Segment reporting: Can you see beyond the financial reporting standards?


The company in question is the subsidiary of one 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 company operates in a single segment of 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 with regard to different CNG stations, PNG customer segments, geographies, etc.

The client’s SAP system, implemented in 2010, was 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 center 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 company aspires to become a leader in both the business segments that it operates in. As a result, the management of the company sought monitoring of its operations results of its business segments for making decisions, particularly, with regards to resource allocation and performance assessment. Therefore, a structured segment reporting system was required that may enable creation of timely and effective operational/ financial insights. To this end, following accurate cost/ profitability reports were generated on a real-time basis:

1. Product Segment-wise

2. Depot/Station-wise

3. Geography/Region-wise

4. Customer-wise


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:

  1. Reorganization of cost-centers/ profit-centers hierarchies.

  2. Introducing a logical codification scheme for cost-centers/profit centers, comprising of company code, plant code, region, product group, functions, etc.

  3. For CNG product segment – CNG stations were identified as cost-centers/ profit-centers.

  4. For PNG product segment – PNG Domestic, PNG Industrial and PNG Commercial segments were identified as cost-centers/ profit-centers.

  5. Redundant cost-centers/ profit-centers were blocked/ deleted.

  6. Around 40% gross value of the capitalized fixed assets were re-mapped to the correct cost centers/ profit-centers, thereby enabling effective and accurate analysis.

  7. The classic G/L functionality in SAP was migrated to a new G/L functionality fostering real time FI-CO reconciliations. As a result, the company was able to obtain financial statements at different product/ geography segments.

Subsequent to the implementation of the segment reporting framework, the financial transaction-level data was assigned to segments following the principle of cause-and-effect amounting to coverage of ~96% of the total costs. This helped us in mapping relevant costs, revenues and balance sheet items to the correct segments from the beginning itself, i.e. at the time of data entry (by the operator) and thereby achieve the appropriate and accurate segment level insights/analysis. The ad hoc approach of cost computation for CNG and PNG stations was replaced with a detailed and an accurate cost computation system. The new cost split between CNG and PNG product-segments was 14%:86%, backed by precise and authentic data.

In a nutshell, the management gained the following advantages in its business operations:

  1. Timely determination of segment-wise returns on assets and payback periods, with a better focus on product segments.

  2. Better monitoring of underutilised CNG stations that were not able to achieve breakeven through efforts including keeping them under regular check-ups.

  3. Identify product segments that enjoy a margin of safety, and the extent to which it can be applied.

  4. Regular analyses of cross-subsidisation of profit-making product segments as opposed to loss-making ones, duly taking into account the selling and distribution costs.

  5. Improved focus on turnaround of the loss-making CNG stations.


1. In accordance with the IFRS 8/ Ind AS 108, an operating segment is a component of an entity:
(a) that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity),
(b) whose operating results are regularly reviewed by the entity’s chief operating decision-maker to make decisions about resources to be allocated to the segment and assess its performance, and
(c) for which discrete financial information is available.

IFRS 8: Operating Segments 🡕



Reach us if you have any concerns regarding cost management accounting issues in your organization.


Partner, Chandra Wadhwa & Co. (Cost Accountants) | B.Com, FCMA, ACA, DISA | Certified SAP-CO Consultant | Executive Program on Management and Finance (IIM, Ahmedabad)

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Tel: +91-8800018190, +91-7503703599.