03 January 2011
i was reading AS-17 semgent reporting and and i could not understand the following sentence. Interest is allowed as an expenses to reportable segment if segment is engaged in financial operations.
03 January 2011
The purpose of this AS is to give investors information about how each segment of an enterprise is faring. With this in view, think about a big financial institution, a bank for example. A big bank has a lot of segments a few being Personal Banking, Business Banking, Investment banking, Wealth Management and so on. Now take for eg. business banking. The main purpose of that segment is to make advances/loans to corporates and earn income by way of interest. Now how do banks loan money? They don't print money. They borrow from other sources,like banks RBI etc. So this bank in order to earn an income by way of interest has to pay interest to others as an expense. So when Business banking segment results get reported, they have to consider interest as an expense. At the same time the investment banking division is just providing consulting services. They don't lend money. In their segment reporting you can't consider interest as an expense. Hope this is helpful!
03 January 2011
To add to Asthamoorthy's explanation:
If the company is not engaged in the financial operations in normal course of business i.e., if it is not a bank, NBFC etc, the segment expense would not include interest payments at segment level. It'll appear as a single line under Unallocated.
Eg for a Motor Car company, segments would be Commercial vehicles, Passenger cars etc, but the interest would not be split at this level for segmentation purposes.
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