THE INTRODUCTION:
The company in question is a subsidiary of India’s leading downstream gas distribution entities. The company is poised to accelerate the City Gas Distribution business in a focused manner across various cities of the nation. The company’s product portfolio includes Compressed Natural Gas (CNG) and Piped Natural Gas (PNG).
THE PROBLEM:
The company operates in a single segment of the Natural Gas Business; therefore, disclosure requirements, as per Ind AS 108 “Operating Segments” [1], are not applicable. As a result, the company could not maintain separate financial information concerning different CNG stations, PNG customer segments, geographies, etc.
The client’s SAP system was implemented in 2010 and operated on a classic GL functionality, with clear demarcations of the Financial Accounting module (FI) and Controlling module (CO). As a result, reconciliation issues were found in the SAP modules of general ledger accounting (FI-GL) and profit centre accounting (CO-PCA).
Cost allocation between CNG and PNG product segments was based on sales revenue (8%:92%), which being an ad-hoc approach, rendered unreliable figures. In addition, the capital assets had to be mapped to different business segments.
THE SOLUTION:
The company aspires to become a leader in both its business segments. As a result, the management of the company sought monitoring of its operations results of its business segments for making decisions, particularly regarding resource allocation and performance assessment. Therefore, a structured segment reporting system was required to create timely and effective operational/ financial insights. To this end, the following accurate cost/ profitability reports were generated on a real-time basis:
Product Segment-wise
Depot/ Station-wise
Geography/ Region-wise
Customer-wise
THE RESULTS:
After rigorous deliberations and continuous collaboration with the client for over five months, our team at Chandra Wadhwa & Co. implemented a detailed oriented segment reporting framework, offering the following salient features:
Reorganisation of cost-centres/profit-centres hierarchies.
Introducing a logical codification scheme for cost-centres/ profit centres comprising the company code, plant code, region, product group, functions, etc.
For the CNG product segment – CNG stations were identified as cost-centres/ profit-centres.
For PNG product segment – PNG Domestic, PNG Industrial and PNG Commercial segments were identified as cost-centres/ profit-centres.