
tester" #ithin *4 to @4.
(o prepare -:0 and oil sand cores from sand mi3H
a) #il sand core7
). (a$e the inspected core o3 from pattern shop.
0. (a$e the sand mi3.
1. Fill core o3 #ith sand mi3 and ram #ith #ooden rammer.
2. After ramming scrap the e3cess sand from top surface.
4. Ma$e the proper venting in core.
E. Remove the core from core o3 and $eep them atch #ise.
*. 8eat the cores atch #ise in oven to remove moisture.
9. Paint the cores #ith spirit paint if applicale.
/) (#9 sand core7
). (a$e the inspected core o3 from pattern shop.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
0. (a$e the sand mi3.
1. Fill core o3 #ith sand mi3 and ram #ith #ooden rammer.
2. After ramming scrap the e3cess sand from top surface.
4. Ma$e the proper venting in core.
E. Pass the -:0 gas from the vents for half minute per vent.
*. Remove the core from core o3 and $eep them atch #ise.
9. Paint the cores #ith spirit paint y spray painting.
@. 8eat the cores #ith the help of diesel' LP> urner.
*ELT!+ and P#%R!+
(o operate the furnace for M7L(%<> metalH
). S#itch on the po#er supply to the furnace.
0. (a$e the furnace charge as per the charge sheet and melt it in furnace.
1. Slo#ly increase the po#er supply to full rating. Add the alloys into furnace
as per charge sheet for alloy addition add -% oring aout 04&1= $gs. if
availale.
2. Spread slag po#er over molten metal surface and remove slag.
4. Pour the sample in -7 cup for chec$ing - and Si F.
E. Pour one sample in die for spectrometer analysis
*. Pour one chill efore inoculation and another after inoculation.
9. Spread slag po#der over molten metal surface and remove slag.
@. Mg. treatment for S> ironH add 4.4 $gs. of FeSiMg and 0&1 $gs. -R-
punching at the ottom of treatment ladle. Place cover and clamp it. Pour the
metal.
P#%R!+
(here are t#o #ays of pouring metal. Manually pouring and poring #ith the help
of ladle. (o prepare ladle for pouring scrap clean the ladle completely. (a$e
silicate )= $gs." sand )2= $gs. and Bentonite ) $g. Apply thin layer of sodium
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
silicate from inside ladle. Ma$e the lining of sand appro3imately 04 mm. #ith flat
#ooden rammer. Ma$e spout of 04&1= mm on one side. Ma$e spout mouth at the
ottom 2=&4= mm in length" )4&0= mm in #idth. Spray sprit paint on lining. 8eat
the ladle #ith diesel or LP> urner to remove moisture.
S$#T BLAST!+: FETTL!+ ; PA!T!+H
S1ot /lastingH Load the castings on hanger 1== to 14= $gs. push the hanger inside
the machine and close the door tightly. Start the machine and timer. After time is
over" pull the hanger out from the machine. Remove castings and hand over to
fettling.
Fettling7 Remove all the e3cess material from castings y chipping and grinding.
Painting7 Apply rust preventive polymer paint to the non&machining areas of the
casting.
n today<s competitive mar-et: you can<t a00ord to miss t1e savings and
tec1nical advantages 0rom reclamation.
Modern foundries demand optimi/ed control over molding sand preparation in
order to minimi/e costs and ma3imi/e the performance of the molding sand
preparation system. (ightly controlled sand properties allo# for lo#&defect" high&
,uality mold and casting production. For optimal performance" molding sand
control must egin long efore final mulling. Molding sand at sha$eout can have
#ide variations in temperature" moisture content" and physical properties. 8ot
sand leads to casting scrap" mi3ing inefficiency" material handling and
environmental prolems. Precise control over final sand preparation demands
that et#een sha$eout and final mulling" the return sand is lo#ered in temperature
and homogeni/ed.
Sand is the largest foundry process #aste" typically constituting aout *=F of
total #aste volume. Fortunately" most foundry sands are reclaimale and can e
effectively reused.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
T1e /asic reasons 0or reclaiming sand
t<s (ost Saving7 (he costs of molding and core sand continue to increase
significantly and cut into foundry profitaility. (o lo#er the cost of producing a
casting foundries desire to reduce total sand cost #hich includes the purchase
cost" delivery cost" unloading" storing" handling and disposal costs including" in
some instances" ever more e3pensive landfill fees.
t<s Environmentally Responsi/le7 7nvironmentally" itKs ecoming increasingly
more difficult to dispose of great ,uantities of #aste sand into a landfill.
t $as Tec1nical Advantages7 (echnically" reclamation is of interest ecause
many foundries report that etter castings can e made at lo#er costs" from
reclaimed sand
-8AP(7R 5
-ost Accounting
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
!TR#"%(T#!
-ost Accounting is the classifying" recording and appropriate allocation of
e3penditure for the determination of the costs of products or services" and for the
presentation of suitaly arranged data for purposes of control and guidance of
management. %t includes the ascertainment of the cost of every order" !o"
contract" process" service or unit as may e appropriate. %t deals #ith the cost of
production" selling and distriution" it is the provision of such analysis and
classification of e3penditure as #ill enale the total cost of any particular unit of
production or service to e ascertained #ith reasonale degree of accuracy and at
the same time to disclose e3actly ho# such total cost is e3ecuted so as to control
and reduce its cost.
(hus" -ost Accounting relates to the collection" classification" ascertainment of
cost and its accounting and control relating to the various elements of cost. %t
estalishes udgets and standard costs and actual cost of operations" processes"
departments or products and the analysis of variances" profitaility and social use
of funds.
-ost Accounting is the application of costing and cost accounting principles"
methods and techni,ues to the science" art and practice of cost control and the
ascertainment of profitaility. %t includes the presentation of information derived
there from for purposes of managerial decision&ma$ing. (hus L-ost Accountancy
is the science" art and practice of a cost accountantA. %t is a science ecause it is a
ody of systematic $no#ledge having certain principles #hich a cost accountant
should posses for proper discharge of his responsiilities. %t is an art as it re,uires
the aility and s$ill #ith #hich a cost accountant is ale to apply the principles of
cost accountancy to various managerial prolems. Practice includes the
continuous efforts of a cost account in the field of cost accountancy. Such efforts
also include the presentation of information for the purpose of managerial
decision&ma$ing and $eeping statistical records.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
S(#PE #F (#ST A((#%!T!+
). (ost Ascertainment7 %t deals #ith the collection and analysis of e3penses"
the measurement of production of the different products at the different
stages of manufacture and the lin$ing up of production #ith the e3penses.
0. (ost Accounting7 %t is the process of accounting for cost #hich egins #ith
recording of e3penditure and ends #ith the preparation of statistical data. %t
is a formal mechanism y means of #hich costs of products and services are
ascertained and controlled.
1. (ost (ontrol7 -ost -ontrol is the guidance and regulation y e3ecutive
action of the costs of operating and underta$ing. %t aims at guiding the actual
to#ards the line of targetsC regulates the actuals if they deviate or vary from
the targetsC this guidance and regulation is done y an e3ecutive action.
#B'E(T)ES #F (#ST A((#%!T!+
(he :!ectives of cost accounting are ascertainment of cost" fi3ation of
selling price" proper recording and presentation of cost data to the management
for measuring efficiency and for cost control. (he aim is to $no# the methods y
#hich e3penditure on materials" #ages and overhead is recorded" classified and
allocated so that the cost of products and services may e accurately ascertainedC
these costs may e related to sales and profitaility may e determined.
a. (o ascertain the cost per unit of the different products manufactured y a
usiness concern.
. (o provide a correct analysis of cost oth y processes or operations and y
different elements of cost.
c. (o disclose sources of #astage #hether of material" time or e3pense or in
the use of machinery" e,uipment and tools and to prepare such reports #hich
may e necessary to control such #astage.
d. (o provide re,uisite data and serve as a guide to price fi3ing of products
manufactured or services rendered.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
e. (o ascertain the profitaility of each of the products and advise the
management as to ho# these profits can e ma3imi/ed.
f. (o e3ercise effective control of stoc$s of ra# materials" #or$&in&progress"
consumale stores and finished goods in order to minimi/e the capital
loc$ed up in these stoc$s.
g. (o reveal sources of economy y installing and implementing a system of
cost control for materials" laor and overheads.
h. (o advise management on future e3pansion policies and proposed capital
pro!ects.
i. (o prevent and interpret data for management planning" decision&ma$ing
and control.
!. (o help in the preparation of udgets and implementation of udgetary
control.
$. (o organi/e an effective information system so that different levels of
management may get the re,uired information at the right time in right form
for carrying out their individual responsiilities in an effective manner.
l. (o guide management in the formulation and implementation of incentive
onus plans ased on productivity and cost savings.
m. (o supply useful data to the management to ta$e various financial decisions
such as introduction of ne# products" replacement of laor y machine etc.
n. (o help in supervising the #or$ing of punched card accounting or data&
processing through computers.
o. (o organi/e the internal audit system to ensure effective #or$ing of different
departments.
p. (o organi/e cost reduction programs #ith the help of different&departmental
managers.
,. (o provide speciali/ed services of cost audit in order to prevent the errors
and frauds and to facilitate prompt and reliale information to the
management.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
r. (o find out costing profit or loss y identifying #ith revenues the cost of
those products or services y selling #hich the revenues have resulted.
A")A!TA+ES #F (#ST A((#%!T!+
). 8elps in optimum utili/ation of men" material and machine.
0. %dentifies the areas re,uiring corrective actions.
1. 8elps management in formulation of policies.
2. Presents a tailor&made solution for the prolem.
4. 8elps management in ma$ing short&term decisions y use of techni,ues
li$e marginal costing" etc.
E. Provides useful data for final accounts y giving cost of closing stoc$ of
ra#&materials" #or$&in&progress and finished products.
*. Provides a data ase for reference y government" #age triunals and
trade unions.
9. 8elps in formation of cost centers and responsiility centers to e3ercise
control
@. 8elps to face increasing difficulties in setting prices and improving
efficiency.
)=. Facilitates use of speciali/ed techni,ues li$e cost reduction" value
analysis" operations research and management y e3ception.
)). (hreads its #ay through every phase of usiness and influences the ma$e&
up of the entire enterprises #ith regards to its products" its mar$et and its
methods of operation.
)0. Focuses attention on the profitaility of each product and service unli$e
financial accounting" #hich presents profitaility for company as a #hole.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
L*TAT#!S #F (#ST A((#%!T!+
(he limitations of cost accounting system are &
). %t is not an e3act science and involves inherent element of !udgement.
0. -ost varies #ith purpose. (herefore" cost collected for one purpose #ill not
e suitale for another purpose.
1. -ost accounting presents the ase for ta$ing the est decision. %t does not
give outright the solutions of the prolems.
2. Most of the cost accounting techni,ues are ased on some pre&assumed
notions.
4. (he area most vulnerale to criticism is coat accounting is aritary
apportionment of common costs.
E. 6ifferent vie#s are held y different cost accountants aout the items to e
included in cost.
(an cost pro0essionals overcome cost accounting limitations=
(he ans#er can e Mes and <o depending upon #hat you are loo$ing for.
(he !o of a cost professional is to dovetail cost accounting information to suit
management o!ective. (here may e so many factors detailed aove #hich can
limit ,uality of his information. 8o#ever this does not mean that cost accounting
and cost professional fail in their o!ective to provide accurate cost estimation.
(he role of cost professional is to identify" collect" measure" analy/e"
prepare and interpret cost accounting information intended for specific use y the
management. (here are so many different tools availale in cost accounting"
#hich over the period have helped industry to perform in a etter #ay and ase
their decisions on information generated y the cost professionals. %t is the
selection of right mi3 of tools and e3perience #hich can e instrumental in
reducing impact of the limitations and optimi/e effectiveness of the cost
accounting in general and a cost professional in particular.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
TRA"T#!AL (#ST!+ T#"A&
6espite the fact that it is over *4 years old" most companies still use
standard cost systems oth to value inventory for financial statement purposes and
for many other management purposes as #ell. .hile it has some advantages for
financial statement purposes (simplicity" consistency" #ell understood y
auditors)" it is" at est" meaningless and" at #orst" misleading as a tool to assist in
ma$ing effective management decisions. %tAs ecause the usiness case for #hich
it is eing used today is not the usiness case for #hich it #as designed. Standard
cost accounting #as designed for a company that hadH
)) 8omogeneous products"
0) Large direct costs compared to indirect costs"
1) Limited aility to collect data and
2) Lo# Jelo# the lineJ costs.
(odayAs company typically hasH
)) A #ide variety and comple3ity of products and services"
0) 8igh overhead costs compared to direct laor"
1) An overaundance of data and
2) Sustantial non product costs that can dramatically affect true product"
distriution channel and customer profitaility.
(he typical manufacturing company is still aritrarily attaching overhead to
products using 6irect Laor as the driver. (hey are often allocating the largest
cost (overhead) ased on the smallest (direct laor). Because of product variety
and product line comple3ity" one homogeneous overhead rate is no longer an
appropriate average.
Finally" today" #e have high tech" high speed data collection and reporting tools.
.ith the proper system" gathering and manipulation of data in multiple comple3
#ays is no longer an issue. .ith these tools at the disposal of a usiness
organi/ation" #hy still use a cost accounting system that #as developed over *=
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
years agoN .ith the advent of certified financial statements" accounting systems
ecame more structured to comply #ith the demands of e3ternal sta$eholders
(e.g. shareholders" governments" lenders" etc.) and the purpose of cost accounting
systems changed along #ith the rest of accounting. (he primary purpose of cost
accounting in the financial accounting system today is to value inventory for
financial statement purposes" not" as it #as in )@02" a tool to aid in sound usiness
decisions.
'#B2#R"ER (#ST!+
;o&order costing is used #hen different types of products" !os" or atches are
produced" typically over a rather short period of time. %n a !o&order costing
system" direct materials costs and direct laor costs are usually JtracedJ directly to
!os. :verhead is applied to !os using a predetermined rate. Actual overhead
costs are not JtracedJ to !os. 73amples of industries in #hich !o&order costing is
used include special order printing" shipuilding" construction" hospitals"
professional services such as la# firms" and movie studios. 7ach !o has its o#n
!o cost sheet on #hich are recorded the costs that have een charged to the !o.
(he !o cost sheet #ill have some code or descriptive data to identify the
particular !o and #ill contain spaces to collect costs of materials" laor" and
overhead. .hen a !o is started" materials that #ill e re,uired to complete the
!o are #ithdra#n from the storeroom. (he document that authori/es these
#ithdra#als and that specifies the types and amounts of materials #ithdra#n is
called the materials re,uisition form. (he materials re,uisition form identifies the
!o to #hich the materials are to e charged. -are must e ta$en #hen charging
materials to distinguish et#een direct and indirect materials. Laor costs are
recorded on a document called a time tic$et or a time sheet. 7ach employee
records the amount of time he or she spends on each !o and each tas$ on a time
tic$et. (he time spent on a particular !o is considered direct laor and its cost is
JtracedJ to that !o. (he cost of time spent on other tas$s" not traceale to any
particular !o" is usually considered part of manufacturing overhead.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
Manufacturing overhead includes all of those costs incurred in the manufacturing
process #hich are not JtracedJ to a particular !o. %n practice" manufacturing
overhead usually consists of all manufacturing costs other than direct materials
and direct laor. Since manufacturing overhead costs are not traced to !os" they
must e allocated to !os if asorption costing is used.
#vervie. o0 (ost Flo.s
(he asic flo# of costs in a !o&order system egins y recording the costs of
material" laor" and manufacturing overhead.
a. 6irect material and direct laor costs are deited to the .or$ in Process
account. Any indirect material or indirect laor costs are deited to the
Manufacturing :verhead control account" along #ith any other actual
manufacturing overhead costs incurred during the period. Manufacturing
overhead is applied to .or$ in Process using the predetermined rate. (he
offsetting credit entry is to the Manufacturing :verhead control account.
. (he cost of finished units is credited to .or$ in Process and deited to the
Finished >oods inventory account.
c. .hen units are sold" their costs are credited to Finished >oods and deited to
-ost of >ood Sold.
T1e *anu0acturing #ver1ead (ontrol Account
Manufacturing :verhead is a temporary control account.
a. As stated aove" actual overhead costs are recorded on the deit side of the
Manufacturing :verhead control account. :verhead costs applied to .or$ in
Process using predetermined rates are recorded on the credit side of the
account.
. Any discrepancy et#een overhead costs incurred and overhead costs applied
sho#s up as a alance in the Manufacturing :verhead control account at the
end of the period. A deit alance is called under applied overhead and a credit
alance is called over applied overhead.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
%nder2 and over applied #ver1ead
Since the predetermined overhead rate is ased entirely on estimated data" there
#ill almost al#ays e a difference et#een the actual amount of overhead cost
incurred and the amount of overhead cost that is applied to the .or$ %n Process
account. (his difference is termed under applied or over applied overhead" and as
discussed aove" can e determined y the ending alance in the Manufacturing
:verhead control account. An under applied alance occurs #hen more overhead
cost is actually incurred than is applied to the .or$ %n Process account. An over
applied alance results from applying more overhead to .or$ %n Process than is
actually incurred.
3. (ause o0 under2 and over applied over1ead. .hen a predetermined overhead
rate is used" it is implicitly assumed that the overhead cost is variale #ith (i.e."
proportional to) the allocation ase. For e3ample" if the predetermined overhead
rate is O0= per direct laor&hour" it is implicitly assumed that the actual overhead
costs #ill increase y O0= for each additional direct laor&hour that is incurred. %f"
ho#ever" some of the overhead is fi3ed #ith respect to the allocation ase" this
#ill not happen and there #ill e a discrepancy et#een the actual total amount of
the overhead and the overhead that is applied using the O0= rate. %n addition" the
actual total overhead can differ from the estimated total overhead ecause of poor
controls over overhead spending or ecause of inaility to accurately forecast
overhead costs.
9. "isposition o0 under2 and over applied #ver1ead. (#o approaches to
dealing #ith an under& or over applied overhead alance in the accounts are
illustrated in the te3t.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
a. (he simplest approach is to close out the under& or over applied overhead to
-ost of >oods Sold. (his is the method that is used in most of the e3ercises
and prolems ecause it is easiest for students to understand and master.
. (he second approach is to allocate the under& or over applied alance to -ost of
>oods Sold and to the .or$ in Process and Finished >oods inventory
accounts. (he asis of allocation is the amount of overhead applied during the
period in the ending alance of each of these accounts. (his method is
e,uivalent to #aiting until the end of the period to allocate the actual overhead
costs ased on the actual amount of the allocation ase incurred.
>. T1e E00ect o0 under2 and over applied #ver1ead on !et ncome.
a. %f overhead is under applied" less overhead has een applied to inventory than
has actually een incurred. 7nough overhead must e applied retroactively to
-ost of >oods Sold (and perhaps ending inventories) to eliminate this
discrepancy. Since -ost of >oods Sold is increased" under applied overhead
reduces net income.
. %f overhead is over applied" more overhead has een applied to inventory than
has actually een incurred. 7nough overhead must e removed retroactively
from -ost of >oods Sold (and perhaps ending inventories) to eliminate this
discrepancy. Since -ost of >oods Sold is decreased" over applied overhead
increases net income.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
-8AP(7R 5%
Accounting Standard and Financial Statements
!TR#"(%T#!
Accounting Standards are #ritten documents" policy documents issued y e3pert
accounting ody or >overnment or other regulatories ody covering the aspects
of recognition" measurement" treatment" presentation and disclosure of accounting
transaction in the financial statement. Accounting Standards in %ndia are issued y
the %nstitute of -hartered Accountants of %ndia (%-A%).
#B'E(T)ES #F A((#!T!+ STA!"AR"S
:!ective of Accounting Standards is to standardi/e the diverse accounting
policies and practices #ith the vie# to eliminate to the e3tent possile the non
comparaility of financial statements and add the reliaility to the financial
statements.
A")A!TA+ES #F A((#%!T!+ STA!"AR"S
• Standards reduce to a reasonale e3tent or eliminate altogether confusion
variation in the accounting treatments used to prepare the financial statements.
• (here are certain areas #here important information is not re,uired y la# to
e disclosed" standards may call for disclosure eyond that re,uired y la#.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
• %t facilitates comparison of financial statements of different companies
situated at different places.
"SA")A!TA+ES #F A((#!T!+ STA!"AR"S
• (here may e a trend to#ards rigidity and a#ay from fle3iility in applying
Accounting Standards.
• 6ifferences in Accounting Standards are ound to e ecause of differences in
the traditions and legal system from one country to another.
• Accounting Standards cannot override the la#. (he standards are re,uired to
e framed #ithin the amit of prevailing statute even though it is not an
acceptale standard.
#B'E(T)ES A!" F%!(T#!S #F T$E A((#!T!+ STA!"AR"S
B#AR"
). (he follo#ing are the o!ectives of the Accounting Standards Board
a. (o conceive of and suggest areas in #hich Accounting Standards need to
e developed
. (o formulate Accounting Standards #ith a vie# to assisting the -ouncil of
the %-A% in evolving and estalishing Accounting Standards in %ndia
c. (o e3amine ho# far the relevant %nternational Accounting
Standard'%nternational Financial Reporting Standard (see paragraph 1
elo#) can e adapted #hile formulating the Accounting Standard and to
adapt the same
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
d. (o revie#" at regular intervals" the Accounting Standards from the point of
vie# of acceptance or changed conditions" and" if necessary" revise the
same
e. (o provide" from time to time" interpretations and guidance on Accounting
Standards
f. (o carry out such other functions relating to Accounting Standards
0. (he main function of the ASB is to formulate Accounting Standards so that
such standards may e estalished y the %-A% in %ndia. .hile formulating the
Accounting Standards" the ASB #ill ta$e into consideration the applicale
la#s" customs" usages and usiness environment prevailing in %ndia.
1. (he %-A%" eing a full&fledged memer of the %nternational Federation of
Accountants (%FA-)" is e3pected" inter alia" to actively promote the
%nternational Accounting Standards BoardAs (%ASB) pronouncements in the
country #ith a vie# to facilitate gloal harmoni/ation of accounting
standards. Accordingly" #hile formulating the Accounting Standards" the ASB
#ill give due consideration to %nternational Accounting Standards (%ASs)
issued y the %nternational Accounting Standards -ommittee (predecessor
ody to %ASB) or %nternational Financial Reporting Standards (%FRSs) issued
y the %ASB" as the case may e" and try to integrate them" to the e3tent
possile" in the light of the conditions and practices prevailing in %ndia.
2. (he Accounting Standards are issued under the authority of the -ouncil of the
%-A%. (he ASB has also een entrusted #ith the responsiility of propagating
the Accounting Standards and of persuading the concerned parties to adopt
them in the preparation and presentation of financial statements. (he ASB #ill
provide interpretations and guidance on issues arising from Accounting
Standards. (he ASB #ill also revie# the Accounting Standards at periodical
intervals and" if necessary" revise the same.
RAT#!ALE #F A((#!T!+ STA!"AR"S
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
Accounting Standards are formulated #ith a vie# to harmoni/e different
accounting policies and practices in use in a country. (he o!ective of Accounting
Standards is" therefore" to reduce the accounting alternatives in the preparation of
financial statements #ithin the ounds of rationality" therey ensuring
comparaility of financial statements of different enterprises #ith a vie# to
provide meaningful information to various users of financial statements to enale
them to ma$e informed economic decisions.
!TER!AT#!AL $AR*#!?T#! #F A((#!T!+ STA!"AR"S
Recogni/ing the need for international harmoni/ation of accounting standards" in
)@*1" the %nternational Accounting Standards -ommittee (%AS-) #as estalished.
(he %AS- has een restructured as %nternational Accounting Standards Board
(%ASB). (he o!ectives of %AS- include promotion of the %nternational
Accounting Standards for #orld#ide acceptance and oservance so that the
accounting standards in different countries are harmoni/ed. %n recent years" need
for international harmoni/ation of Accounting Standards follo#ed in different
countries has gro#n consideraly as the cross&order transfers of capital are
ecoming increasingly common.
A((#!T!+ STA!"AR"S SETT!+ ! !"A
(he %nstitute of -hartered Accountants of %ndia (%-A%) eing a memer ody of
the then %AS-" constituted the Accounting Standards Board (ASB) on 0)st April"
)@**" #ith a vie# to harmoni/e the diverse accounting policies and practices in
use in %ndia. After the avo#ed adoption of lierali/ation and gloali/ation as the
corner stones of %ndian economic policies in early L@=s" the Accounting Standards
have increasingly assumed importance. .hile formulating accounting standards"
the ASB ta$es into consideration the applicale la#s" customs" usages and
usiness environment prevailing in the country.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
(he ASB also gives due consideration to %nternational Financial Reporting
Standards' %nternational Accounting Standards issued y %ASB and tries to
integrate them" to the e3tent possile" in the light of conditions and practices
prevailing in %ndia. Although the Accounting Standards Board is a ody
constituted y the -ouncil of the %nstitute of -hartered Accountants of %ndia" it is
independent in the formulation of accounting standards since in case the -ouncil
considers it necessary that certain modifications e made in the draft accounting
standards formulated y the ASB" it can only e done in consultation #ith the
ASB.
(#*P#ST#! #F A((#!T!+ STA!"AR"S B#AR"
(he composition of the ASB is road&ased #ith a vie# to ensuring participation
of all interest&groups in the standard&setting process. (hese interest groups include
industry" representatives of various departments of government and regulatory
authorities" financial institutions and academic and professional odies. %ndustry
is represented on the ASB y their ape3 level associations" vi/." Associated
-hamers of -ommerce (ASS:-8AM)" Federation of %ndian -hamers of
-ommerce and %ndustry (F%--%) and -onfederation of %ndian %ndustries (-%%). As
regards government departments and regulatory authorities" Reserve Ban$ of
%ndia" Ministry of -ompany Affairs" -entral Board of 6irect (a3es" -omptroller
+ Auditor >eneral of %ndia" -ontroller >eneral of Accounts" Securities and
73change Board of %ndia and -entral Board of 73cise and -ustoms are
represented on the ASB. Besides these interest&groups" representatives of
academic and professional institutions such as Dniversities" %ndian %nstitutes of
Management" %nstitute of -ost and .or$s Accountants of %ndia and %nstitute of
-ompany Secretaries of %ndia are also represented on the ASB. Apart from these
interest&groups" memers of the -entral -ouncil of %-A% are also on the ASB.
T$E A((#%!T!+ STA!"AR"S SETT!+ PR#(ESS
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
(he accounting standard setting" y its very nature" involves reaching an optimal
alance of the re,uirements of financial information for various interest groups
having a sta$e in financial reporting. .ith a vie# to reach consensus" to the e3tent
possile" as to the re,uirements of the relevant interest&groups and therey
ringing aout general acceptance of the Accounting Standards among such
groups" considerale research" consultations and discussions #ith the
representatives of the relevant interest&groups at different stages of standard
formulation ecomes necessary. (he standard&setting procedure of the ASB" as
riefly outlined elo#" is designed in such a #ay so as to ensure such consultation
and discussionsH
P%dentification of the road areas y the ASB for formulating the Accounting ?
Standards.
P -onstitution of the study groups y the ASB for preparing the preliminary ?
drafts of the proposed Accounting Standards.
P -onsideration of the preliminary draft prepared y the study group y the ASB ?
and revision" if any" of the draft on the asis of delierations at the ASB.
P -irculation of the draft" so revised" among the -ouncil memers of the %-A% ?
and )0 specified outside odies such as Standing -onference of Pulic
7nterprises (S-
7)" %ndian Ban$sA Association" -onfederation of %ndian%ndustry (-%%)" Securities and 73change Board of %ndia (S7B%)" -omptroller
and Auditor >eneral of %ndia (-+ A>)" and Ministry of -ompany Affairs" for
comments.
P Meeting #ith the representatives of specified outside odies to ascertain their ?
vie#s on the draft of the proposed Accounting Standard.
P Finali/ation of the 73posure 6raft of the proposed Accounting Standard on the ?
asis of comments received and discussion #ith the representatives of
specified outside odies.
P %ssuance of the 73posure 6raft inviting pulic comments. ?
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
P -onsideration of the comments received on the 73posure 6raft and ?
finali/ation of the draft Accounting Standard y the ASB for sumission to the
-ouncil of the %-A% for its consideration and approval for issuance.
P -onsideration of the draft Accounting Standard y the -ouncil of the %nstitute" ?
and if found necessary" modification of the draft in consultation #ith the ASB.
P (he Accounting Standard" so finali/ed" is issued under the authority of the ?
-ouncil.
PRESE!T STAT%S #F A((#!T!+ STA!"AR"S ! !"A !
$AR*#!?AT#! 5T$ T$E !TER!AT#!AL A((#!T!+
STA!"AR"S
So far" 0@ %ndian Accounting Standards on the follo#ing su!ects have een
issued y the %nstituteH
AS ) 6isclosure of Accounting Policies
AS 0 5aluation of %nventories
AS 1 -ash Flo# Statements
AS 2 -ontingencies and 7vents :ccurring after the Balance Sheet 6ate
AS 4 <et Profit or Loss for the Period" Prior Period %tems and -hanges in
Accounting Policies
AS E 6epreciation Accounting
AS * -onstruction -ontracts (revised 0==0)
AS 9 Accounting for Research and 6evelopment (#ithdra#n pursuant to the
issuance of AS 0E)
AS @ Revenue Recognition
AS )= Accounting for Fi3ed Assets
AS )) (he 7ffects of -hanges in Foreign 73change Rates (revised 0==1)
Segment Reporting in a Foundry (Alucast Foundries Belgaum
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AS )0 Accounting for >overnment >rants
AS )1 Accounting for %nvestments
AS )2 Accounting for Amalgamations
AS )4 Accounting for Retirement Benefits in the Financial Statements of
7mployers (recently revised and titled as 7mployee Benefits)
AS )E Borro#ing -osts
AS )* Segment Reporting
AS )9 Related Party 6isclosures
AS )@ Leases
AS 0= 7arnings per Share
AS 0) -onsolidated Financial Statements
AS 00 Accounting for (a3es on %ncome
AS 01 Accounting for %nvestments in Associates in -onsolidated Financial
Statements
AS 02 6iscontinuing
erationsAS 04 %nterim Financial Reporting
AS 0E %ntangile Assets
AS 0* Financial Reporting of %nterests in ;oint 5entures
AS 09 %mpairment of Assets
AS 0@ Provisions" -ontingent Liailities and -ontingent Assets
AS 1= Financial %nstrumentsH Recognition and Measurement
AS 1) Financial %nstrumentsH Presentation
AS 10 Financial %nstrumentsH 6isclosures
(#*PLA!(E 5T$ A((#!T!+ STA!"AR"S
Accounting Standards issued y the %-A% had got legal recognition through
insertion of sections 0))(1A)" (1B) and (1-) in the -ompanies Act" )@4E" #hich
may e prescried y the -entral >overnment in consultation #ith the <ational
Advisory -ommittee on Accounting Standards. Recent development in this regard
is Accounting Standards )to * and @ to 0@ as recommended y the %-A%" have
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
een prescried y Ministry of -ompany Affairs" >overnment of %ndia vide its
notification dated 6ecemer" *" 0==E" in the >a/ette of %ndia. (his notification
provides that every company and its auditor(s) shall comply #ith the notified
Accounting Standards. (he Securities and 73change Board of %ndia (S7B%)
through the listing agreement re,uires that listed companies shall mandatorily
comply #ith all the Accounting Standards issued y %-A% from time to time.
Also" the %nsurance Regulatory and 6evelopment Authority (%R6A) re,uires
insurance companies to follo# the Accounting Standards issued y the %-A%.
Apart from the corporate odies" the -ouncil of the %nstitute of -hartered
Accountants of %ndia has made various accounting standards mandatory in respect
of certain non&corporate entities such as partnership firms" sole&proprietary
concerns'individuals" societies registered under the Societies Registration Act"
trusts" associations of persons" and 8indu Dndivided Families" #here financial
statements of such entities are statutorily re,uired to e audited" for e3ample"
under Section 22AB of the %ncome&ta3" )@E). (he -ouncil has cast a duty on its
memers to e3amine compliance #ith the Accounting Standards in the financial
statements covered y their audit in the event of any deviations therefrom" to
ma$e ade,uate disclosures in their audit reports so that the users of the financial
statements may e a#are of such deviations.
#B'E(T)ES #F F!A!(AL STATE*E!TS
(he o!ective of financial statements is to provide information aout the financial
position" performance and cash flo#s of an enterprise that is useful to a #ide
range of users in ma$ing economic decisions.
Financial statements prepared for this purpose meet the common needs of most
users. 8o#ever" financial statements do not provide all the information that users
may need to ma$e economic decisions since (a) they largely portray the financial
effects of past events" and () do not necessarily provide non&financial
information.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
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Financial statements also sho# the results of the ste#ardship of management" or
the accountaility of management for the resources entrusted to it. (hose users
#ho #ish to assess the ste#ardship or accountaility of management do so in
order that they may ma$e economic decisionsC these decisions may include" for
e3ample" #hether to hold or sell their investment in the enterprise or #hether to
reappoint or replace the management.
F!A!(AL P#ST#!: PERF#R*A!(E A!" (AS$
(he economic decisions that are ta$en y users of financial statements re,uire an
evaluation of the aility of an enterprise to generate cash and cash e,uivalents and
of the timing and certainty of their generation. (his aility ultimately determines"
for e3ample" the capacity of an enterprise to pay its employees and suppliers"
meet interest payments" repay loans" and ma$e distriutions to its o#ners. Dsers
are etter ale to evaluate this aility to generate cash and cash e,uivalents if they
are provided #ith information that focuses on the financial position" performance
and cash flo#s of an enterprise.
(he financial position of an enterprise is affected y the economic resources it
controls" its financial structure" its li,uidity and solvency" and its capacity to adapt
to changes in the environment in #hich it operates.
%nformation aout the economic resources controlled y the enterprise and its
capacity in the past to alter these resources is useful in predicting the aility of the
enterprise to generate cash and cash e,uivalents in the future. %nformation aout
financial structure is useful in predicting future orro#ing needs and ho# future
profits and cash flo#s #ill e distriuted among those #ith an interest in the
enterpriseC it is also useful in predicting ho# successful the enterprise is li$ely to
e in raising further finance. %nformation aout li,uidity and solvency is useful in
predicting the aility of the enterprise to meet its financial commitments as they
fall due. Li,uidity refers to the availaility of cash in the near future to meet
financial commitments over this period. Solvency refers to the availaility of cash
over the longer term to meet financial commitments as they fall due.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
%nformation aout the performance of an enterprise" in particular its profitaility"
is re,uired in order to assess potential changes in the economic resources that it is
li$ely to control in the future. %nformation aout variaility of performance is
important in this respect. %nformation aout performance is useful in predicting
the capacity of the enterprise to generate cash flo#s from its e3isting resource
ase. %t is also useful in forming !udgments aout the effectiveness #ith #hich the
enterprise might employ additional resources.
%nformation concerning cash flo#s of an enterprise is useful in order to evaluate
its investing" financing and operating activities during the reporting period. (his
information is useful in providing the users #ith a asis to assess the aility of the
enterprise to generate cash and cash e,uivalents and the needs of the enterprise to
utili/e those cash flo#s.
%nformation aout financial position is primarily provided in a alance sheet.
%nformation aout performance is primarily provided in a statement of profit and
loss. %nformation aout cash flo#s is provided in the financial statements y
means of a cash flo# statement.
(he component parts of the financial statements are interrelated ecause they
reflect different aspects of the same transactions or other events. Although each
statement provides information that is different from the others" none is li$ely to
serve only a single purpose nor to provide all the information necessary for
particular needs of users.
!otes and Supplementary Sc1edules
(he financial statements also contain notes and supplementary schedules and
other information. For e3ample" they may contain additional information that is
relevant to the needs of users aout the items in the alance sheet and statement of
profit and loss. (hey may include disclosures aout the ris$s and uncertainties
affecting the enterprise and any resources and oligations not recogni/ed in the
alance sheet (such as mineral reserves). %nformation aout usiness and
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geographical segments and the effect of changing prices on the enterprise may
also e provided in the form of supplementary information.
ELE*E!TS #F F!A!(AL STATE*E!TS
Financial statements portray the financial effects of transactions and other events
y grouping them into road classes according to their economic characteristics.
(hese road classes are termed the elements of financial statements. (he elements
directly related to the measurement of financial position in the alance sheet are
assets" liailities and e,uity. (he elements directly related to the measurement of
performance in the statement of profit and loss are income and e3penses. (he cash
flo# statement usually reflects elements of statement of profit and loss and
changes in alance sheet elementsC accordingly" this Frame#or$ identifies no
elements that are uni,ue to this statement.
(he presentation of these elements in the alance sheet and the statement of profit
and loss involves a process of su&classification. For e3ample" assets and
liailities may e classified y their nature or function in the usiness of the
enterprise in order to display information in the manner most useful to users for
purposes of ma$ing economic decisions.
F!A!(AL P#ST#!
(he elements directly related to the measurement of financial position are assets"
liailities and e,uity. (hese are defined as follo#sH
(a) An asset is a resource controlled y the enterprise as a result of past events
from #hich future economic enefits are e3pected to flo# to the enterprise.
() A liability is a present oligation of the enterprise arising from past events" the
settlement of #hich is e3pected to result in an outflo# from the enterprise of
resources emodying economic enefits.
(c) Equity is the residual interest in the assets of the enterprise after deducting all
its liailities.
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(he definitions of an asset and a liaility identify their essential features ut do
not attempt to specify the criteria that need to e met efore they are recogni/ed
in the alance sheet. (hus" the definitions emrace items that are not recogni/ed
as assets or liailities in the alance sheet ecause they do not satisfy the criteria
for recognition.
%n particular" the e3pectation that future economic enefits #ill flo# to or from an
enterprise must e sufficiently certain to meet the proaility criterion efore an
asset or liaility is recogni/ed.
%n assessing #hether an item meets the definition of an asset" liaility or e,uity"
consideration needs to e given to its underlying sustance and economic reality
and not merely its legal form. (hus" for e3ample" in the case of hire purchase" the
sustance and economic reality are that the hire purchaser ac,uires the economic
enefits of the use of the asset in return for entering into an oligation to pay for
that right an amount appro3imating to the fair value of the asset and the related
finance charge. 8ence" the hire purchase gives rise to items that satisfy the
definition of an asset and a liaility and are recogni/ed as such in the hire
purchaserAs alance sheet.
ASSETS
(he future economic enefit emodied in an asset is the potential to contriute"
directly or indirectly" to the flo# of cash and cash e,uivalents to the enterprise.
(he potential may e a productive one that is part of the operating activities of the
enterprise. %t may also ta$e the form of convertiility into cash or cash e,uivalents
or a capaility to reduce cash outflo#s" such as #hen an alternative
manufacturing process lo#ers the costs of production.
An enterprise usually employs its assets to produce goods or services capale of
satisfying the #ants or needs of customersC ecause these goods or services can
satisfy these #ants or needs" customers are prepared to pay for them and hence
contriute to the cash flo#s of the enterprise. -ash itself renders a service to the
enterprise ecause of its command over other resources.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
(he future economic enefits emodied in an asset may flo# to the enterprise in a
numer of #ays. For e3ample" an asset may eH
(a) used singly or in comination #ith other assets in the production of goods or
services to e sold y the enterpriseC
() e3changed for other assetsC
(c) used to settle a liailityC or
(d) distriuted to the o#ners of the enterprise.
Many assets" for e3ample" plant and machinery" have a physical form. 8o#ever"
physical form is not essential to the e3istence of an assetC hence patents and
copyrights" for e3ample" are assets if future economic enefits are e3pected to
flo# from them and if they are controlled y the enterprise.
Many assets" for e3ample" receivales and property" are associated #ith legal
rights" including the right of o#nership. %n determining the e3istence of an asset"
the right of o#nership is not essentialC thus" for e3ample" an item held under a hire
purchase is an asset of the hire purchaser since the hire purchaser controls the
enefits #hich are e3pected to flo# from the item. Although the capacity of an
enterprise to control enefits is usually the result of legal rights" an item may
nonetheless satisfy the definition of an asset even #hen there is no legal control.
For e3ample" $no#&ho# otained from a development activity may meet the
definition of an asset #hen" y $eeping that $no#& ho# secret" an enterprise
controls the enefits that are e3pected to flo# from it.
(he assets of an enterprise result from past transactions or other past events.
7nterprises normally otain assets y purchasing or producing them" ut other
transactions or events may also generate assetsC e3amples include land received
y an enterprise from government as part of a programme to encourage economic
gro#th in an area and the discovery of mineral deposits. (ransactions or other
events e3pected to occur in the future do not in themselves give rise to assetsC
hence" for e3ample" an intention to purchase inventory does not" of itself" meet the
definition of an asset.
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(here is a close association et#een incurring e3penditure and otaining assets
ut the t#o do not necessarily coincide. 8ence" #hen an enterprise incurs
e3penditure" this may provide evidence that future economic enefits #ere sought
ut is not conclusive proof that an item satisfying the definition of an asset has
een otained. Similarly" the asence of a related e3penditure does not preclude
an item from satisfying the definition of an asset and thus ecoming a candidate
for recognition in the alance sheet.
LABLTES
An essential characteristic of a liaility is that the enterprise has a present
oligation. An oligation is a duty or responsiility to act or perform in a certain
#ay. :ligations may e legally enforceale as a conse,uence of a inding
contract or statutory re,uirement. (his is normally the case" for e3ample" #ith
amounts payale for goods and services received. :ligations also arise" ho#ever"
from normal usiness practice" custom and a desire to maintain good usiness
relations or act in an e,uitale manner. %f" for e3ample" an enterprise decides as a
matter of policy to rectify faults in its products even #hen these ecome apparent
after the #arranty period has e3pired" the amounts that are e3pected to e
e3pended in respect of goods already sold are liailities.
A distinction needs to e dra#n et#een a present oligation and a future
commitment. A decision y the management of an enterprise to ac,uire assets in
the future does not" of itself" give rise to a present oligation. An oligation
normally arises only #hen the asset is delivered or the enterprise enters into an
irrevocale agreement to ac,uire the asset. %n the latter case" the irrevocale
nature of the agreement means that the economic conse,uences of failing to
honour the oligation" for e3ample" ecause of the e3istence of a sustantial
penalty" leave the enterprise #ith little" if any" discretion to avoid the outflo# of
resources to another party.
(he settlement of a present oligation usually involves the enterprise giving up
resources emodying economic enefits in order to satisfy the claim of the other
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party. Settlement of a present oligation may occur in a numer of #ays" for
e3ample" yH
(a) payment of cashC
() transfer of other assetsC
(c) provision of servicesC
(d) replacement of that oligation #ith another oligationC or
(e) conversion of the oligation to e,uity.
An oligation may also e e3tinguished y other means" such as a creditor
#aiving or forfeiting its rights.
Liailities result from past transactions or other past events. (hus" for e3ample"
the ac,uisition of goods and the use of services give rise to trade creditors (unless
paid for in advance or on delivery) and the receipt of a an$ loan results in an
oligation to repay the loan. An enterprise may also recogni/e future reates
ased on annual purchases y customers as liailitiesC in this case" the sale of the
goods in the past is the transaction that gives rise to the liaility.
Some liailities can e measured only y using a sustantial degree of estimation.
Such liailities are commonly descried as LprovisionsA. 73amples include
provisions for payments to e made under e3isting #arranties and provisions to
cover pension oligations.
E8%T&
Although e,uity is defined in paragraph 2@ as a residual" it may e suclassified
in the alance sheet. For e3ample" funds contriuted y o#ners" reserves
representing appropriations of retained earnings" unappropriated retained earnings
and reserves representing capital maintenance ad!ustments may e sho#n
separately. Such classifications can e relevant to the decision ma$ing needs of
the users of financial statements #hen they indicate legal or other restrictions on
the aility of the enterprise to distriute or other#ise apply its e,uity. (hey may
Segment Reporting in a Foundry (Alucast Foundries Belgaum
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also reflect the fact that parties #ith o#nership interests in an enterprise have
differing rights in relation to the receipt of dividends or the repayment of capital.
(he creation of reserves is sometimes re,uired y la# in order to give the
enterprise and its creditors an added measure of protection from the effects of
losses. Reserves may also e created #hen ta3 la#s grant e3emptions from" or
reductions in" ta3ation liailities if transfers to such reserves are made. (he
e3istence and si/e of such reserves is information that can e relevant to the
decision&ma$ing needs of users. (ransfers to such reserves are appropriations of
retained earnings rather than e3penses.
(he amount at #hich e,uity is sho#n in the alance sheet is dependent on the
measurement of assets and liailities. <ormally" the aggregate amount of e,uity
only y coincidence corresponds #ith the aggregate mar$et value of the shares of
the enterprise or the sum that could e raised y disposing of either the net assets
on a piecemeal asis or the enterprise as a #hole on a going concern asis.
-ommercial" industrial and usiness activities are often underta$en y means of
enterprises such as sole proprietorships" partnerships and trusts and various types
of government usiness underta$ings. (he legal and regulatory frame#or$ for
such enterprises is often different from that applicale to corporate enterprises.
For e3ample" unli$e corporate enterprises" in the case of such enterprises" there
may e fe#" if any" restrictions on the distriution to o#ners or other eneficiaries
of amounts included in e,uity. <evertheless" the definition of e,uity and the other
aspects of this Frame#or$ that deal #ith e,uity are appropriate for such
enterprises.
PERF#R*A!(E
Profit is fre,uently used as a measure of performance or as the asis for other
measures" such as return on investment or earnings per share. (he elements
directly related to the measurement of profit are income and e3penses. (he
recognition and measurement of income and e3penses" and hence profit" depends
in part on the concepts of capital and capital maintenance used y the enterprise in
Segment Reporting in a Foundry (Alucast Foundries Belgaum
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preparing its financial statements. (hese concepts are discussed in paragraphs )=)
to )=@.
%ncome and e3penses are defined as follo#sH
(a) Income is increase in economic enefits during the accounting period in the
form of inflo#s or enhancements of assets or decreases of liailities that result in
increases in e,uity" other than those relating to contriutions from e,uity
participants.
() Expenses are decreases in economic enefits during the accounting period in
the form of outflo#s or depletions of assets or incurrences of liailities that result
in decreases in e,uity" other than those relating to distriutions to e,uity
participants.
(he definitions of income and e3penses identify their essential features ut do not
attempt to specify the criteria that need to e met efore they are recogni/ed in the
statement of profit and loss.
%ncome and e3penses may e presented in the statement of profit and loss in
different #ays so as to provide information that is relevant for economic decision&
ma$ing. For e3ample" it is a common practice to distinguish et#een those items
of income and e3penses that arise in the course of the ordinary activities of the
enterprise and those that do not. (his distinction is made on the asis that the
source of an item is relevant in evaluating the aility of the enterprise to generate
cash and cash e,uivalents in the future. .hen distinguishing et#een items in this
#ay" consideration needs to e given to the nature of the enterprise and its
operations. %tems that arise from the ordinary activities of one enterprise may e
e3traordinary in respect of another.
6istinguishing et#een items of income and e3pense and comining them in
different #ays also permits several measures of enterprise performance to e
displayed. (hese have differing degrees of inclusiveness.
For e3ample" the statement of profit and loss could display gross margin" profit
from ordinary activities efore ta3ation" profit from ordinary activities after
ta3ation" and net profit.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
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!(#*E
(he definition of income encompasses oth revenue and gains. Revenue arises in
the course of the ordinary activities of an enterprise and is referred to y a variety
of different names including sales" fees" interest" dividends" royalties and rent.
>ains represent other items that meet the definition of income and may" or may
not" arise in the course of the ordinary activities of an enterprise. >ains represent
increases in economic enefits and as such are no different in nature from
revenue. 8ence" they are not regarded as a separate element in this Frame#or$.
(he definition of income includes unreali/ed gains. >ains also include" for
e3ample" those arising on the disposal of fi3ed assets. .hen gains are recogni/ed
in the statement of profit and loss" they are usually displayed separately ecause
$no#ledge of them is useful for the purpose of ma$ing economic decisions.
5arious $inds of assets may e received or enhanced y incomeC e3amples include
cash" receivales and goods and services received in e3change for goods and
services supplied. %ncome may also result in the settlement of liailities. For
e3ample" an enterprise may provide goods and services to a lender in settlement
of an oligation to repay an outstanding loan.
E,PE!SES
(he definition of e3penses encompasses those e3penses that arise in the course of
the ordinary activities of the enterprise" as #ell as losses. 73penses that arise in
the course of the ordinary activities of the enterprise include" for e3ample" cost of
goods sold" #ages" and depreciation. (hey ta$e the form of an outflo# or
depletion of assets or enhancement of liailities.
Losses represent other items that meet the definition of e3penses and may" or may
not" arise in the course of the ordinary activities of the enterprise. Losses represent
decreases in economic enefits and as such they are no different in nature from
other e3penses. 8ence" they are not regarded as a separate element in this
Frame#or$.
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Losses include" for e3ample" those resulting from disasters such as fire and flood"
as #ell as those arising on the disposal of fi3ed assets. (he definition of e3penses
also includes unreali/ed losses. .hen losses are recogni/ed in the statement of
profit and loss" they are usually displayed separately ecause $no#ledge of them
is useful for the purpose of ma$ing economic decisions.
(APTAL *A!TE!A!(E A"'%ST*E!TS
(he revaluation or restatement of assets and liailities gives rise to increases or
decreases in e,uity. .hile these increases or decreases meet the definition of
income and e3penses" they are not included in the statement of profit and loss
under certain concepts of capital maintenance. %nstead" these items are included in
e,uity as capital maintenance ad!ustments or revaluation reserves.
RE(#+!T#! #F T$E ELE*E!TS #F F!A!(AL STATE*E!TS
Recognition is the process of incorporating in the alance sheet or statement of
profit and loss an item that meets the definition of an element and satisfies the
criteria for recognition set out. %t involves the depiction of the item in #ords and
y a monetary amount and the inclusion of that amount in the totals of alance
sheet or statement of profit and loss. %tems that satisfy the recognition criteria
should e recogni/ed in the alance sheet or statement of profit and loss. (he
failure to recogni/e such items is not rectified y disclosure of the accounting
policies used nor y notes or e3planatory material.
An item that meets the definition of an element should e recogni/ed ifH
(a) it is proale that any future economic enefit associated #ith the item #ill
flo# to or from the enterpriseC and
() the item has a cost or value that can e measured #ith reliaility.
%n assessing #hether an item meets these criteria and therefore ,ualifies for
recognition in the financial statements" regard needs to e given to the materiality
considerations. (he interrelationship et#een the elements means that an item that
meets the definition and recognition criteria for a particular element" for e3ample"
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an asset" automatically re,uires the recognition of another element" for e3ample"
income or a liaility.
T$E PR#BABLT& #F F%T%RE E(#!#*( BE!EFTS
(he concept of proaility is used in the recognition criteria to refer to the degree
of uncertainty that the future economic enefits associated #ith the item #ill flo#
to or from the enterprise. (he concept is in $eeping #ith the uncertainty that
characteri/es the environment in #hich an enterprise operates. Assessments of the
degree of uncertainty attaching to the flo# of future economic enefits are made
on the asis of the evidence availale #hen the financial statements are prepared.
For e3ample" #hen it is proale that a receivale #ill e reali/ed" it is then
!ustifiale" in the asence of any evidence to the contrary" to recogni/e the
receivale as an asset. For a large population of receivales" ho#ever" some
degree of non&payment is normally considered proaleC hence" an e3pense
representing the e3pected reduction in economic enefits is recogni/ed.
RELABLT& #F *EAS%RE*E!T
(he second criterion for the recognition of an item is that it possesses a cost or
value that can e measured #ith reliaility. %n many cases" cost or value must e
estimatedC the use of reasonale estimates is an essential part of the preparation of
financial statements and does not undermine their reliaility. .hen" ho#ever" a
reasonale estimate cannot e made" the item is not recogni/ed in the alance
sheet or statement of profit and loss. For e3ample" the damages payale in a
la#suit may meet the definitions of a liaility and an e3pense as #ell as the
proaility criterion for recognitionC ho#ever" if it is not possile to measure the
claim relialy" it should not e recogni/ed as a liaility or as an e3pense. An item
that" at a particular point in time" fails to meet the recognition criteria may ,ualify
for recognition at a later date as a result of suse,uent circumstances or events.
An item that possesses the essential characteristics of an element ut fails to meet
the criteria for recognition may nonetheless #arrant disclosure in the notes"
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e3planatory material or supplementary schedules. (his is appropriate #hen
$no#ledge of the item is considered to e relevant to the evaluation of the
financial position" performance and cash flo#s of an enterprise y the users of
financial statements. (hus" in the e3ample given" the e3istence of the claim #ould
need to e disclosed in the notes" e3planatory material or supplementary
schedules.
RE(#+!T#! #F ASSETS
An asset is recogni/ed in the alance sheet #hen it is proale that the future
economic enefits associated #ith it #ill flo# to the enterprise and the asset has a
cost or value that can e measured relialy.
An asset is not recogni/ed in the alance sheet #hen e3penditure has een
incurred for #hich it is considered improale that economic enefits #ill flo# to
the enterprise eyond the current accounting period. %nstead" such a transaction
results in the recognition of an e3pense in the statement of profit and loss. (his
treatment does not imply either that the intention of management in incurring
e3penditure #as other than to generate future economic enefits for the enterprise
or that management #as misguided.
(he only implication is that the degree of certainty that economic enefits #ill
flo# to the enterprise eyond the current accounting period is insufficient to
#arrant the recognition of an asset.
RE(#+!T#! #F LABLTES
A liaility is recogni/ed in the alance sheet #hen it is proale that an outflo# of
resources emodying economic enefits #ill result from the settlement of a
present oligation and the amount at #hich the settlement #ill ta$e place can e
measured relialy. %n practice" oligations under contracts that are e,ually
proportionately unperformed (for e3ample" liailities for inventory ordered ut
not yet received) are generally not recogni/ed as liailities in the financial
statements. 8o#ever" such oligations may meet the definition of liailities and"
Segment Reporting in a Foundry (Alucast Foundries Belgaum
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provided the recognition criteria are met in the particular circumstances" may
,ualify for recognition. %n such circumstances" recognition of liailities entails
recognition of related assets or e3penses.
RE(#+!T#! #F !(#*E
%ncome is recogni/ed in the statement of profit and loss #hen an increase in future
economic enefits related to an increase in an asset or a decrease of a liaility has
arisen that can e measured relialy. (his means" in effect" that recognition of
income occurs simultaneously #ith the recognition of increases in assets or
decreases in liailities (for e3ample" the net increase in assets arising on a sale of
goods or services or the decrease in liailities arising from the #aiver of a det
payale).
(he procedures normally adopted in practice for recogni/ing income" for
e3ample" the re,uirement that revenue should e earned" are applications of the
recognition criteria in this Frame#or$. Such procedures are generally directed at
restricting the recognition as income to those items that can e measured relialy
and have a sufficient degree of certainty.
RE(#+!T#! #F E,PE!SES
73penses are recogni/ed in the statement of profit and loss #hen a decrease in
future economic enefits related to a decrease in an asset or an increase of a
liaility has arisen that can e measured relialy. (his means" in effect" that
recognition of e3penses occurs simultaneously #ith the recognition of an increase
of liailities or a decrease in assets (for e3ample" the accrual of employeesA
salaries or the depreciation of plant and machinery).
Many e3penses are recogni/ed in the statement of profit and loss on the asis of a
direct association et#een the costs incurred and the earning of specific items of
income. (his process" commonly referred to as the matching of costs #ith
revenues" involves the simultaneous or comined recognition of revenues and
e3penses that result directly and !ointly from the same transactions or other
Segment Reporting in a Foundry (Alucast Foundries Belgaum
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eventsC for e3ample" the various components of e3pense ma$ing up the cost of
goods sold are recogni/ed at the same time as the income derived from the sale of
the goods. 8o#ever" the application of the matching concept under this
Frame#or$ does not allo# the recognition of items in the alance sheet #hich do
not meet the definition of assets or liailities.
.hen economic enefits are e3pected to arise over several accounting periods
and the association #ith income can only e roadly or indirectly determined"
e3penses are recogni/ed in the statement of profit and loss on the asis of
systematic and rational allocation procedures. (his is often necessary in
recogni/ing the e3penses associated #ith the using up of assets such as plant and
machinery" good#ill" patents and trademar$sC in such cases" the e3pense is
referred to as depreciation or amorti/ation. (hese allocation procedures are
intended to recogni/e e3penses in the accounting periods in #hich the economic
enefits associated #ith these items are consumed or e3pire.
An e3pense is recogni/ed immediately in the statement of profit and loss #hen
e3penditure produces no future economic enefits. An e3pense is also recogni/ed
to the e3tent that future economic enefits from e3penditure do not ,ualify" or
cease to ,ualify" for recognition in the alance sheet as an asset.
An e3pense is recogni/ed in the statement of profit and loss in those cases also
#here a liaility is incurred #ithout the recognition of an asset" for e3ample" in
the case of a liaility under a product #arranty.
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-8AP(7R 5%%
Accounting Standard (AS&)*)
SE+*E!T REP#RT
Accounting Standard (AS) )*" LSegment ReportingA" issued y the -ouncil of the
%nstitute of -hartered Accountants of %ndia" comes into effect in respect of
accounting periods commencing on or after ).2.0==).
(his Standard is mandatory in nature in respect of accounting periods
commencing on or after )&2&0==2 for the enterprises #hich fall in any one or
more of the follo#ing categories" at any time during the accounting periodH
(i) 7nterprises #hose e,uity or det securities are listed #hether in %ndia or
outside %ndia.
(ii) 7nterprises #hich are in the process of listing their e,uity or det securities as
evidenced y the oard of directorsA resolution in this regard.
) Accounting Standards are intended to apply only to items #hich are material.
0 Reference may e made to the section titled LAnnouncements of the -ouncil
regarding status of various documents issued y the %nstitute of -hartered
Accountants of %ndiaA appearing at the eginning of this -ompendium for a
detailed discussion on the implications of the mandatory status of an
accounting standard.
1 AS )* #as originally made mandatory in respect of accounting periods
commencing on or after )&2&0==) for the follo#ing enterprisesH
(i) 7nterprises #hose e,uity or det securities are listed on a recogni/ed stoc$
e3change in %ndia" and enterprises that are in the process of issuing e,uity or
det securities that #ill e listed on a recogni/ed stoc$ e3change in %ndia as
evidenced y the oard of directorsA resolution in this regard.
(ii) All other commercial" industrial and usiness reporting enterprises" #hose
turnover for the accounting period e3ceeds Rs. 4= crores.
(iii) Ban$s including co&operative an$s.
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(iv) Financial institutions.
(v) 7nterprises carrying on insurance usiness.
(vi) All commercial" industrial and usiness reporting enterprises" #hose turnover
for the immediately preceding accounting period on the asis of audited
financial statements e3ceeds Rs. 4= crore. (urnover does not include Lother
incomeA.
(vii) All commercial" industrial and usiness reporting enterprises having
orro#ings" including pulic deposits" in e3cess of Rs. )= crore at any time
during the accounting period.
(viii) 8olding and susidiary enterprises of any one of the aove at any time
during the accounting period.
(he enterprises #hich do not fall in any of the aove categories are not re,uired
to apply this Standard.
.here an enterprise has een covered in any one or more of the aove categories
and suse,uently" ceases to e so covered" the enterprise #ill not ,ualify for
e3emption from application of this Standard" until the enterprise ceases to e
covered in any of the aove categories for t#o consecutive years.
.here an enterprise has previously ,ualified for e3emption from application of
this Standard (eing not covered y any of the aove categories) ut no longer
,ualifies for e3emption in the current accounting period" this Standard ecomes
applicale from the current period. 8o#ever" the corresponding previous period
figures need not e disclosed.
An enterprise" #hich" pursuant to the aove provisions" does not disclose segment
information" should disclose the fact.
(he follo#ing is the te3t of the Accounting Standard.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
#B'E(T)ES
(he o!ective of this Statement is to estalish principles for reporting financial
information" aout the different types of products and services an enterprise
produces and the different geographical areas in #hich it operates. Such
information helps users of financial statementsH
(a) etter understand the performance of the enterpriseC
() etter assess the ris$s and returns of the enterpriseC and
(c) ma$e more informed !udgments aout the enterprise as a #hole.
Many enterprises provide groups of products and services or operate in
geographical areas that are su!ect to differing rates of profitaility" opportunities
for gro#th" future prospects" and ris$s. %nformation aout different types of
products and services of an enterprise and its operations in different geographical
areas & often called segment information & is relevant to assessing the ris$s and
returns of a diversified or multi&locational enterprise ut may not e determinale
from the aggregated data. (herefore" reporting of segment information is #idely
regarded as necessary for meeting the needs of users of financial statements.
S(#PE
). (his Statement should e applied in presenting general purpose financial
statements.
0. (he re,uirements of this Statement are also applicale in case of consolidated
financial statements.
1. An enterprise should comply #ith the re,uirements of this Statement fully and
not selectively.
2. %f a single financial report contains oth consolidated financial statements and
the separate financial statements of the parent" segment information need e
presented only on the asis of the consolidated financial statements. %n the
conte3t of reporting of segment information in consolidated financial
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
statements" the references in this Statement to any financial statement items
should construed to e the relevant item as appearing in the consolidated
financial statements.
"EF!T#!
(he follo#ing terms are used in this Statement #ith the meanings specifiedH
A /usiness segment is a distinguishale 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 su!ect to ris$s and returns that are different from
those of other usiness segments. Factors that should e considered in
determining #hether products or services are related includeH
(a) the nature of the products or servicesC
() the nature of the production processesC
(c) the type or class of customers for the products or servicesC
(d) the methods used to distriute the products or provide the servicesC and
(e) if applicale" the nature of the regulatory environment" for e3ample" an$ing"
insurance" or pulic utilities.
A geograp1ical segment is a distinguishale component of an enterprise that is
engaged in providing products or services #ithin a particular economic
environment and that is su!ect to ris$s and returns that are different from those of
components operating in other economic environments. Factors that should e
considered in identifying geographical segments includeH
(a) similarity of economic and political conditionsC
() relationships et#een operations in different geographical areasC
(c) pro3imity of operationsC
(d) special ris$s associated #ith operations in a particular areaC
(e) e3change control regulationsC and
(f) the underlying currency ris$s.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
A reporta/le segment is a usiness segment or a geographical segment identified
on the asis of foregoing definitions for #hich segment information is re,uired to
e disclosed y this Statement.
Enterprise revenue is revenue from sales to e3ternal customers as reported in the
statement of profit and loss.
Segment revenue is the aggregate of
(i) the portion of enterprise revenue that is directly attriutale to a segment"
(ii) the relevant portion of enterprise revenue that can e allocated on a reasonale
asis to a segment" and
(iii) revenue from transactions #ith other segments of the enterprise.
Segment revenue does not includeH
(a) e3traordinary items as defined in AS 4" <et Profit or Loss for the Period" Prior
Period %tems and -hanges in Accounting PoliciesC
() interest or dividend income" including interest earned on advances or loans to
other segments unless the operations of the segment are primarily of a financial
natureC and
(c) gains on sales of investments or on e3tinguishment of det unless the
operations of the segment are primarily of a financial nature.
Segment expense is the aggregate of
(i) the e3pense resulting from the operating activities of a segment that is directly
attriutale to the segment" and
(ii) the relevant portion of enterprise e3pense that can e allocated on a reasonale
asis to the segment" including e3pense relating to transactions #ith other
segments of the enterprise.
Segment expense does not includeH
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
(a) e3traordinary items as defined in AS 4" <et Profit or Loss for the Period" Prior
Period %tems and -hanges in Accounting PoliciesC
() interest e3pense" including interest incurred on advances or loans from other
segments" unless the operations of the segment are primarily of a financial
natureC
(c) losses on sales of investments or losses on e3tinguishment of det unless the
operations of the segment are primarily of a financial natureC
(d) income ta3 e3penseC and
(e) general administrative e3penses" head&office e3penses" and other e3penses that
arise at the enterprise level and relate to the enterprise as a #hole. 8o#ever"
costs are sometimes incurred at the enterprise level on ehalf of a segment.
Such costs are part of segment e3pense if they relate to the operating activities
of the segment and if they can e directly attriuted or allocated to the segment
on a reasonale asis.
Segment result is segment revenue less segment e3pense.
Segment assets are those operating assets that are employed y a segment in its
operating activities and that either are directly attriutale to the segment or can
e allocated to the segment on a reasonale asis.
%f the segment result of a segment includes interest or dividend income" its
segment assets include the related receivales" loans" investments" or other
interest or dividend generating assets. Segment assets do not include income ta3
assets. Segment assets are determined after deducting related allo#ances'
provisions that are reported as direct offsets in the alance sheet of the enterprise.
Segment lia/ilities are those operating liailities that result from the operating
activities of a segment and that either are directly attriutale to the segment or
can e allocated to the segment on a reasonale asis.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
%f the segment result of a segment includes interest e3pense" its segment liailities
include the related interest&earing liailities. Segment liailities do not include
income ta3 liailities.
Segment accounting policies are the accounting policies adopted for preparing
and presenting the financial statements of the enterprise as #ell as those
accounting policies that relate specifically to segment reporting.
A single usiness segment does not include products and services #ith
significantly differing ris$s and returns. .hile there may e dissimilarities #ith
respect to one or several of the factors listed in the definition of usiness segment"
the products and services included in a single usiness segment are e3pected to e
similar #ith respect to a ma!ority of the factors. Similarly" a single geographical
segment does not include operations in economic environments #ith significantly
differing ris$s and returns. A geographical segment may e a single country" a
group of t#o or more countries" or a region #ithin a country. (he ris$s and returns
of an enterprise are influenced oth y the geographical location of its operations
(#here its products are produced or #here its service rendering activities are
ased) and also y the location of its customers (#here its products are sold or
services are rendered). (he definition allo#s geographical segments to e ased
on eitherH
(a) the location of production or service facilities and other assets of an enterpriseC
or
() the location of its customers.
(he organi/ational and internal reporting structure of an enterprise #ill normally
provide evidence of #hether its dominant source of geographical ris$s results
from the location of its assets (the origin of its sales) or the location of its
customers (the destination of its sales). Accordingly" an enterprise loo$s to this
structure to determine #hether its geographical segments should e ased on the
location of its assets or on the location of its customers.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
6etermining the composition of a usiness or geographical segment involves a
certain amount of !udgment. %n ma$ing that !udgment" enterprise management
ta$es into account the o!ective of reporting financial information y segment as
set forth in this Statement and the ,ualitative characteristics of financial
statements as identified in the Frame#or$ for the Preparation and Presentation of
Financial Statements issued y the %nstitute of -hartered Accountants of %ndia.
(he ,ualitative characteristics include the relevance" reliaility" and comparaility
over time of financial information that is reported aout the different groups of
products and services of an enterprise and aout its operations in particular
geographical areas" and the usefulness of that information for assessing the ris$s
and returns of the enterprise as a #hole.
(he predominant sources of ris$s affect ho# most enterprises are organi/ed and
managed. (herefore" the organi/ational structure of an enterprise and its internal
financial reporting system are normally the asis for identifying its segments.
(he definitions of segment revenue" segment e3pense" segment assets and
segment liailities include amounts of such items that are directly attriutale to a
segment and amounts of such items that can e allocated to a segment on a
reasonale asis. An enterprise loo$s to its internal financial reporting system as
the starting point for identifying those items that can e directly attriuted" or
reasonaly allocated" to segments. (here is thus a presumption that amounts that
have een identified #ith segments for internal financial reporting purposes are
directly attriutale or reasonaly allocale to segments for the purpose of
measuring the segment revenue" segment e3pense" segment assets" and segment
liailities of reportale segments.
%n some cases" ho#ever" a revenue" e3pense" asset or liaility may have een
allocated to segments for internal financial reporting purposes on a asis that is
understood y enterprise management ut that could e deemed aritrary in the
perception of e3ternal users of financial statements. Such an allocation #ould not
constitute a reasonale asis under the definitions of segment revenue" segment
e3pense" segment assets" and segment liailities in this Statement. -onversely" an
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
enterprise may choose not to allocate some item of revenue" e3pense" asset or
liaility for internal financial reporting purposes" even though a reasonale asis
for doing so e3ists. Such an item is allocated pursuant to the definitions of
segment revenue" segment e3pense" segment assets" and segment liailities in this
Statement.
73amples of segment assets include current assets that are used in the operating
activities of the segment and tangile and intangile fi3ed assets. %f a particular
item of depreciation or amorti/ation is included in segment e3pense" the related
asset is also included in segment assets. Segment assets do not include assets used
for general enterprise or head&office purposes. Segment assets include operating
assets shared y t#o or more segments if a reasonale asis for allocation e3ists.
Segment assets include good#ill that is directly attriutale to a segment or that
can e allocated to a segment on a reasonale asis" and segment e3pense
includes related amorti/ation of good#ill. %f segment assets have een revalued
suse,uent to ac,uisition" then the measurement of segment assets reflects those
revaluations.
73amples of segment liailities include trade and other payales" accrued
liailities" customer advances" product #arranty provisions" and other claims
relating to the provision of goods and services. Segment liailities do not include
orro#ings and other liailities that are incurred for financing rather than
operating purposes. (he liailities of segments #hose operations are not primarily
of a financial nature do not include orro#ings and similar liailities ecause
segment result represents an operating" rather than a net of& financing" profit or
loss. Further" ecause det is often issued at the head office level on an enterprise&
#ide asis" it is often not possile to directly attriute" or reasonaly allocate" the
interest&earing liailities to segments.
Segment revenue" segment e3pense" segment assets and segment liailities are
determined efore intra&enterprise alances and intra&enterprise transactions are
eliminated as part of the process of preparation of enterprise financial statements"
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
e3cept to the e3tent that such intra&enterprise alances and transactions are #ithin
a single segment.
.hile the accounting policies used in preparing and presenting the financial
statements of the enterprise as a #hole are also the fundamental segment
accounting policies" segment accounting policies include" in addition" policies that
relate specifically to segment reporting" such as identification of segments"
method of pricing inter&segment transfers" and asis for allocating revenues and
e3penses to segments.
"E!TF&!+ REP#RTABLE SE+*E!TS
Primary and Secondary Segment Reporting Formats
(he dominant source and nature of ris$s and returns of an enterprise should
govern #hether its primary segment reporting format #ill e usiness segments or
geographical segments. %f the ris$s and returns of an enterprise are affected
predominantly y differences in the products and services it produces" its primary
format for reporting segment information should e usiness segments" #ith
secondary information reported geographically. Similarly" if the ris$s and returns
of the enterprise are affected predominantly y the fact that it operates in different
countries or other geographical areas" its primary format for reporting segment
information should e geographical segments" #ith secondary information
reported for groups of related products and services.
%nternal organi/ation and management structure of an enterprise and its system of
internal financial reporting to the oard of directors and the chief e3ecutive officer
should normally e the asis for identifying the predominant source and nature of
ris$s and differing rates of return facing the enterprise and" therefore" for
determining #hich reporting format is primary and #hich is secondary" e3cept as
provided in suparagraphs (a) and () elo#H
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
(a) if ris$s and returns of an enterprise are strongly affected oth y differences in
the products and services it produces and y differences in the geographical areas
in #hich it operates" as evidenced y a Lmatri3 approachA to managing the
company and to reporting internally to the oard of directors and the chief
e3ecutive officer" then the enterprise should use usiness segments as its primary
segment reporting format and geographical segments as its secondary reporting
formatC and
() if internal organi/ational and management structure of an enterprise and its
system of internal financial reporting to the oard of directors and the chief
e3ecutive officer are ased neither on individual products or services or groups of
related products'services nor on geographical areas" the directors and management
of the enterprise should determine #hether the ris$s and returns of the enterprise
are related more to the products and services it produces or to the geographical
areas in #hich it operates and should" accordingly" choose usiness segments or
geographical segments as the primary segment reporting format of the enterprise"
#ith the other as its secondary reporting format.
For most enterprises" the predominant source of ris$s and returns determines ho#
the enterprise is organi/ed and managed. :rgani/ational and management
structure of an enterprise and its internal financial reporting system normally
provide the est evidence of the predominant source of ris$s and returns of the
enterprise for the purpose of its segment reporting. (herefore" e3cept in rare
circumstances" an enterprise #ill report segment information in its financial
statements on the same asis as it reports internally to top management. %ts
predominant source of ris$s and returns ecomes its primary segment reporting
format. %ts secondary source of ris$s and returns ecomes its secondary segment
reporting format.
A Lmatri3 presentationA Q oth usiness segments and geographical segments as
primary segment reporting formats #ith full segment disclosures on each asis &&
#ill often provide useful information if ris$s and returns of an enterprise are
strongly affected oth y differences in the products and services it produces and
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
y differences in the geographical areas in #hich it operates. (his Statement does
not re,uire" ut does not prohiit" a Lmatri3 presentationA.
%n some cases" organi/ation and internal reporting of an enterprise may have
developed along lines unrelated to oth the types of products and services it
produces" and the geographical areas in #hich it operates. %n such cases" the
internally reported segment data #ill not meet the o!ective of this Statement.
Accordingly" it re,uires the directors and management of the enterprise to
determine #hether the ris$s and returns of the enterprise are more product'service
driven or geographically driven and to accordingly choose usiness segments or
geographical segments as the primary asis of segment reporting. (he o!ective is
to achieve a reasonale degree of comparaility #ith other enterprises" enhance
understandaility of the resulting information" and meet the needs of investors"
creditors" and others for information aout product'service&related and
geographically related ris$s and returns.
B%S!ESS A!" +E#+RAP$(AL SE+*E!TS
Business and geographical segments of an enterprise for e3ternal reporting
purposes should e those organi/ational units for #hich information is reported to
the oard of directors and to the chief e3ecutive officer for the purpose of
evaluating the unitAs performance and for ma$ing decisions aout future
allocations of resources.
%f internal organi/ational and management structure of an enterprise and its
system of internal financial reporting to the oard of directors and the chief
e3ecutive officer are ased neither on individual products or services or groups of
related products'services nor on geographical areas" it re,uires that the directors
and management of the enterprise should choose either usiness segments or
geographical segments as the primary segment reporting format of the enterprise
ased on their assessment of #hich reflects the primary source of the ris$s and
returns of the enterprise" #ith the other as its secondary reporting format. %n that
case" the directors and management of the enterprise should determine its usiness
segments and geographical segments for e3ternal reporting purposes ased on the
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
factors in the definitions of this Statement" rather than on the asis of its system of
internal financial reporting to the oard of directors and chief e3ecutive officer"
consistent #ith the follo#ingH
(a) if one or more of the segments reported internally to the directors and
management is a usiness segment or a geographical segment ased on the factors
in the definitions" ut others are not" su¶graph () elo# should e applied
only to those internal segments that do not meet the definitions (that is" an
internally reported segment that meets the definition should not e further
segmented)C
() for those segments reported internally to the directors and management that do
not satisfy the definitions" management of the enterprise should loo$ to the ne3t
lo#er level of internal segmentation that reports information along product and
service lines or geographical lines" as appropriate under the definitionsC and
(c) if such an internally reported lo#er&level segment meets the definition of
usiness segment or geographical segment ased on the factors" the criteria for
identifying reportale segments should e applied to that segment.
Dnder this Statement" most enterprises #ill identify their usiness and
geographical segments as the organi/ational units for #hich information is
reported to the oard of the directors (particularly the non&e3ecutive directors" if
any) and to the chief e3ecutive officer (the senior operating decision ma$er" #hich
in some cases may e a group of several people) for the purpose of evaluating
each unitAs performance and for ma$ing decisions aout future allocations of
resources. 7ven if an enterprise must apply this ecause its internal segments are
not along product'service or geographical lines" it #ill consider the ne3t lo#er
level of internal segmentation that reports information along product and service
lines or geographical lines rather than construct segments solely for e3ternal
reporting purposes. (his approach of loo$ing to organi/ational and management
structure of an enterprise and its internal financial reporting system to identify the
usiness and geographical segments of the enterprise for e3ternal reporting
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
purposes is sometimes called the Lmanagement approachA" and the organi/ational
components for #hich information is reported internally are sometimes called
Loperating segmentsA.
REP#RTABLE SE+*E!TS
A usiness segment or geographical segment should e identified as a reportale
segment ifH
(a) its revenue from sales to e3ternal customers and from transactions #ith other
segments is )= per cent or more of the total revenue" e3ternal and internal" of
all segmentsC or
() its segment result" #hether profit or loss" is )= per cent or more of B
(i) the comined result of all segments in profit" or
(ii) the comined result of all segments in loss" #hichever is greater in asolute
amountC or
(c) its segment assets are )= per cent or more of the total assets of all segments.
A usiness segment or a geographical segment #hich is not a reportale segment
may e designated as a reportale segment despite its si/e at the discretion of the
management of the enterprise. %f that segment is not designated as a reportale
segment" it should e included as an unallocated reconciling item.
%f total e3ternal revenue attriutale to reportale segments constitutes less than
*4 per cent of the total enterprise revenue" additional segments should e
identified as reportale segments" even if they do not meet the )= per cent
thresholds" until at least *4 per cent of total enterprise revenue is included in
reportale segments.
(he )= per cent thresholds in this Statement are not intended to e a guide for
determining materiality for any aspect of financial reporting other than identifying
reportale usiness and geographical segments.
%llustration % to this Statement presents an illustration of the determination of
reportale segments.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
A segment identified as a reportale segment in the immediately preceding period
ecause it satisfied the relevant )= per cent thresholds should continue to e a
reportale segment for the current period not#ithstanding that its revenue" result"
and assets all no longer meet the )= per cent thresholds.
%f a segment is identified as a reportale segment in the current period ecause it
satisfies the relevant )= per cent thresholds" preceding period segment data that is
presented for comparative purposes should" unless it is impracticale to do so" e
restated to reflect the ne#ly reportale segment as a separate segment" even if that
segment did not satisfy the )= per cent thresholds in the preceding period.
SE+*E!T A((#%!T!+ P#L(ES
Segment information should e prepared in conformity #ith the accounting
policies adopted for preparing and presenting the financial statements of the
enterprise as a #hole.
(here is a presumption that the accounting policies that the directors and
management of an enterprise have chosen to use in preparing the financial
statements of the enterprise as a #hole are those that the directors and
management elieve are the most appropriate for e3ternal reporting purposes.
Since the purpose of segment information is to help users of financial statements
etter understand and ma$e more informed !udgments aout the enterprise as a
#hole" this Statement re,uires the use" in preparing segment information" of the
accounting policies adopted for preparing and presenting the financial statements
of the enterprise as a #hole. (hat does not mean" ho#ever" that the enterprise
accounting policies are to e applied to reportale segments as if the segments
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
#ere separate stand&alone reporting entities. A detailed calculation done in
applying a particular accounting policy at the enterprise&#ide level may e
allocated to segments if there is a reasonale asis for doing so. Pension
calculations" for e3ample" often are done for an enterprise as a #hole" ut the
enterprise&#ide figures may e allocated to segments ased on salary and
demographic data for the segments.
(his Statement does not prohiit the disclosure of additional segment information
that is prepared on a asis other than the accounting policies adopted for the
enterprise financial statements provided that
(a) the information is reported internally to the oard of directors and the chief
e3ecutive officer for purposes of ma$ing decisions aout allocating resources to
the segment and assessing its performance and
() the asis of measurement for this additional information is clearly descried.
Assets and liailities that relate !ointly to t#o or more segments should e
allocated to segments if" and only if" their related revenues and e3penses also are
allocated to those segments.
(he #ay in #hich asset" liaility" revenue" and e3pense items are allocated to
segments depends on such factors as the nature of those items" the activities
conducted y the segment" and the relative autonomy of that segment. %t is not
possile or appropriate to specify a single asis of allocation that should e
adopted y all enterprisesC nor is it appropriate to force allocation of enterprise
asset" liaility" revenue" and e3pense items that relate !ointly to t#o or more
segments" if the only asis for ma$ing those allocations is aritrary. At the same
time" the definitions of segment revenue" segment e3pense" segment assets" and
segment liailities are interrelated" and the resulting allocations should e
consistent. (herefore" !ointly used assets and liailities are allocated to segments
if" and only if" their related revenues and e3penses also are allocated to those
segments. For e3ample" an asset is included in segment assets if" and only if" the
related depreciation or amorti/ation is included in segment e3pense.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
"S(L#S%RE
(he previous paragraphs specify the disclosures re,uired for reportale segments
for primary segment reporting format of an enterprise. (hey identify the
disclosures re,uired for secondary reporting format of an enterprise. 7nterprises
are encouraged to ma$e all of the primary&segment disclosures identified for each
reportale secondary segment although they re,uire consideraly less disclosure
on the secondary asis. (he aove paragraphs address several other segment
disclosure matters. %llustration %% to this Statement illustrates the application of
these disclosure standards.
PR*AR& REP#RT!+ F#R*AT
(he disclosure re,uirements should e applied to each reportale segment ased
on primary reporting format of an enterprise.
An enterprise should disclose the follo#ing for each reportale segmentH
(a) segment revenue" classified into segment revenue from sales to e3ternal
customers and segment revenue from transactions #ith other segmentsC
() segment resultC
(c) total carrying amount of segment assetsC
(d) total amount of segment liailitiesC
(e) total cost incurred during the period to ac,uire segment assets that are
e3pected to e used during more than one period (tangile and intangile
fi3ed assets)C
(f) total amount of e3pense included in the segment result for depreciation and
amorti/ation in respect of segment assets for the periodC and
(g) total amount of significant non&cash e3penses" other than depreciation and
amorti/ation in respect of segment assets" that #ere included in segment
e3pense and" therefore" deducted in measuring segment result.
%t re,uires an enterprise to report segment result. %f an enterprise can compute
segment net profit or loss or some other measure of segment profitaility other
than segment result" #ithout aritrary allocations" reporting of such amount(s) in
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
addition to segment result is encouraged. %f that measure is prepared on a asis
other than the accounting policies adopted for the financial statements of the
enterprise" the enterprise #ill include in its financial statements a clear description
of the asis of measurement.
An e3ample of a measure of segment performance aove segment result in the
statement of profit and loss is gross margin on sales. 73amples of measures of
segment performance elo# segment result in the statement of profit and loss are
profit or loss from ordinary activities (either efore or after income ta3es) and net
profit or loss.
Accounting Standard 4" L<et Profit or Loss for the Period" Prior Period %tems and
-hanges in Accounting PoliciesA re,uires that R#hen items of income and e3pense
#ithin profit or loss from ordinary activities are of such si/e" nature or incidence
that their disclosure is relevant to e3plain the performance of the enterprise for the
period" the nature and amount of such items should e disclosed separatelyS.
73amples of such items include #rite do#ns of inventories" provisions for
restructuring" disposals of fi3ed assets and long&term investments" legislative
changes having retrospective application" litigation settlements" and reversal of
provisions. An enterprise is encouraged" ut not re,uired" to disclose the nature
and amount of any items of segment revenue and segment e3pense that are of
such si/e" nature" or incidence that their disclosure is relevant to e3plain the
performance of the segment for the period. Such disclosure is not intended to
change the classification of any such items of revenue or e3pense from ordinary
to e3traordinary or to change the measurement of such items. (he disclosure"
ho#ever" does change the level at #hich the significance of such items is
evaluated for disclosure purposes from the enterprise level to the segment level.
An enterprise that reports the amount of cash flo#s arising from operating"
investing and financing activities of a segment need not disclose depreciation and
amorti/ation e3pense and non&cash e3penses of such segment.
AS 1" -ash Flo# Statements recommends that an enterprise present a cash flo#
statement that separately reports cash flo#s from operating" investing and
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
financing activities. 6isclosure of information regarding operating" investing and
financing cash flo#s of each reportale segment is relevant to understanding the
enterpriseAs overall financial position" li,uidity" and cash flo#s. 6isclosure of
segment cash flo# is" therefore" encouraged" though not re,uired. An enterprise
that provides segment cash flo# disclosures need not disclose depreciation and
amorti/ation e3pense and noncash e3penses.
An enterprise should present reconciliation et#een the information disclosed for
reportale segments and the aggregated information in the enterprise financial
statements. %n presenting the reconciliation" segment revenue should e reconciled
to enterprise revenueC segment result should e reconciled to enterprise net profit
or lossC segment assets should e reconciled to enterprise assetsC and segment
liailities should e reconciled to enterprise liailities.
SE(#!"AR& SE+*E!T !F#R*AT#!
(he primary reporting format identifies the disclosure re,uirements to e applied
to each reportale segment ased on primary reporting format of an enterprise.
(he follo#ing paragraphs identify the disclosure re,uirements to e applied to
each reportale segment ased on secondary reporting format of an enterprise" as
follo#sH
(a) if primary format of an enterprise is usiness segments" the re,uired
secondary&format disclosures are identified in the net paragraphC
() if primary format of an enterprise is geographical segments ased on location
of assets (#here the products of the enterprise are produced or #here its service
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
rendering operations are ased)" the re,uired secondary&format disclosures are
identified in the ne3t t#o paragraphsC
(c) if primary format of an enterprise is geographical segments ased on the
location of its customers (#here its products are sold or services are rendered)" the
re,uired secondary&format disclosures are identified in the last t#o paragraphs of
the segment.
%f primary format of an enterprise for reporting segment information is usiness
segments" it should also report the follo#ing informationH
(a) segment revenue from e3ternal customers y geographical area ased on the
geographical location of its customers" for each geographical segment #hose
revenue from sales to e3ternal customers is )= per cent or more of enterprise
revenueC
() the total carrying amount of segment assets y geographical location of assets"
for each geographical segment #hose segment assets are )= per cent or more of
the total assets of all geographical segmentsC and
(c) the total cost incurred during the period to ac,uire segment assets that are
e3pected to e used during more than one period (tangile and intangile fi3ed
assets) y geographical location of assets" for each geographical segment #hose
segment assets are )= per cent or more of the total assets of all geographical
segments.
%f primary format of an enterprise for reporting segment information is
geographical segments (#hether ased on location of assets or location of
customers)" it should also report the follo#ing segment information for each
usiness segment #hose revenue from sales to e3ternal customers is )= per cent
or more of enterprise revenue or #hose segment assets are )= per cent or more of
the total assets of all usiness segmentsH
(a) segment revenue from e3ternal customersC
() the total carrying amount of segment assetsC and
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
(c) the total cost incurred during the period to ac,uire segment assets that are
e3pected to e used during more than one period (tangile and intangile fi3ed
assets).
%f primary format of an enterprise for reporting segment information is
geographical segments that are ased on location of assets" and if the location of
its customers is different from the location of its assets" then the enterprise should
also report revenue from sales to e3ternal customers for each customer&ased
geographical segment #hose revenue from sales to e3ternal customers is )= per
cent or more of enterprise revenue.
%f primary format of an enterprise for reporting segment information is
geographical segments that are ased on location of customers" and if the assets of
the enterprise are located in different geographical areas from its customers" then
the enterprise should also report the follo#ing segment information for each
asset&ased geographical segment #hose revenue from sales to e3ternal customers
or segment assets are )= per cent or more of total enterprise amountsH
(a) the total carrying amount of segment assets y geographical location of the
assetsC and
() the total cost incurred during the period to ac,uire segment assets that are
e3pected to e used during more than one period (tangile and intangile fi3ed
assets) y location of the assets.
LL%STRAT)E SE+*E!T "S(L#S%RES
%llustration %% to this Statement presents an illustration of the disclosures for
primary and secondary formats that are re,uired y this Statement.
#T$ER "S(L#S%RES
%n measuring and reporting segment revenue from transactions #ith other
segments" inter&segment transfers should e measured on the asis that the
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
enterprise actually used to price those transfers. (he asis of pricing inter&segment
transfers and any change therein should e disclosed in the financial statements.
-hanges in accounting policies adopted for segment reporting that have a material
effect on segment information should e disclosed. Such disclosure should
include a description of the nature of the change" and the financial effect of the
change if it is reasonaly determinale.
AS 4 re,uires that changes in accounting policies adopted y the enterprise should
e made only if re,uired y statute" or for compliance #ith an accounting
standard" or if it is considered that the change #ould result in a more appropriate
presentation of events or transactions in the financial statements of the enterprise.
-hanges in accounting policies adopted at the enterprise level that affect segment
information are dealt #ith in accordance #ith AS 4. AS 4 re,uires that any change
in an accounting policy #hich has a material effect should e disclosed. (he
impact of" and the ad!ustments resulting from" such change" if material" should e
sho#n in the financial statements of the period in #hich such change is made" to
reflect the effect of such change. .here the effect of such change is not
ascertainale" #holly or in part" the fact should e indicated. %f a change is made
in the accounting policies #hich has no material effect on the financial statements
for the current period ut #hich is reasonaly e3pected to have a material effect in
later periods" the fact of such change should e appropriately disclosed in the
period in #hich the change is adopted.
Some changes in accounting policies relate specifically to segment reporting.
73amples include changes in identification of segments and changes in the asis
for allocating revenues and e3penses to segments. Such changes can have a
significant impact on the segment information reported ut #ill not change
aggregate financial information reported for the enterprise. (o enale users to
understand the impact of such changes" this Statement re,uires the disclosure of
the nature of the change and the financial effect of the change" if reasonaly
determinale.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
An enterprise should indicate the types of products and services included in each
reported usiness segment and indicate the composition of each reported
geographical segment" oth primary and secondary" if not other#ise disclosed in
the financial statements.
(o assess the impact of such matters as shifts in demand" changes in the prices of
inputs or other factors of production" and the development of alternative products
and processes on a usiness segment" it is necessary to $no# the activities
encompassed y that segment. Similarly" to assess the impact of changes in the
economic and political environment on the ris$s and returns of a geographical
segment" it is important to $no# the composition of that geographical segment.
LL%STRAT#!
llustration on "etermination o0 Reporta/le Segments
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
(his e3ample is illustrative only and does not form part of the Accounting
Standard. (he purpose of this e3ample is to illustrate the application of the
Accounting Standard.
An enterprise operates through eight segments" namely" A" B" -" 6" 7" F" > and 8.
(he relevant information aout these segments is given in the follo#ing tale
(amounts in Rs.A===)H
Ta/le 4.37 "etermination o0 Reporta/le Segments (Amount in Rs. L===)
A B - 6 7 F > 8
(otal
Segments
(otal
7nterprise
SE+*E!T
RE)E!%E
73ternal
Sales
& 044 )4 )= )4 4= 0= 14 2==
%nter
segment
Sales
)== E= 1= 4 & & 4 & 0==
(otal
Revenue
)== 1)4 24 )4 )4 4= 04 14 E== 2==
(otal
Revenue of
each
segment as a
percentage
of total
revenue of
all segments
)E.* 40.4 *.4 0.4 0.4 9.1 2.0 4.9
SE+*E!T
RES%LT
Profit'(Loss)
4 (@=) )4 (4) 9 (4) 4 *
-omined
Result of all
Segments in
4 )4 9 4 * 2=
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
profits
-omined
Result of all
Segments in
loss
(@=) (4) (4) ()==)
Segment
Result as a
percentage
of the
greater of
the totals
arrived
aove in
asolute
amount (i.e."
)==)
4 @= )4 4 9 4 4 *
SE+*E!T
ASSETS
)4 2* 4 )) 1 4 4 @ )==
Segment
assets as a
percentage
of total
assets
of all
segments
)4 2* 4 )) 1 4 4 @
(he reportale segments of the enterprise #ill e identified as elo#H
a)" segments #hose total revenue from e3ternal sales and inter&segment sales is
)=F or more of the total revenue of all segments" e3ternal and internal" should e
identified as reportale segments. (herefore" Segments A and B are reportale
segments.
()" it is to e first identified #hether the comined result of all segments in profit
or the comined result of all segments in loss is greater in asolute amount. From
the tale" it is evident that comined result in loss (i.e." Rs.)=="===) is greater.
(herefore" the individual segment result as a percentage of Rs.)=="=== needs to
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
e e3amined. Segments B and - are reportale segments as their segment result is
more than the threshold limit of )=F.
(c) Segments A" B and 6 are reportale segments" as their segment assets are
more than )=F of the total segment assets.
(hus" Segments A" B" - and 6 are reportale segments in terms of the criteria laid
do#n in aove e3planation.
(he Statement gives an option to the management of the enterprise to designate
any segment as a reportale segment. %n the given case" it is presumed that the
management decides to designate Segment 7 as a reportale segment.
(he AS&)* re,uires that if total e3ternal revenue attriutale to reportale
segments identified as aforesaid constitutes less than *4F of the total enterprise
revenue" additional segments should e identified as reportale segments even if
they do not meet the )=F thresholds" until at least *4F of total enterprise revenue
is included in reportale segments.
(he total e3ternal revenue of Segments A" B" -" 6 and 7" identified aove as
reportale segments" is Rs.0"@4"===. (his is less than *4F of total enterprise
revenue of Rs.2"=="===. (he management of the enterprise is re,uired to designate
any one or more of the remaining segments as reportale segment(s) so that the
e3ternal revenue of reportale segments is at least *4F of the total enterprise
revenue. Suppose" the management designates Segment 8 for this purpose the
e3ternal revenue of reportale segments is more than *4F of the total enterprise
revenue. Segments A" B" -" 6" 7 and 8 are reportale segments. Segments F and
> #ill e sho#n as reconciling items.
LL%START#!
llustrative Segment "isclosures
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
(his e3ample is illustrative only and does not form part of the Accounting
Standard. (he purpose of this e3ample is to illustrate the application of the
Accounting Standard.
(his e3ample illustrates the segment disclosures that this Statement #ould re,uire
for a diversified multi&locational usiness enterprise. (his e3ample is intentionally
comple3 to illustrate most of the provisions of this Statement.
Ta/le 4.97 !F#R*AT#! AB#%T B%S!ESS SE+*E!TS (!#TE xx)
(Amounts in Rs. la$hs)
Paper
Products
:ffice
Products
Pulishing :ther
erations7liminations -onsolidated
(otal
L=E L=* L=E L=* L=E L=* L=E L=* L=E L=* L=E L=*
RE)E!%E
73ternal
sales
44 4= 0= )* )@ )E * *
%nter&
segment
sales
)4 )= )= )2 0 2 0 0 (0@) (1=)
(otal
Revenue
*= E= 1= 1) 0) 0= @ @ (0@) (1=) )=) @=
RES%LT
Segment
result
0= )* @ * 0 ) = = ()) ()) 1= 02
Dnallocated
corporate
e3penses
(*) (@)
erating profit
01 )4
%nterest
e3pense
(2) (2)
%nterest
income
0 1
%ncome
ta3es
(*) (2)
Paper
Products
:ffice
Products
Pulishing :ther
erations7liminations -onsolidated
(otal
L=E L=* L=E L=* L=E L=* L=E L=* L=E L=* L=E L=*
Profit from
ordinary
activities
)2 )=
73traordinary
(1) (1)
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
lossH
uninsured
7arth,ua$e
damage to
factory
<et profit )2 *
#T$ER
!F#R*A2
2T#!
Segment
assets
42 4= 12 1= )= )= )= @ )=9 @@
Dnallocated
corporate
assets
E* 4E
(otal assets )*4 )44
Segment
liailities
04 )4 9 )) 9 9 ) ) 20 14
Dnallocated
corporate
liailities
2= 44
(otal
liailities
90 @=
-apital
e3penditure
)0 )= 1 4 4 2 1
6epreciation @ * @ * 4 1 1 2
<on&cash
e3penses
other than
6epreciation
9 0 * 1 0 0 0 )
!#TE ,,2B%S!ESS A!" +E#+RAP$(AL SE+*E!TS (A*#%!TS
! RS. LA6$S)
Business segments: For management purposes" the -ompany is organi/ed on a
#orld#ide asis into three ma!or operating divisions&paper products" office
products and pulishing & each headed y a senior vice president. (he divisions
are the asis on #hich the company reports its primary segment information. (he
paper products segment produces a road range of #riting and pulishing papers
and ne#sprint. (he office products segment manufactures laels" inders" pens"
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
and mar$ers and also distriutes office products made y others. (he pulishing
segment develops and sells oo$s in the fields of ta3ation" la# and accounting.
:ther operations include development of computer soft#are for standard and
speciali/ed usiness applications. Financial information aout usiness segments
is presented in the aove tale L%llustration %%A
+eograp1ical segments7 Although the -ompanyAs ma!or operating divisions are
managed on a #orld#ide asis" they operate in four principal geographical areas
of the #orld. %n %ndia" its home country" the -ompany produces and sells a road
range of papers and office products. Additionally" all of the -ompanyAs pulishing
and computer soft#are development operations are conducted in %ndia. %n the
7uropean Dnion" the -ompany operates paper and office products manufacturing
facilities and sales offices in the follo#ing countriesH France" Belgium" >ermany
and the D.G.
erations in -anada and the Dnited States are essentially similarand consist of manufacturing papers and ne#sprint that are sold entirely #ithin
those t#o countries.
erations in %ndonesia include the production of paper pulpand the manufacture of #riting and pulishing papers and office products" almost
all of #hich is sold outside %ndonesia" oth to other segments of the company and
to e3ternal customers.
Sales /y mar-etH (he follo#ing tale sho#s the distriution of the -ompanyAs
consolidated sales y geographical mar$et" regardless of #here the goods #ere
producedH
Ta/le 4.>H "istri/ution o0 t1e (ompany@s consolidated sales /y geograp1ical
mar-et (Amount in Rs. la$hs)
Sales Revenue /y
+eograp1ical *ar-et
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
(urrent &ear
(@AB)
Previous &ear
(@A4)
%ndia )@ 00
7uropean Dnion 1= 1)
-anada and the Dnited States 09 0)
Me3ico and South America E 0
Southeast Asia (principally ;apan and
(ai#an)
)9 )2
3A3 CA
Assets and additions to tangile and intangile fi3ed assets y geographical areaH
(he follo#ing tale sho#s the carrying amount of segment assets and additions to
tangile and intangile fi3ed assets y geographical area in #hich the assets are
located
Ta/le 4.D7 Tangi/le and intangi/le 0ixed assets /y geograp1ical area
(Amount in Rs. La$hs)
(arrying Amount o0
Segment Assets
Additions to Fixed
Assets and ntangi/le
Assets
-urrent
Mear (A=E)
Previous
Mear (A=*)
-urrent
Mear (A=E)
Previous
Mear (A=*)
%ndia *0 *9 9 4
7uropean Dnion 2* 1* 4 2
-anada and the Dnited 12 0= 2 1
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
States
%ndonesia 00 0= * E
)*4 )44 02 )9
Segment revenue and expense7 %n %ndia" paper and office products are
manufactured in comined facilities and are sold y a comined sales force. ;oint
revenues and e3penses are allocated to the t#o usiness segments on a reasonale
asis. All other segment revenue and e3pense are directly attriutale to the
segments.
Segment assets and lia/ilities7 Segment assets include all operating assets used
y a segment and consist principally of operating cash" detors" inventories and
fi3ed assets" net of allo#ances and provisions #hich are reported as direct offsets
in the alance sheet. .hile most such assets can e directly attriuted to
individual segments" the carrying amount of certain assets used !ointly y t#o or
more segments is allocated to the segments on a reasonale asis. Segment
liailities include all operating liailities and consist principally of creditors and
accrued liailities. Segment assets and liailities do not include deferred income
ta3es.
nter2segment trans0ers7 Segment revenue" segment e3penses and segment result
include transfers et#een usiness segments and et#een geographical segments.
Such transfers are accounted for at competitive mar$et prices charged to
unaffiliated customers for similar goods. (hose transfers are eliminated in
consolidation.
%nusual item7 Sales of office products to e3ternal customers in the current year
#ere adversely affected y a lengthy stri$e of transportation #or$ers in %ndia"
#hich interrupted product shipments for appro3imately four months. (he
-ompany estimates that sales of office products during the four&month period
#ere appro3imately half of #hat they #ould other#ise have een.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
Extraordinary loss7 As more fully discussed in <ote 3" the -ompany incurred an
uninsured loss of Rs.1"=="=== caused y earth,ua$e damage to a paper mill in
%ndia during the previous year.
LL%START#!
(he e3ample is illustrative only and does not form part of the Accounting
Standard. %ts purpose is to summari/e the disclosures re,uired y for each of the
three possile primary segment reporting formats.
Ta/le 4.E7 Summary o0 ReFuired "isclosure
PR*AR& F#R*AT S
B%S!ESS SE+*E!TS
PR*AR& F#R*AT S
+E#+RAP$(AL
SE+*E!TS B&
L#(AT#! #F ASSETS
PR*AR& F#R*AT
S +E#+RAP$(AL
SE+*E!TS B&
L#(AT#! #F
(%ST#*ERS
Required Primary Required Primary Required Primary
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
Disclosures Disclosures Disclosures
Revenue from e3ternal
customers y usiness
segment
Revenue from e3ternal
customers y location of
assets
Revenue from e3ternal
customers y location
of customers
Revenue from
transactions #ith other
segments y usiness
segment
Revenue from transactions
#ith other segments y
location of assets
Revenue from
transactions #ith other
segments y location of
customers
Segment result y
usiness segment
Segment result y location
of assets
Segment result y
location of customers
-arrying amount of
segment assets y
usiness segment
-arrying amount of
segment assets y location
of assets
-arrying amount of
segment assets y
location of customers
Segment liailities y
usiness segment
Segment liailities y
location of assets
Segment liailities y
location of customers
-ost to ac,uire tangile
and intangile fi3ed
assets y usiness
segment
-ost to ac,uire tangile
and intangile fi3ed assets
y location of assets
-ost to ac,uire tangile
and intangile fi3ed
assets y location of
customers
PR*AR& F#R*AT S
B%S!ESS SE+*E!TS
PR*AR& F#R*AT S
+E#+RAP$(AL
SE+*E!TS B&
L#(AT#! #F ASSETS
PR*AR& F#R*AT
S +E#+RAP$(AL
SE+*E!TS B&
L#(AT#! #F
(%ST#*ERS
Required Primary
Disclosures
Required Primary
Disclosures
Required Primary
Disclosures
6epreciation and
amorti/ation e3pense y
usiness segment
6epreciation and
amorti/ation e3pense y
location of assets
6epreciation and
amorti/ation e3pense
y location of
customers
<on&cash e3penses
other than depreciation
and amorti/ation y
<on&cash e3penses other
than depreciation and
amorti/ation y location
<on&cash e3penses
other than depreciation
and amorti/ation y
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
usiness segment of assets location of customers
Reconciliation of
revenue" result" assets"
and liailities y
usiness segment
Reconciliation of revenue"
result" assets" and
liailities
Reconciliation of
revenue" result" assets"
and liailities
Required Secondary
Disclosures
Required Secondary
Disclosures
Required Secondary
Disclosures
Revenue from e3ternal
customers y location of
customers
Revenue from e3ternal
customers y usiness
segment
Revenue from e3ternal
customers y usiness
segment
-arrying amount of
segment assets y
location of assets
-arrying amount of
segment assets y
usiness segment
-arrying amount of
segment assets y
usiness segment
-ost to ac,uire tangile
and intangile fi3ed
assets y location of
assets
-ost to ac,uire tangile
and intangile fi3ed assets
y usiness segment
-ost to ac,uire tangile
and intangile fi3ed
assets y usiness
segment
Revenue from e3ternal
customers y geographical
customers if different
from location of assets
-arrying amount of
segment assets y
location of assets if
different from location
of customers
-ost to ac,uire tangile
and intangile fi3ed
assets y location of
assets if different from
location of customers
Other Required
Disclosures
Other Required
Disclosures
Other Required
Disclosures
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
Basis of pricing
intersegment transfers
and any change therein
Basis of pricing
intersegment transfers and
any change therein
Basis of pricing
intersegment transfers
and any change therein
-hanges in segment
accounting policies
-hanges in segment
accounting policies
-hanges in segment
accounting policies
(ypes of products and
services in each usiness
segment
(ypes of products and
services in each usiness
segment
(ypes of products and
services in each
usiness segment
-omposition of each
geographical segment
-omposition of each
geographical segment
-omposition of each
geographical segment
Segment Reporting
Segment T 6istinguishale component of enterprise
Business Segment (BS)
%f BS is primary
>S #ill e
Secondary
>eographical Segment (>S)
%f >S is primary BS #ill
e Secondary
Location of
Assets
Location of
-ustomers
6ominance of Ris$'Return
:rgani/ational Structure
Reporting Structure'System
6efinition ased decision
Reportale Segment
*4F
enterprise
revenue
criteria
Segment
Revenue
U )=F of
all
segments
revenue
Management
-hoice
Segment
Revenue
U )=F of
higher of
segments
in
profit'loss
Segment
Assets U
)=F of
enterprise
assets
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
-hapter 5%%%
(alculations and Segment Report
6isclosuresH %n oth primary format and in secondary format
Previous year segment information to continue in current year
Previous year figures to e regrouped to fall in line #ith current year
Business Primary B >eographic SecondaryC
>eographic L:A Primary
(a) Business secondary (b) Geographic LOC secondary
:ther 6isclosuresH
Basis of transfer pricing
-hanges" if any" in accounting policies" types of products" services" composition of
each geographical or usiness segment
>eographic L:- Primary
(b) Business secondary (b) Geographic LOA secondary
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
(ale 9.)H -ost Sheet
Particulars )entilated "isc Solid "isc Fly.1eel
*ATERAL RE8%RE*E!T
P%> )0E.*4 )0E.*4 )0E.*4
MS )12.44 )12.44 )12.44
RR )09.E2 )09.E2 )09.E2
B:R%<> = = =
Total 39G.BD 39G.BD 39G.BD
ALL#&S RE8%RE*E!T
FeMn 0.)4 ).@4 ).@4
FeSi = = =
-P- =.0= = =
Fe-r =.@9 =.@) =.@)
-u = 9.=E 9.=E
%<:-DLA<( 1.04 0.9= 0.9=
Total B.EG 3>.49 3>.49
SA!" A""T)ES
B7<
<%(7 2.2@ 0.0) 0.0)<7. SA<6 0.=9 ).=2 ).=2
-:AL A66%(%57 4.@0 0.@@ 0.@@
Total 39.DC B.9D B.9D
(#RE (#STS
SA<6 A66%(%57S ).*E = =
R7S%< ).E@ = =
B%<67R 0.E= = =
-A(ALMS( ).@4 = =
Total G.AA = =
P:.7R D<%(S R7V'
< D>.BG >C.CG >C.CGF7((L%<> + S8
BLAS(%<>' G> E.9A E.9A E.9A
T#TAL "RE(T (#ST 9AD.EC 3C>.4G 3C>.4G
LAB
R -:S( )@.4= 00.*4 00.*4R7PA%R + MA%<(7<A<-7 1.04 1.04 1.04
FR%7>8( ).E1 ).E1 ).E1
:57R 87A6 -:S(S )E.04 )E.04 )E.04
A6M%< + (7S(%<> -:S(S E.4= E.4= E.4=
T#TAL (#ST (per unit) 9E3.49 9DD.3B 9DD.3B
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
(ale 9.0H -alculation of Profit after (a3
Particulars
)entilated
"isc Solid "isc Fly.1eel Total
(otal -ost per unit 04).*0 022.)E 022.)E
Profit 20.09 2=.92 12.92
(otal Sales Price 0@2.== 094.== 0*@.==
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
<o. of units 0E94== )@14== )**24= E1@24=
(otal revenue *9@1@=== 44)2*4== 2@4=944= )914@4=4=
(otal -ost E*49E90= 2*022@E= 2110E)@0 )49)4*@*0
Profit efore interest"
ta3 and depreciation
(PB%(6) ))140)9= *@=042= E)90149 0421*=*9
LessH 6epreciation )@)1=== )@)1=== )@)1=== 4*1@===
Profit efore interest and
ta3 (PB%() @21@)9= 4@9@42= 20E@149 )@E@9=*9
LessH %nterest 204)*91 09=21E* )@@=)@E @=2E12*
Profit efore ta3 (PB() 4)9*1@* 1)94)*1 00*@)E0 )=E4)*1)
%ncome (a3 ))*9)*) ***=@) 44)292 04=E*2E
Profit after ta3 (PA() 2==@00E 02=9=90 )*0*E*9 9)22@94
(ale 9.1H Segment Report
Particulars
)entilated
"isc Solid "isc Fly.1eel Total
RE)E!%E
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
73ternal Sale *9@1@=== 44)2*4== 2@4=944= )914@4=4=
%nter&segment Sale = = = =
(otal Revenue 4GC>CAAA EE3D4EAA DCEAGEEA 3G>ECEAEA
RES%LT
Segment Result ))140)9= *@=042= E)90149 0421*=*9
Dnallocated corporate
e3p. @1*2E* @1*2E* @1*2E* 09)02=0
erating Profit )=2)2*)1 E@E4=*1 40229@) 00E02E*E%nterest 204)*91 09=21E* )@@=)@E @=2E12*
%ncome&(a3 ))*9)*) ***=@) 44)292 04=E*2E
Profit from ordinary
activities = = = =
73traordinary = = = =
<et Profit 2==@00E 02=9=90 )*0*E*9 9)22@94
#T$ER
!F#R*AT#!
Segment Assets E99=42=E 2419009@ 100=E*9E )2E1@229=
Dnallocated corporate
Assets *E24=24 4=202*E 14*9410 )E0EE=41
(otal Assets *E24=24) 4=202*E4 14*941)9 )E0EE=411
Segment Liailities )=*14E240 *=9=@4*4 4=04)@4E 0092)*@92
Dnallocated corporate
liailities @=)@00= 4@2992* 200)*E0 )@)9@90@
(otal Liailities ))E1*4E*0 *E*49200 422*1*)9 02*E=*9)1
-apital 73penditure = = = =
6epreciation )@)1=== )@)1=== )@)1=== 4*1@===
-8AP(7R %?
(onclusion
). Segment reporting is not mandatory for companies that have a turnover of less
than 4 crores or have no stoc$ mar$et listed e,uity share. 8o#ever" from this
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
study it may e concluded that segment reporting is ,uite useful for financial
analysis and decision ma$ing.
0. Accounting Standards #hen implemented meticulously add to the
convenience of Financial Analyst.
1. %n the study the findings of one segment (product category) not doing as good
as the other t#o segments is not clear in consolidate income statement.
%nformation aout performance of products falling in similar ris$ and return
categories is a useful input in many a decision ma$ing situation.
2. Since it is not too e3pensive in terms of time" money and effort in maintaining
this accounting procedures that aid in reporting income segment #ise and the
enefit of doing so ma$e good for any additional resource e3penditure"
segment reporting should e adopted y foundries of Alucast $ind.
4. Alucast needs to do some analysis on the Fly#heel segment in order to ring
it in par #ith the other t#o segments" this #ould ensure that the company
performs e,ually #ell #ith all the customers.
Re0erences and Bi/liograp1y
Boo-s and *anuals
1. M. P. 5i!ay Gumar" First Lessons in Accounting Standards" Sno# .hite
Pulications" 0==4.
Segment Reporting in a Foundry (Alucast Foundries Belgaum
Pvt. Ltd.)
2. 6. S. Ra#at" Students guide to Accounting Standards, (a3mann" 0==E.
. S. P. ;ain and G. L. <arang" !ost Accounting, Galyani Pulications" )@@=.
". M. M. Ghan + P. G. ;ain" Financial #anagement
$. 6r. S. <. Mahesh#ari" %rinciples o& #anagement Accounting, Sultan -hand"
0==4.
555 support
httpH''icai.org'icairoot'resources'asWinde3.!sp
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httpH''icai.org'icairoot'pulications'complimentary'ca!ournalWmar=2'p@2E&)&
4=.pdf
httpH''###.thehinduusinessline.com'0==0'=4'09'stories'0==0=409=00))===.htm
httpH''###.#epindia.com'ap'0==0W0==1'page0W40.pdf
httpH''io.in'segrep1==E=4.asp
httpH''###.duncan#il.co.u$'pdfs'ias'ias)2.pdf
doc_327202259.doc