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Thread: 17 Accounting Standard 17 - Segment Reporting - AS 17

  1. #1
    Accounting Standards
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    Default 17 Accounting Standard 17 - Segment Reporting - AS 17


    Accounting Standard (AS) 17
    (issued 2000)
    Segment Reporting
    (This Accounting Standard includes paragraphs set in
    bold italic type
    and plain type, which have equal authority. Paragraphs in bold italic
    type indicate the main principles. This Accounting Standard should be
    read in the context of its objective and the Preface to the Statements of
    Accounting Standards
    )

    Accounting Standard (AS) 17,
    ‘Segment Reporting’, issued by the Council
    of the Institute of Chartered Accountants of India, comes into effect in respect of accounting periods commencing on or after 1.4.2001. This Standard is mandatory in nature
    2 in respect of accounting periods commencing on or after 1-4-20043 for the enterprises which fall in any one ormore of the following categories, at any time during the accounting period:

    (i) Enterprises whose equity or debt securities are listed whether in India or outside India.

    (ii) Enterprises which are in the process of listing their equity or debt securities as evidenced by the board of directors
    resolution in this regard.

  2. #2
    Accounting Standards
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    Default Accounting Standard 17 - Segment Reporting - AS 17

    Accounting Standard (AS) 17
    (issued 2000)
    Segment Reporting



    (This Accounting Standard includes paragraphs set in bold italic type and plain type, which have equal authority. Paragraphs in bold italic type indicate the main principles. This Accounting Standard should be read in the context of its objective and the Preface to the Statements of Accounting Standards.)


    Accounting Standard (AS) 17, ‘Segment Reporting’, issued by the Council of the Institute of Chartered Accountants of India, comes into effect in respect of accounting periods commencing on or after 1.4.2001.


    This Standard is mandatory in nature2 in respect of accounting periods commencing on or after 1-4-20043 for the enterprises which fall in any one ormore of the following categories, at any time during the accounting period:


    (i) Enterprises whose equity or debt securities are listed whether in India or outside India.

    (ii) Enterprises which are in the process of listing their equity or debt securities as evidenced by the board of directors’ resolution in this regard.

    (iii) Banks including co-operative banks.

    (iv) Financial institutions.

    (v) Enterprises carrying on insurance business.

    (vi) All commercial, industrial and business reporting enterprises, whose turnover for the immediately preceding accounting period on the basis of audited financial statements exceeds Rs. 50 crore.
    Turnover does not include ‘other income’.

    (vii) All commercial, industrial and business reporting enterprises having borrowings, including public deposits, in excess ofRs. 10 crore at any time during the accounting period.

    (viii) Holding and subsidiary enterprises of any one of the above at any time during the accounting period.


    The enterprises which do not fall in any of the above categories are not required to apply this Standard.


    Where an enterprise has been covered in any one or more of the above categories and subsequently, ceases to be so covered, the enterprise will not qualify for exemption from application of this Standard, until the enterprise ceases to be covered in any of the above categories for two consecutive years. Where an enterprise has previously qualified for exemption fromapplication
    of this Standard (being not covered by any of the above categories) but no longer qualifies for exemption in the current accounting period, this Standard becomes applicable from the current period. However, the corresponding previous period figures need not be disclosed. An enterprise, which, pursuant to the above provisions, does not disclose segment information, should disclose the fact. The following is the text of the Accounting Standard.

  3. #3
    Accounting Standards
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    Default Objective of Accounting Standard 17 - Segment Reporting - AS 17

    Objective of Accounting Standard 17 - Segment Reporting - AS 17


    The objective of this Statement is to establish principles for reporting financial information, about the different types of products and services an enterprise produces and the different geographical areas in which it operates. Such information helps users of financial statements:


    (a) better understand the performance of the enterprise;

    (b) better assess the risks and returns of the enterprise; and

    (c) make more informed judgements about the enterprise as a whole.

    Many enterprises provide groups of products and services or operate in geographical areas that are subject to differing rates of profitability, opportunities for growth, future prospects, and risks. Information about 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 risks and returns of a diversified ormulti-locational enterprise but may not be determinable from the aggregated data. Therefore, reporting of segment information is widely regarded as necessary for meeting the needs of users of financial statements.

  4. #4
    Accounting Standards
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    Default Scope of Accounting Standard 17 - Segment Reporting - AS 17

    Scope of Accounting Standard 17 - Segment Reporting - AS 17


    1. This Statement should be applied in presenting general purpose financial statements.

    2. The requirements of this Statement are also applicable in case of consolidated financial statements.

    3. An enterprise should comply with the requirements of this Statement fully and not selectively.

    4. If a single financial report contains both consolidated financial statements and the separate financial statements of the parent, segment information need be presented only on the basis of the consolidated financial statements. In the context of reporting of segment information in consolidated financial statements, the references in this Statement to any financial statement items should construed to be the relevant item as appearing in the consolidated financial statements.

  5. #5
    Accounting Standards
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    Default Definitions of Accounting Standard 17 - Segment Reporting - AS 17

    Definitions of Accounting Standard 17 - Segment Reporting - AS 17

    5. The following terms are used in this Statement with the meanings specified:


    A business segment is a distinguishable 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 subject to risks and returns that are different from those of other business segments. Factors that should be considered in determining whether products or services are related include:


    (a) the nature of the products or services;
    (b) the nature of the production processes;
    (c) the type or class of customers for the products or services;
    (d) the methods used to distribute the products or provide the services; and
    (e) if applicable, the nature of the regulatory environment, for example, banking, insurance, or public utilities.


    A geographical segment is a distinguishable component of an enterprise that is engaged in providing products or services within a particular economic environment and that is subject to risks and returns that are different from those of components operating in other economic environments. Factors that should be considered in identifying geographical segments include:

    (a) similarity of economic and political conditions;

    (b) relationships between operations in different geographical areas;

    (c) proximity of operations;

    (d) special risks associated with operations in a particular area;

    (e) exchange control regulations; and

    (f) the underlying currency risks.

    A reportable segment is a business segment or a geographical segment identified on the basis of foregoing definitions for which segment information is required to be disclosed by this Statement.
    Enterprise revenue is revenue from sales to external 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 attributable to a segment,
    (ii) the relevant portion of enterprise revenue that can be allocated on a reasonable basis to a segment, and
    (iii) revenue from transactions with other segments of the enterprise.

    Segment revenue does not include:

    (a) extraordinary items as defined in AS 5, Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies;
    (b) 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 nature; and
    (c) gains on sales of investments or on extinguishment of debt unless the operations of the segment are primarily of a financial nature.


    Segment expense is the aggregate of

    (i) the expense resulting from the operating activities of a segment that is directly attributable to the segment, and

    (ii) the relevant portion of enterprise expense that can be allocated on a reasonable basis to the segment, including expense relating to transactions with other segments of the enterprise.
    Segment expense does not include:

    (a) extraordinary items as defined in AS 5, Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies;

    (b) interest expense, including interest incurred on advances or loans from other segments, unless the operations of the segment are primarily of a financial nature;

    (c) losses on sales of investments or losses on extinguishment of debt unless the operations of the segment are primarily of a financial nature;

    (d) income tax expense; and

    (e) general administrative expenses, head-office expenses, and other expenses that arise at the enterprise level and relate to the enterprise as a whole. However, costs are sometimes incurred at the enterprise level on behalf of a segment. Such costs are part of segment expense if they relate to the operating activities of the segment and if they can be directly attributed or allocated to the segment on a reasonable basis.

    Segment result is segment revenue less segment expense.

    Segment assets are those operating assets that are employed by a segment in its operating activities and that either are directly attributable to the segment or can be allocated to the segment on a reasonable basis. If the segment result of a segment includes interest or dividend income, its segment assets include the related receivables, loans, investments, or other interest or dividend generating assets.


    Segment assets do not include income tax assets.

    Segment assets are determined after deducting related allowances/ provisions that are reported as direct offsets in the balance sheet of the enterprise.

    Segment liabilities are those operating liabilities that result from the operating activities of a segment and that either are directly attributable to the segment or can be allocated to the segment on a reasonable basis. If the segment result of a segment includes interest expense, its segment
    liabilities include the related interest-bearing liabilities. Segment liabilities do not include income tax liabilities. Segment accounting policies are the accounting policies adopted for preparing and presenting the financial statements of the enterprise as well as those accounting policies that relate specifically to segment reporting.


    6. The factors in paragraph 5 for identifying business segments and geographical segments are not listed in any particular order.

    7. A single business segment does not include products and services with significantly differing risks and returns. While there may be dissimilarities with respect to one or several of the factors listed in the definition of business segment, the products and services included in a single business segment are expected to be similar with respect to a majority of the factors.


    8. Similarly, a single geographical segment does not include operations in economic environments with significantly differing risks and returns. A geographical segment may be a single country, a group of two or more countries, or a region within a country.


    9. The risks and returns of an enterprise are influenced both by the geographical location of its operations (where its products are produced or where its service rendering activities are based) and also by the location of its customers (where its products are sold or services are rendered). The
    definition allows geographical segments to be based on either:

    (a) the location of production or service facilities and other assets of an enterprise; or

    (b) the location of its customers.

    10. The organisational and internal reporting structure of an enterprisewill normally provide evidence of whether its dominant source of geographical risks 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 looks to this structure to determine whether its geographical segments should be based on the location of its assets or on the location of its customers.


    11. Determining the composition of a business or geographical segment involves a certain amount of judgement. Inmaking that judgement, enterprise management takes into account the objective of reporting financial information by segment as set forth in this Statement and the qualitative
    characteristics of financial statements as identified in the Framework for the Preparation and Presentation of Financial Statements issued by the Institute of Chartered Accountants of India. The qualitative characteristics include the relevance, reliability, and comparability over time of financial
    information that is reported about the different groups of products and services of an enterprise and about its operations in particular geographical areas, and the usefulness of that information for assessing the risks and returns of the enterprise as a whole.


    12. The predominant sources of risks affect how most enterprises are organised and managed. Therefore, the organisational structure of an enterprise and its internal financial reporting system are normally the basis for identifying its segments.


    13. The definitions of segment revenue, segment expense, segment assets and segment liabilities include amounts of such items that are directly attributable to a segment and amounts of such items that can be allocated to a segment on a reasonable basis. An enterprise looks to its internal financial reporting system as the starting point for identifying those items that can be directly attributed, or reasonably allocated, to segments. There is thus a presumption that amounts that have been identified with segments for internal financial reporting purposes are directly attributable or reasonably allocable to segments for the purpose of measuring the segment revenue, segment
    expense, segment assets, and segment liabilities of reportable segments.

    14. In some cases, however, a revenue, expense, asset or liability may have been allocated to segments for internal financial reporting purposes on a basis that is understood by enterprise management but that could be deemed arbitrary in the perception of external users of financial statements. Such an allocation would not constitute a reasonable basis under the definitions of
    segment revenue, segment expense, segment assets, and segment liabilities in this Statement. Conversely, an enterprise may choose not to allocate some itemof revenue, expense, asset or liability for internal financial reporting purposes, even though a reasonable basis for doing so exists. Such an item is allocated pursuant to the definitions of segment revenue, segment expense,
    segment assets, and segment liabilities in this Statement.

    15. Examples of segment assets include current assets that are used in the operating activities of the segment and tangible and intangible fixed assets. If a particular item of depreciation or amortisation is included in segment expense, 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 by two or more segments if a reasonable basis for allocation exists. Segment assets include goodwill that is directly attributable to a segment or that can be allocated to a segment on a reasonable basis, and segment expense includes related amortisation of goodwill. If segment assets have been revalued subsequent to acquisition, then the measurement of segment assets reflects those revaluations.


    16. Examples of segment liabilities include trade and other payables, accrued liabilities, customer advances, productwarranty provisions, and other claims relating to the provision of goods and services. Segment liabilities do not include borrowings and other liabilities that are incurred for financing rather than operating purposes. The liabilities of segments whose operations are
    not primarily of a financial nature do not include borrowings and similar liabilities because segment result represents an operating, rather than a netof- financing, profit or loss. Further, because debt is often issued at the headoffice level on an enterprise-wide basis, it is often not possible to directly
    attribute, or reasonably allocate, the interest-bearing liabilities to segments.

    17. Segment revenue, segment expense, segment assets and segment liabilities are determined before intra-enterprise balances and intra-enterprise transactions are eliminated as part of the process of preparation of enterprise financial statements, except to the extent that such intra-enterprise balances and transactions are within a single segment.


    18. While the accounting policies used in preparing and presenting the financial statements of the enterprise as a whole 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 basis for allocating revenues and expenses to segments.

  6. #6
    Accounting Standards
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    Default Primary and Secondary Segment Reporting Formats of Accounting Standard 17 - Segment Reporting - AS 17

    Identifying Repor table Segments Accounting Standard 17 - Segment Reporting - AS 17


    Primary and Secondary Segment Reporting Formats

    19. The dominant source and nature of risks and returns of an enterprise should govern whether its primary segment reporting format will be business segments or geographical segments. If the risks and returns of an enterprise are affected predominantly by differences in the products and services it produces, its primary format for reporting segment information should be business segments, with secondary information reported geographically. Similarly, if the risks and returns of the enterprise
    are affected predominantly by the fact that it operates in different countries or other geographical areas, its primary format for reporting segment information should be geographical segments, with secondary information reported for groups of related products and services.


    20. Internal organisation and management structure of an enterprise and its system of internal financial reporting to the board of directors and the chief executive officer should normally be the basis for identifying the predominant source and nature of risks and differing rates of return
    facing the enterprise and, therefore, for determining which reporting format is primary and which is secondary, except as provided in subparagraphs (a) and (b) below:

    (a) if risks and returns of an enterprise are strongly affected both by differences in the products and services it produces and by differences in the geographical areas in which it operates, as evidenced by a ‘matrix approach’ to managing the company and to reporting internally to the board of
    directors and the chief executive officer, then the enterprise should use business segments as its primary segment reporting format and geographical segments as its secondary reporting format; and


    (b) if internal organisational and management structure of an enterprise and its system of internal financial reporting to the board of directors and the chief executive officer are based 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 whether the risks and returns of the enterprise are related more to the products and services it produces or to the geographical areas
    in which it operates and should, accordingly, choose business segments or geographical segments as the primary segment reporting format of the enterprise, with the other as its secondary reporting format.

    21. For most enterprises, the predominant source of risks and returns determines how the enterprise is organised and managed. Organisational andmanagement structure of an enterprise and its internal financial reporting system normally provide the best evidence of the predominant source of risks and returns of the enterprise for the purpose of its segment reporting. Therefore, except in rare circumstances, an enterprise will report segment information in its financial statements on the same basis as it reports internally to top management. Its predominant source of risks and returns becomes its primary segment reporting format. Its secondary source of risks and returns becomes its secondary segment reporting format.

    22. A ‘matrix presentation’ — both business segments and geographical segments as primary segment reportingformatswith full segmentdisclosures on each basis -- will often provide useful information if risks and returns of an enterprise are strongly affected both by differences in the products and services it produces and by differences in the geographical areas in which it
    operates. This Statement does not require, but does not prohibit, a ‘matrix presentation’.


    23. In some cases, organisation and internal reporting of an enterprise may have developed along lines unrelated to both the types of products and services it produces, and the geographical areas in which it operates. In such cases, the internally reported segment data will not meet the objective of this Statement. Accordingly, paragraph 20(b) requires the directors and management of the enterprise to determine whether the risks and returns of the enterprise are more product/service driven or geographically driven and to accordingly choose business segments or geographical segments as the primary basis of segment reporting. The objective is to achieve a reasonable
    degree of comparabilitywith other enterprises, enhance understandability of the resulting information, and meet the needs of investors, creditors, and others for information about product /service-related and geographically related risks and returns.

  7. #7
    Accounting Standards
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    Default Business and Geographical Segments of Accounting Standard 17 - Segment Reporting - AS 17

    Business and Geographical Segments of Accounting Standard 17 - Segment Reporting - AS 17


    24. Business and geographical segments of an enterprise for external reporting purposes should be those organisational units for which information is reported to the board of directors and to the chief executive officer for the purpose of evaluating the unit’s performance and for making decisions about future allocations of resources, except as provided in paragraph 25.


    25. If internal organisational and management structure of an enterprise and its system of internal financial reporting to the board of directors and the chief executive officer are based neither on individual products or services or groups of related products/services nor on geographical areas, paragraph 20(b) requires that the directors and management of the enterprise should choose either business segments or geographical segments as the primary segment reporting format of the enterprise based on their assessment of which reflects the primary source of the risks and returns of the enterprise, with the other as its secondary reporting format. In that case, the directors and management of the enterprise should determine its business segments and geographical segments for external reporting purposes based on the factors in the definitions in paragraph 5 of this Statement, rather than on the basis of its system of internal financial reporting to the board of
    directors and chief executive officer, consistent with the following:

    (a) if one or more of the segments reported internally to the directors and management is a business segment or a geographical segment based on the factors in the definitions in paragraph 5 but others are not, sub-paragraph (b) below should be applied only to those internal segments that do not
    meet the definitions in paragraph 5 (that is, an internally reported segment that meets the definition should not be further segmented);


    (b) for those segments reported internally to the directors and management that do not satisfy the definitions in paragraph 5, management of the enterprise should look to the next lower level of internal segmentation that reports information along product and service lines or geographical lines, as appropriate under the definitions in paragraph 5; and

    (c) if such an internally reported lower-level segment meets the definition of business segment or geographical segment based on the factors in paragraph 5, the criteria in paragraph 27 for identifying reportable segments should be applied to that segment.

    26. Under this Statement, most enterprises will identify their business and geographical segments as the organisational units for which information is reported to the board of the directors (particularly the non-executive directors, if any) and to the chief executive officer (the senior operating decisionmaker, which in some cases may be a group of several people) for the purpose of evaluating each unit’s performance and for making decisions about future allocations of resources. Even if an enterprise must apply paragraph 25 because its internal segments are not along product/service or geographical lines, itwill consider the next lower level of internal segmentation that reports information along product and service lines or geographical lines rather than construct segments solely for external reporting purposes. This approach of looking to organisational and management structure of an enterprise and its internal financial reporting systemto identify the business and geographical segments of the enterprise for external reporting purposes is sometimes called the ‘management approach’, and the organisational components for which information is reported internallyare sometimes called ‘operatingsegments’.

  8. #8
    Accounting Standards
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    Default Reportable Segments of Accounting Standard 17 - Segment Reporting - AS 17

    Reportable Segments of Accounting Standard 17 - Segment Reporting - AS 17


    27. A business segment or geographical segment should be identified as a reportable segment if:

    (a) its revenue from sales to external customers and from transactions with other segments is 10 per cent or more of the total revenue, external and internal, of all segments; or


    (b) its segment result, whether profit or loss, is 10 per cent or more of -


    (i) the combined result of all segments in profit, or

    (ii) the combined result of all segments in loss, whichever is greater in absolute amount; or


    (c) its segment assets are 10 per cent or more of the total assets of all segments.


    28. A business segment or a geographical segment which is not a reportable segment as per paragraph 27, may be designated as a reportable segment despite its size at the discretion of the management of the enterprise. If that segment is not designated as a reportable segment, it should be included as an unallocated reconciling item.

    29. If total external revenue attributable to reportable segments constitutes less than 75 per cent of the total enterprise revenue, additional segments should be identified as reportable segments, ven if they do not meet the 10 per cent thresholds in paragraph 27, until at least 75 per cent of total enterprise revenue is included in reportable segments.

    30. The 10 per cent thresholds in this Statement are not intended to be a guide for determining materiality for any aspect of financial reporting other than identifying reportable business and geographical segments.

    Appendix II to this Statement presents an illustration of the determination of reportable segments as per paragraphs 27-29.

    31. A segment identified as a reportable segment in the immediately preceding period because it satisfied the relevant 10 per cent thresholds should continue to be a reportable segment for the current period notwithstanding that its revenue, result, and assets all no longer meet the 10 per cent thresholds.

    32. If a segment is identified as a reportable segment in the current period because it satisfies the relevant 10 per cent thresholds, precedingperiod segment data that is presented for comparative purposes should, unless it is impracticable to do so, be restated to reflect the newly reportable segment as a separate segment, even if that segment did not satisfy the 10 per cent thresholds in the preceding period.

  9. #9
    Accounting Standards
    Guest

    Default Segment Accounting Policies of Accounting Standard 17 - Segment Reporting - AS 17

    Segment Accounting Policies of Accounting Standard 17 - Segment Reporting - AS 17


    33. Segment information should be prepared in conformity with the accounting policies adopted for preparing and presenting the financial statements of the enterprise as a whole.


    34. There is a presumption that the accounting policies that the directors andmanagement of an enterprise have chosen to use in preparing the financial statements of the enterprise as a whole are those that the directors and management believe are the most appropriate for external reporting
    purposes. Since the purpose of segment information is to help users of financial statements better understand and make more informed judgements about the enterprise as a whole, this Statement requires the use, in preparing segment information, of the accounting policies adopted for preparing and presenting the financial statements of the enterprise as a whole. That does not mean, however, that the enterprise accounting policies are to be applied to reportable segments as if the segments were separate stand-alone reporting entities.Adetailed calculation done in applying a particular accounting policy at the enterprise-wide level may be allocated to segments if there is a reasonable basis for doing so. Pension calculations, for example, often are done for an enterprise as a whole, but the enterprise-wide figures may be allocated to segments based on salary and demographic data for the segments.

    35. This Statement does not prohibit the disclosure of additional segment information that is prepared on a basis other than the accounting policies adopted for the enterprise financial statements provided that (a) the information is reported internally to the board of directors and the chief executive officer for purposes ofmakingdecisions about allocatingresources to the segment and assessing its performance and (b) the basis of measurement for this additional information is clearly described.

    36. Assets and liabilities that relate jointly to two or more segments should be allocated to segments if, and only if, their related revenues and expenses also are allocated to those segments.

    37. The way in which asset, liability, revenue, and expense items are allocated to segments depends on such factors as the nature of those items, the activities conducted by the segment, and the relative autonomy of that segment. It is not possible or appropriate to specify a single basis of allocation that should be adopted by all enterprises; nor is it appropriate to force allocation of enterprise asset, liability, revenue, and expense items that relate jointly to two or more segments, if the only basis for making those allocations is arbitrary. At the same time, the definitions of segment revenue, segment expense, segment assets, and segment liabilities are interrelated, and the resulting allocations should be consistent. Therefore, jointly used assets and liabilities are allocated to segments if, and only if, their related revenues and expenses also are allocated to those segments. For example, an asset is included in segment assets if, and only if, the related depreciation or amortisation is included in segment expense.

  10. #10
    Accounting Standards
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    Default Disclosure of Accounting Standard 17 - Segment Reporting - AS 17

    Disclosure of Accounting Standard 17 - Segment Reporting - AS 17


    38. Paragraphs 39-46 specify the disclosures required for reportable segments for primary segment reporting format of an enterprise. Paragraphs 47-51 identify the disclosures required for secondary reporting format of an enterprise. Enterprises are encouraged to make all of the primary-segment
    disclosures identified in paragraphs 39-46 for each reportable secondary segment although paragraphs 47-51 require considerably less disclosure on the secondary basis. Paragraphs 53-59 address several other segment disclosure matters. Appendix III to this Statement illustrates the application of these disclosure standards.

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