COMPENDIUM OF

COST ACCOUNTING STANDARDS

COST ACCOUNTING STANDARDS BOARD

ICMAI
THE INSTITUTE OF
COST ACCOUNTANTS OF INDIA
(Statutory Body under an Act of Parliament)
www.icmai.in
Headquarters:
CMA Bhawan
12, Sudder Street
Kolkata-700 016

Delhi Ofce:
CMA Bhawan
3, Institutional Area, Lodhi Road
New Delhi-110 003

Behind every successful business decision, there is always a CMA

 Cost Accounting Standards Board

COMPENDIUM OF
COST ACCOUNTING STANDARDS (CASs)
ISSUED BY THE CASB OF ICMAI

Cost Accounting Standards Board

The Institute of Cost Accountants of India
(Statutory body under an Act of Parliament)
HQ: CMA Bhawan, 12, Sudder Street, Kolkata-700 016
Delhi Office: CMA Bhawan, 3, Institutional Area, Lodhi Road, New Delhi-110 003

April, 2024

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 Cost Accounting Standards Board

© The Institute of Cost Accountants of India

All rights reserved. No part of this publication shall be reproduced, stored in a retrieval
system, or transmitted, in any form, or by any means, electronic, mechanical, photocopying,
recording, or otherwise without prior permission, in writing, from the publisher.

Version: 1.0

Edition: April 2024

Committee: Cost Accounting Standards Board

E-mail : [email protected]

Website : www.icmai.in

Published By:
The President, The Institute of Cost Accountants of India,
CMA Bhawan, 12, Sudder Street, Kolkata- 700016

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 Cost Accounting Standards Board

Mandatory application of Cost Accounting Standards

Statement showing date of mandatory application of Cost Accounting Standards issued by Council of
the Institute of Cost Accountants of India is as follows:

CAS No. Title Effective Date

(for the period
commencing from)
CAS 1 (Revised 2015) Classification of Cost 1st April 2015
CAS 2 (Revised 2024) Capacity Determination 1st April 2024
CAS 3 (Revised 2015) Production and Operation Overheads 1st April 2016
Cost of Production / Acquisition / Supply of
CAS 4 (Revised 2018) 1st March 2019
Goods / Provision of Services
CAS 5 Average (Equalized) Cost of Transportation 1st April 2010
CAS 6 Material Cost 1st April 2017
CAS 7 Employee Cost 1st April 2017
CAS 8 Cost of Utilities 1st April 2017
CAS 9 Packing Material Cost 1st April 2017
CAS 10 Direct Expenses 1st April 2017
CAS 11 Administrative Overheads 1st April 2017
CAS 12 Repairs and Maintenance Cost 1st April 2017
CAS 13 Cost of Service Cost Centre 1st April 2017
CAS 14 Pollution Control Cost 1st April 2017
CAS 15 Selling and Distribution Overheads 1st April 2013
CAS 16 Depreciation and Amortisation 1st April 2017
CAS 17 Interest and Financing Charges 1st April 2017
CAS 18 Research and Development Costs 1st April 2014
CAS 19 Joint Costs 1st April 2014
CAS 20 Royalty and Technical Know-How Fee 1st April 2017
CAS 21 Quality Control 1st April 2017
CAS 22 Manufacturing Cost 1st April 2017
CAS 23 Overburden Removal Cost 1st April 2017
CAS 24 Treatment of Revenue in Cost Statements 1st April 2017

In view of the Council Resolutions passed on different dates, the Cost Accounting Standards are
mandatory with effect from the period as mentioned above for being applied for preparation and
certification of the General Purpose Cost Statements. In case the cost accountant is of the opinion that
aforesaid standards have not been complied with for preparation of Cost Statements, it shall be his
duty to make a suitable disclosure / qualification in his audit report / certificate.

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Index of Contents

Sl. Cost Accounting Standard Page

1 Classification of Cost 5 – 14
2 Capacity Determination 15 – 18
3 Production and Operation Overheads 19 – 24
Cost of Production / Acquisition / Supply of Goods /
4 25 – 48
Provision of Services
5 Average (Equalized) Cost of Transportation 49 – 61
6 Material Cost 61 – 68
7 Employee Cost 68 – 74
8 Cost of Utilities 75 – 80
9 Packing Material Cost 81 – 88
10 Direct Expenses 89 – 93
11 Administrative Overheads 94 – 98
12 Repairs and Maintenance Cost 99 – 105
13 Cost of Service Cost Centre 106 – 111
14 Pollution Control Cost 112 – 119
15 Selling and Distribution Overheads 119 – 123
16 Depreciation and Amortisation 124 – 129
17 Interest and Financing Charges 130 – 134
18 Research and Development Costs 135 – 139
19 Joint Costs 140 – 143
20 Royalty and Technical Know-How Fee 144 – 147
21 Quality Control 148 – 152
22 Manufacturing Cost 153 – 164
23 Overburden Removal Cost 165 – 170
24 Treatment of Revenue in Cost Statements 171 – 176

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(CAS – 1)
COST ACCOUNTING STANDARD ON “CLASSIFICATION OF COST”

The following is the COST ACCOUNTING STANDARD - 1 (CAS - 1) issued by the Council of the
Institute of Cost Accountants of India for determination of “CLASSIFICATION OF COST”. In
this Standard, the standard portions have been set in bold italic type. This standard should be
read in the context of the background material which has been set in normal type.

1. Introduction

This standard deals with the principles of Classification of Cost for determining the cost of a
product or service.

2. Objective

The objective of this standard is to bring uniformity and consistency in the principles of
Classification of Cost for disclosure and presentation in the cost statements of a
product or service.

3. Scope

This standard shall be applied to cost statements, which require

classification, presentation and disclosure of cost including those requiring
attestation.

4. Definitions

The following terms are being used in this standard with the meaning specified.

4.1 Abnormal Cost: An unusual or atypical cost whose occurrence is usually irregular
and unexpected and / or due to some abnormal situation of the production or
operation.

4.2 Administrative Overheads: Cost of all activities relating to general management and
administration of an entity.

Administrative overheads shall exclude production overheads, marketing overheads and

interest and finance charges. Administrative overheads do not include administration
cost relating to production, factory, works or manufacturing.

4.3 Classification of cost: Classification of cost is the arrangement of items of costs in

logical groups having regard to their nature (subjective classification) and purpose
(objective classification).

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4.4 Conversion cost: Conversion cost is the production cost excluding the cost of direct
materials.

4.5 Cost: Cost is a measurement, in monetary terms, of the amount of resources used for
the purpose of production of goods or rendering services.

Manufacturing of goods or rendering services involves consumption of resources. The

type of cost often referred to in the costing system depends on the purpose for which cost
is incurred. For example, material cost is the price of materials consumed for
manufacturing a product or for rendering a service.

4.6 Cost Centre: Any unit of an entity selected with a view to accumulating all cost under
that unit. The unit can be division, department, section, group of plant and
machinery, group of employees or combination of several units.

Cost Centre is the logical unit for accumulation of cost. Cost Centre may be of two types –
personal and impersonal cost centres. Personal cost centre consists of a person or a group
of persons. Cost centres which are not personal cost centres are impersonal cost centres.
Cost centres may also be classified into broad types i.e. Operating Cost Centres and
Support- Service Cost Centres. Operating Cost Centres are those which are in the chain of
operations like machine shop, welding shop, assembly shop, operation theatre, call centre
and so on. Support-service Cost centres are for rendering services to operating cost centre
like power house, maintenance, stores, help desk, transport for call centre staff and so on.

4.7 Cost Object: An activity, contract, cost centre, customer, process, product, project,
service or any other object for which costs are ascertained.

4.8 Cost of Production: Cost of production of a product or a service consists of cost of

materials consumed, direct employee costs, direct expenses, production overheads,
quality control costs, packing costs, research and development costs and
administrative overheads relating to production.

Cost of production of a service means cost of the service rendered. To arrive at cost of
production of goods, including those despatched for captive consumption, adjustment for
stock of work-in-process, finished goods, recoveries for sales of scrap, wastage and the like,
shall be made.

4.9 Cost of Transportation: Cost of Transportation comprises of the cost of freight,

cartage, transit insurance and cost of operating fleet and other incidental charges
whether incurred internally or paid to an outside agency for transportation of goods
but does not include detention and demurrage charges.

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Cost of transportation is classified as inward transportation cost and outward

transportation cost.

4.10 Cost Unit: Cost Unit is a form of measurement of volume of production of a product or
a service. Cost Unit is generally adopted on the basis of convenience and practice in
the industry concerned.

Examples:
• Power - MW
• Cement - MT
• Automobile - Number
• Transportation- Tonne- Kilometre

4.11 Development Cost: Development cost is the cost for application of research findings
or other knowledge to a plan or design for the production of new or substantially
improved materials, devices, products, processes, systems or services before the start
of commercial production or use.

4.12 Direct Employee Cost: Employee costs, which can be attributed to a cost object in an
economically feasible way.

4.13 Direct Expenses: Expenses relating to manufacture of a product or rendering a

service, which can be identified or linked with the cost object other than direct
material cost and direct employee cost.

Examples:
• Royalties charged on production
• Job charges
• Hire charges for use of specific equipment for a specific job
• Software services specifically required for a job

4.14 Direct Materials: Materials, the costs of which can be attributed to a cost object in an
economically feasible way.

4.15 Distribution Overheads: Distribution overheads, also known as distribution costs,

are the costs incurred in handling a product or service from the time it is ready for
despatch or delivery until it reaches the ultimate consumer including the units
receiving the product or service in an inter-unit transfer.

The cost of any non-manufacturing operations such as packing, repacking and labelling at
an intermediate storage location will be part of distribution cost.

Examples:
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• Secondary packing
• Outward transportation cost
• Warehousing cost
• Cost of delivering the products to customers
• Clearing and forwarding charges
• Cost of mending or replacing packing materials at distribution point.

4.16 Employee Cost: Benefits paid or payable for the services rendered by employees
(including temporary, part time and contract employees) of an entity.

Explanation:

1 Contract employees include employees engaged by the employer on contract basis,

either directly or through a contractor but does not include employees of any contractor
engaged in the entity for a contractual job.
2 Compensation paid to employees for the past period on account of any dispute / court
orders in the current period shall form part of employee cost, but not a part of
production cost.
3 Short provisions of prior period employee cost in current period shall form part of the
employee cost in the current period, but not a part of production cost.
4 Employee cost includes payment made in cash or kind.

4.17 Fixed Costs: Fixed costs are costs which do not vary with the change in the volume of
activity. Fixed indirect costs are termed fixed overheads.

4.18 Indirect Employee Cost: Employee cost, which cannot be directly attributed to a
particular cost object.

4.19 Indirect Expenses: Expenses, which cannot be directly attributed to a particular cost
object.

4.20 Indirect Materials: Materials, the costs of which cannot be directly attributed to a
particular cost object.

4.21 Marketing overheads: Marketing Overheads comprise of selling overheads and

distribution overheads.

4.22 Material Cost: The cost of material used for the purpose of production of a product or
rendering a service.

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4.23 Normal capacity: Normal Capacity is the production achieved or achievable on an

average over a number of periods or seasons under normal circumstances taking into
account the loss of capacity resulting from planned maintenance.

The above definition is also applicable for normal capacity in relation to a service being
rendered.

4.24 Overheads: Overheads comprise costs of indirect materials, indirect employees and
indirect expenses.

4.25 Packing Material Cost: The cost of material of any nature used for the purpose of
packing of a product.

Packing material can be classified into primary packing material and secondary packing
material. Primary packing material is essential to hold and preserve the product for its use
by the customer and secondary packing material enables to store, transport, inform the
customer, promote and otherwise make the product marketable.

4.26 Prime cost: Prime cost is the aggregate of direct material cost, direct Employee cost
and direct expenses.

4.27 Production Overheads: Indirect costs involved in the production of a product or in

rendering service.

The terms Production Overheads, Factory Overheads, Works Overheads and Manufacturing
Overheads denote the same meaning. Production overheads include administration costs
relating to production, factory, works or manufacturing.

4.28 Research Cost: Research cost is the cost of original and planned investigation
undertaken with the prospect of gaining new scientific or technical knowledge and
understanding.

4.29 Selling Overheads: Selling overheads are the expenses related to sale of products or
services and include all indirect expenses incurred in selling the products or services.

Selling overheads are also known as selling costs.

4.30 Semi Variable Costs: Semi Variable Costs are the costs that contain both fixed and
variable elements. They partly change with the change in the level of activity.

4.31 Support-Service Cost Centre: The cost centre which primarily provides auxiliary
services across the entity.

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The cost centre which provides services to production, operation or other service cost
centre but not directly engaged in manufacturing process or operation or in rendering a
service is a support-service cost centre. A support-service cost centre renders services to
other cost centre’s/ other units and in some cases to outside parties.

Examples:
• Engineering
• Workshop
• Quality control
• Quality assurance
• Designing
• Laboratory
• Help desk
• Transport for call centre staff

4.32 Standard Cost: A predetermined cost of a product or service based on technical

specifications and efficient operating conditions.

Standard costs are used as scale of reference to compare the actual cost with the standard
cost with a view to determine the variances, if any, and analyse the causes of variances and
take proper measure to control them.

4.33 Variable Costs: Variable costs are the cost which tends to directly vary with the
volume of activity.

Variable indirect costs are termed as variable overheads.

5. Principles of Classification of Costs

5.1 Costs shall be classified by the process of grouping the components of cost under a
common designation on the basis of similarities of nature, attributes or relations. Items
grouped together under common heads shall be further classified according to their
fundamental differences.

It is the process of identification of each item and the systematic placement of like items
together according to their common features. The same costs may appear in several different
classifications depending on the purpose of classification.

Cost is classified normally in terms of managerial objective. Its presentation normally

requires sub-classification. Such sub-classification may be according to nature of the cost
elements, functional lines, areas of responsibility, or some other useful break-up. The
appropriate sub-classification depends upon the uses to be made of the cost report.
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Cost may be classified with reference to the nature of expense, its traceability to a cost object
(direct/ indirect), its relation to functions /activities, its behaviour (fixed, semi-variable or
variable)and its relationship to production process.

5.2 Scheme of classification shall be such that every item of cost is classified.

6. Classification of Costs

6.1 By Nature of expenses

6.1.1 Items of costs differ on the basis of their nature. Costs shall be gathered together in
their natural groupings such as material, employee and expenses. The elements of
cost can be classified in the following three categories :

i) Material
ii) Employee
iii) Expenses

6.1.2 Material Costs are cost of materials used for the purpose of production of a product
or rendering of a service, net of trade discounts, rebates, taxes and duties refundable
that can be quantified with reasonable accuracy.

6.1.3 Employee Costs are consideration, including benefits paid or payable to employees,
permanent or temporary, for the purpose of production of a product or rendering of a
service.

It is the aggregate of all kinds of consideration paid and payable for the services rendered
by employees of an entity (including temporary, part time and contract employees).
Consideration include wages, salaries, and other payments, including benefits, as
applicable.

6.1.4 Expenses are costs other than material cost and employee cost for the purpose of
production of a product or rendering of a service.

Examples :
• Cost of utilities
• Payment for bought out services
• Job processing charges

6.2 By nature of traceability to a cost object

6.2.1 Classification shall be on the basis of method of assigning cost to a cost object. If a
cost can be assigned to a cost object in an economically feasible way, it shall be termed
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as direct to that cost object. A cost that cannot be assigned directly shall be indirect
cost.

6.2.2 Direct Material Costs are the cost of materials which can be assigned to a cost
object in an economically feasible way.

Raw materials consumed for production of a product or rendering of a service which are
identifiable to the product or service form the direct material cost. Direct material cost
includes cost of procurement, freight inward, taxes & duties and insurance directly
attributable to the acquisition of the material. Trade discounts, rebates, duty drawbacks,
refunds of duties/taxes and other similar items are deducted in determining the costs of
direct material.

6.2.3 Direct Employee Cost are employee costs, which can be assigned to a cost object in
an economically feasible way.

Example :
The cost of wages of those workers who are readily identified or linked with a cost centre
or cost object, including the fringe benefits like provident fund contribution, gratuity, ESI,
overtime, incentives, bonus, ex-gratia, leave encashment and wages for holidays and idle
time.

6.2.3 Direct Expenses are expenses, which can be assigned to a cost object.

Examples:
• Expenses for special moulds required in a particular cost centre
• Hiring charges for tools and equipments for a cost centre
• Royalties in connection to a product
• Job processing charges

6.2.4 Indirect Material Costs are cost of materials, which cannot be directly assigned to a
particular cost object in an economically feasible way.

Examples:
• Consumable spares and parts
• Lubricants
• Cost of computer stationary for administrative function

6.2.5 Indirect Employee costs are employee costs, which cannot be directly assigned to a
particular cost object in an economically feasible way.

Examples:
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• Salaries of security staff

• Operating manager’s salary

6.2.6 Indirect Expenses are expenses, which cannot be directly assigned to a particular
cost object in an economically feasible way.

Examples:
• Insurance
• Rates and Taxes

6.3 By function

6.3.1 Costs shall be classified according to major functions viz:

• Production/ Project;
• Administration;
• Selling;
• Distribution;
• Research;
• Development;

6.4 By nature of behaviour

6.4.1 Costs shall be classified based on behaviour in response to the changes in the
activity levels such as, fixed cost, variable cost and semi-variable cost.

6.5 By nature of production or operation process

6.5.1 Costs shall also be classified on the basis of nature of production or operation
process.

6.5.2 Batch Cost shall be the aggregate cost related to a cost unit which consist of a group
of similar articles or services which maintain its identity throughout one or more
stages of production or operation.

6.5.3 Process cost shall be the cost of production or operation process where goods are
produced or services rendered from a sequence of continuous or repetitive
operations or processes during a period.

6.5.4 Operation Cost shall be the cost a specific operation involved in production of goods
or rendering of services.

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6.5.5 Contract cost shall be the cost of a contract agreed upon between the contractee and
the contractor.

6.5.6 Joint costs are the costs of common resources used for producing two or more
products or rendering two or more services simultaneously.

7. Presentation

7.1 The cost items in the cost statement shall be presented on ‘basis of relevant
classification’.

7.2 The classification of cost items shall be followed consistently from period to period.

8. Disclosure

8.1 Any change in classification of cost shall be made only if it is required by law or for
compliance with a Cost Accounting Standard or such change would result in a more
appropriate preparation or presentation of cost statements of an entity.

8.2 Any change in classification of cost which has a material effect on the cost of the
product shall be disclosed in the cost statements. Where the effect of such change is not
ascertainable wholly or partly, the fact shall be indicated in the cost statement.

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CAS – 2 (REVISED 2024)

COST ACCOUNTING STANDARD ON CAPACITY DETERMINATION

The following is the Cost Accounting Standard - 2 (Revised 2024) on “CAPACITY

DETERMINATION” issued by the Council of the Institute of Cost Accountants of India. This
standard replaces CAS-2 (Revised 2015) on Capacity Determination. In this Standard, the
standard portions have been set in bold italic type. These are to be read in the context of the
background material, which has been set in normal type.

1. Introduction
1.1 This standard deals with the principles and methods of determining the capacity of
a facility for producing goods or providing services by an entity.

1.2 This standard deals with the principles and methods of classification and
determination of capacity of an entity for ascertainment of the cost of product or
service, and the presentation and disclosure in cost statements.

2. Objective
The objective of this standard is to bring uniformity and consistency in the principles
and methods of determination of capacity with reasonable accuracy.

3. Scope
This standard shall be applied to the cost statements, including those requiring
attestation, which require determination of capacity for assignment of overheads.
The standard may be applied for determination of capacity for any other purpose.

4. Definitions
The following terms are being used in this standard with the meaning specified.

4.1 Achievable or Practical Capacity: ‘Practical or Achievable Capacity’ is the

maximum productive capacity reduced by the predictable and unavoidable
factors of interruption pertaining to internal causes.
Thus, practical capacity is the installed capacity minus the inevitable interruptions
due to time lost for preventive maintenance, repairs, set ups, normal delays, weekly
off-days and holidays etc. Practical capacity does not consider the external factors
causing reduction in production e.g. lack of orders.
4.2 Actual capacity utilization: Actual capacity utilization is the volume of
production achieved or service provided in a specified period, expressed as a
percentage of installed capacity.

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Volume may be measured in terms of units produced or services provided or

equivalent machine or man hours, as applicable.
Actual capacity utilization is usually expressed as a percentage of installed capacity.
4.3 Bottleneck: refers to an obstruction that hinders or restricts the flow of
workflow processes, thereby constraining capacity of production / rendering of
services within a business.
A process step that becomes a congestion point or a blockage for flow of work; It is
like the neck of the bottle – smaller (in diameter) – that restricts the flow of contents
from the bottle.
For example: a manufacturing plant wherein a particular machine has a lower
processing capacity as compared to the machines before and after it in the
production line. As a result this machine becomes overwhelmed with work, causing
a backlog of items waiting to be processed, slowing down the entire production
process, and potentially delaying the delivery of finished products to customers.
4.4 Excess Capacity Utilization: is the difference between installed capacity and the
actual capacity utilization when actual capacity utilization is more than
installed capacity.
4.5 Idle Capacity: is the difference between installed capacity and the actual
capacity utilization when actual capacity utilization is less than installed
capacity.
4.6 Installed capacity: is the maximum capacity of producing goods or providing
services, according to the manufacturer’s specifications or determined through
an expert study.
4.7 Licenced Capacity: is the capacity of producing goods or providing services for
which licence has been issued by an appropriate authority. Licenced Capacity is
sometimes termed as Allowed or Allotted Capacity.
4.8 Normal Capacity: is the capacity achieved or achievable for goods or services on
an average over a number of periods or seasons under normal circumstances.

5. Determination of Capacity:
5.1 Capacity shall be determined in terms of units of production or services or
equivalent machine or man hours.
5.2 Installed capacity: Installed capacity is usually determined based on:
iv) Technical specifications of facility.
v) Technical evaluation.
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vi) Capacities of individual or interrelated production or operation Centres.

vii) Operational constraints or capacity of critical machines or equipment.
viii) Number of shifts or machine hours or man hours.
a) In case technical specifications of facility are not available, the estimates by
technical experts on capacity under ideal conditions shall be considered for
determination of installed capacity.
b) In case the installed capacity is assessed as per direction of the Government
or regulator it shall be in accordance with the said directives.
c) Bottlenecks are to be given due consideration while determining the
Installed capacity.
5.3 Achievable or Practical Capacity: Achievable or Practical Capacity is determined
after suitable adjustments to the Installed Capacity.
i) Time lost due to scheduled preventive or planned maintenance
ii) Number of shifts or machine hours or man hours.
iii) Holidays and Weekly Offs, normal shut down days, normal idle time,
iv) Normal time lost in batch change over, setup, etc.
v) Loss in efficiency due to ageing of the machines/ equipment
vi) Any other normal Internal Factor
5.4 Reassessment of Installed Capacity: Installed capacity shall be reassessed in
case of any change due to addition, deletion, modification or for any other
reason from the date of such change.
In case the installed capacity is reassessed as per direction of the Government or
regulator it shall be in accordance with the said directives.
5.5 Determination of Normal Capacity: Normal capacity is determined based on the
actual capacity achieved or expected to be achieved over a period of time, or
average of achievable capacity over a period of time. Average of three to five
normal years may be considered for this calculation.
The periods influenced by abnormalities should be excluded for this purpose.
Explanation:
1. In case the same products with different specifications and of different ranges
in terms of size, type, variety, etc. are manufactured, then there is a need to
determine equivalence among them in order to determine the capacity.

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2. In case some intermediate products / components etc. are also produced, the
production thereof should also be considered in determination of capacity,
concept of equivalence may be used.
3. In case some machines are leased out/let out or some machines are taken on
lease, resulting decrease / increase in capacity should also be considered.

6. Presentation
6.1 Cost Statements shall present Installed capacity, normal capacity and actual
production of goods or services provided, in absolute terms.
6.2 Actual Capacity utilization shall be presented as a percentage of installed
capacity.

7. Disclosures
7.1 The cost statements shall disclose the following:
a. Basis for arriving at different types of capacity.
b. Changes in the installed capacity or normal capacity with reason thereof.
c. Capacity enhanced through outsourcing.
d. Capacity outsourced to others.
e. Details of actual production of goods or services provided.
i. Self-Manufactured goods or services provided through in-house facility
ii. Goods Produced or services provided through outsourcing
f. Reasons for low capacity utilization.
g. Abnormal cost due to under-utilization of capacity.

7.2 Disclosures shall be made only where material, significant and quantifiable.

7.3 Disclosures shall be made in the body of the Cost Statement or as a foot note or
as a separate schedule.

8. Effective date
This Cost Accounting Standard shall be effective from the period commencing on or after
1st April 2024 for being applied for the preparation and certification of General Purpose
Cost Accounting Statement.

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(CAS-3)
COST ACCOUNTING STANDARD ON “PRODUCTION AND OPERATION OVERHEADS”

The following is the Cost Accounting Standard on “PRODUCTION AND OPERATION

OVERHEADS” (CAS-3) (Revised 2015) issued by the Council of the Institute of Cost
Accountants of India. This standard replaces CAS-3 (Revised 2011) on Overheads. In this
Standard, the standard portions have been set in bold italic type. This standard shall be read
in the context of the background material, which has been set in normal type.

1. Introduction

1.1 This standard deals with the principles and methods of determining the Production or
Operation Overheads.

1.2 This standard deals with the principles and methods of classification, measurement
and assignment of Production or Operation Overheads, for determination of the cost
of goods produced or services provided and for the presentation and disclosure in
cost statements.

2. Objective

The objective of this standard is to bring uniformity and consistency in the principles
and methods of determining the Production or Operation Overheads with reasonable
accuracy.

3. Scope

This standard shall be applied to cost statements, which require classification,

measurement, assignment, presentation and disclosure of Production or Operation
Overheads including those requiring attestation.

4. Definitions

The following terms are being used in this standard with the meaning specified.

4.1 Abnormal cost: An unusual or atypical cost whose occurrence is usually irregular
and unexpected or due to some abnormal situation of the production or operation.

4.2 Absorption of Production or Operation Overheads: Assigning of Production or

Operation Overheads to cost objects by means of appropriate absorption rate.

Overhead Absorption Rate = Production or Operation Overheads of the Activity divided

by the volume of activity.

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For example the rate obtained by dividing the overheads of a Machine Shop by machine
hours.

4.3 Administrative Overheads: Cost of all activities relating to general management and
administration of an entity.

Administrative overheads shall exclude production overheads, marketing overheads and

finance cost. Production overheads includes administration cost relating to production,
factory, works or manufacturing.

4.4 Cost Centre: Any unit of an entity selected with a view to accumulating all costs
under that unit. The unit can be division, department, section, group of plant and
machinery, group of employees or combination of several units.

A cost centre includes a process, function, activity, location, item of equipment, group of
persons or any other unit in relation to which costs are accumulated.

4.5 Cost Object: An activity, contract, cost centre, customer, process, product, project,
service or any other object for which costs are ascertained.

4.6 Fixed costs: Fixed costs are costs which do not vary with the change in the volume of
activity. Fixed indirect costs are termed fixed overheads.

4.7 Imputed Cost: Notional cost, not involving cash outlay, computed for any purpose.

4.8 Indirect Employee Cost: Employee cost, which cannot be directly attributed to a
particular cost object.

4.9 Indirect Expenses: Expenses, which cannot be directly attributed to a particular cost
object.

4.10 Indirect Material Cost: Material cost that cannot be directly attributed to a
particular cost object.

4.11 Normal capacity: Normal capacity is the volume of production or services achieved
or achievable on an average over a period under normal circumstances taking into
account the reduction in capacity resulting from planned maintenance. 1

4.12 Production or Operation Overheads: Indirect costs involved in the production of a

product or in providing service.

1
In line with paragraph 4.5 of CAS – 2 (Revised 2015)
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The terms Production Overheads, Operation Overheads, Factory Overheads, Works

Overheads and Manufacturing Overheads denote the same meaning and are used
interchangeably.

Production orOperation Overheads include administration cost relating to production,

factory, works or manufacturing and providing of services.

In addition Production orOperation Overheads shall also be classified on the basis of

behaviour such as variable Production or Operation Overheads, semi-variable
Production or Operation Overheads and fixed Production or Operation Overheads.

• Variable Production or Operation Overheads comprise of expenses which vary in

proportion to the change of volume of production or activity or services provided.

• Semi Variable Costs are the costs that contain both fixed and variable elements.
They partly change with the change in the level of activity.

• Fixed overhead are indirect costs which do not vary with the change in the volume
of production or activity or service provided.

4.13 Standard Cost: A predetermined cost of a product or service based on technical

specifications and efficient operating conditions.

Standard costs are used as scale of reference to compare the actual cost with the
standard cost with a view to determine the variances, if any, and analyse the causes of
variances and take proper measure to control them. Standard costs are also used for
estimation.

4.14 Variable costs: Variable costs are the cost which tends to directly vary with the
volume of activity.

5. Principles of Measurement:

5.1 Production or Operation Overheads representing procurement of resources shall be

determined at invoice or agreed price including duties and taxes, and other
expenditure directly attributable thereto net of discounts (other than cash
discounts), taxes and duties refundable or to be credited.

5.2 Production or Operation Overheads other than those referred to in paragraph 5.1
shall be determined on the basis of cost incurred in connection therewith.

In case of machinery spare fabricated internally or a repair job carried out internally, it
will include cost incurred on material, employees and expenses.
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5.3 Any abnormal cost where it is material and quantifiable shall not form part of the
Production or Operation Overheads.

5.4 Production or Operation Overheads shall not include imputed cost.

5.5 Production or Operation Overhead variances attributable to normal reasons shall

be treated as part of Production or Operation Overheads. Overhead variances
attributable to abnormal reasons shall be excluded from Production or Operation
Overheads.

5.6 Any subsidy, Grant, Incentive or amount of similar nature received or receivable
with respect to Production or Operation Overheads shall be reduced for
ascertainment of the cost of the cost object to which such amounts are related.

5.7 Fines, penalties, damages and similar levies paid or payable to statutory authorities
or other third parties shall not form part of the Production or Operation Overheads.

5.8 Credits or recoveries relating to the Production or Operation Overheads, material

and quantifiable, shall be deducted from the total Production or Operation
overheads to arrive at the net Production or Operation Overheads. Where the
recovery exceeds the total Production or Operation Overheads, the balance recovery
shall be treated as other income.

5.9 Any change in the cost accounting principles applied for the measurement of the
Production or Operation Overheads shall be made only if, it is required by law or for
compliance with the requirements of a cost accounting standard, or a change would
result in a more appropriate preparation or presentation of cost statements of an
entity.

6. Assignment

6.1 While assigning Production or Operation Overheads, traceability to a cost object in

an economically feasible manner shall be the guiding principle. The cost which can
be traced directly to a cost object shall be directly assigned.

6.2 Assignment of Production or Operation Overheads to the cost objects shall be based
on either of the following two principles;

i) Cause and Effect - Cause is the process or operation or activity and effect is the
incurrence of cost.

ii) Benefits received – Production Overheads are to be apportioned to the various

cost objects in proportion to the benefits received by them.
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In case of facilities created on a standby or ready to serve basis, the cost shall be
assigned on the basis of expected benefits instead of actual.

6.3 Absorption of Production or Operation Overheads shall be as follows:

6.3.1 The variable Production or Operation Overheads shall be absorbed to products

or services based on actual production.

6.3.2 The fixed Production or Operation Overheads shall be absorbed based on the
normal capacity.

7. Presentation

7.1 Production or Operation Overheads shall be presented as separate cost head.

7.2 If material, element wise and behaviour wise details of the Production or Operation
Overheads shall be presented.

7.3 Any under-absorption or over-absorption of Production or Operation Overheads

shall be presented in the reconciliation statement.

8. Disclosures

8.1 The cost statements shall disclose the following:

1. The basis of assignment of Production or Operation Overheads to the cost

objects.
2. Production or Operation Overheads incurred in foreign exchange.
3. Production or Operation Overheads relating to resources received from or
supplied to related parties 2.
4. Any Subsidy, Grant, Incentive or any amount of similar nature received or
receivable reduced from Production or Operation Overheads.
5. Credits or recoveries relating to the Production or Operation Overheads.
6. Any abnormal cost not forming part of the Production or Operation Overheads.
7. Any unabsorbed Production or Operation Overheads.

8.2 Disclosures shall be made only where material, significant and quantifiable.

8.3 Disclosures shall be made in the body of the Cost Statement or as a foot note or as a
separate schedule.

2
Related party as per the applicable legal requirements relating to the cost statement as on the date of the statement
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8.4 Any change in the cost accounting principles and methods applied for the
measurement and assignment of the Production or Operation Overheads during the
period covered by the cost statement which has a material effect on the Production
or Operation Overheads shall be disclosed. Where the effect of such change is not
ascertainable wholly or partly the fact shall be indicated.

9. Effective date

This Cost Accounting Standard shall be effective from the period commencing on or after
1st April 2016 for being applied for the preparation and certification of General Purpose
Cost Accounting Statement.

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CAS-4 (REVISED 2018)

COST ACCOUNTING STANDARD ON COST OF PRODUCTION / ACQUISITION / SUPPLY OF
GOODS / PROVISION OF SERVICES
The following is the Cost Accounting Standard (CAS-4) (Revised 2018) on “COST OF
PRODUCTION / ACQUISITION / SUPPLY OF GOODS / PROVISION OF SERVICES” issued by
the Council of the Institute of Cost Accountants of India (ICAI). This Standard replaces CAS-4
on Cost of Production for Captive Consumption issued earlier. The CAS-4 (Revised 2018) deals
with the determination of cost of production or acquisition or supply of goods or provision of
services or both. In this Standard, the standard portions have been set in bold italic type.
These should be read in the context of the background material which has been set in normal
type.
1. Introduction
1.1. Cost Accounting Standard 4 (CAS-4) was issued to specify the principles for
determination of cost of production for valuation of goods meant for captive
consumption, as required under the Central Excise Valuation (Determination of Price
of Excisable Goods) Rules 2000. CBEC, vide circular No. 692/8/2003-CX dated 13-2-
2003 had clarified that in case of captive consumption, cost calculation should be as
per CAS-4 only.
1.2. With the introduction of Goods and Services Tax [GST] with effect from July 1, 2017,
the concept of ‘captive consumption’ is no more relevant for computing the tax
incidence. However, the concept of cost of production or manufacture is relevant
under the GST laws where the value of supply of goods or services or both are
determined based on cost.
1.2.1. As per section 15(1) of the CGST Act, where the supplier and the recipient of
the supply are not related and price is the sole consideration for the supply,
the value of supply of goods or services or both shall be the transaction value.
Section 15(4) provides that where the value of the supply of goods or services
or both cannot be determined under sub-section (1), the same shall be
determined in such manner as may be prescribed. These have been
prescribed under Chapter IV of the CGST Rules, 2017.
1.2.2. Rules 27, 28, & 29 of the CGST Rules provide for methodologies for
determination of value of supply under certain situations.
As per Rule 27, where the supply of goods or services is for a consideration
not wholly in money, the value of the supply shall be the open market value of

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such supply; or the sum total of consideration in money and equivalent; or the
value of supply of goods or services or both of like kind and quality.
As per Rule 28, value of the supply of goods or services or both between
distinct or related persons other than where the supply is made through an
agent, shall be the open market value of such supply; or the value of supply of
goods or services of like kind and quality.
Proviso to Rule 28 provides that where goods are intended for further supply
as such by the recipient, the value shall be an amount equivalent to 90% of
the price charged for the supply of goods of like kind and quality by the
recipient to his customer not being a related person.
Where a recipient is eligible for input tax credit, the value declared in the
invoice shall be deemed to be the open market value of the goods or services.
As per Rule 29, value of supply of goods between the principal and his agent
shall be the open market value of the goods being supplied, or at the option of
the supplier, be 90% of the price charged for the supply of goods of like kind
and quality by the recipient to his customer not being a related person, where
the goods are intended for further supply by the said recipient.
1.2.3. Rules 27, 28, & 29, however, further provide that if the value of supply is not
determinable under the said Rules, the same shall be determined by the
application of Rule 30 or Rule 31 in that order.
As per Rule 30, the value shall be one hundred and ten percent of the cost of
production or the cost of acquisition of such goods or the cost of provision of
such services.
Rule 31 specifies residual method for determination of value of supply of
goods or services or both. Where the value of supply of goods or services or
both cannot be determined under Rule 27 to 30, the same shall be determined
using reasonable means consistent with the principles and the general
provisions of section 15 and the provisions of Chapter-IV of CGST Rules.
In the case of supply of services, the supplier may opt directly for Rule 31,
ignoring Rule 30.
1.3. This Standard deals with the principles and methods of classification,
measurement and assignment for the determination of cost of production or
acquisition or supply of goods or provision of services as required under the
provisions of GST Acts/Rules.
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2. Objective
The objective of this Standard is to bring uniformity and consistency in the principles
and methods of determining the cost of production or acquisition or supply of goods
or provision of services as required under the provisions of GST Acts/Rules.
The cost statements prepared based on this Standard will be used for determination of
value of supply of goods or services or both. This Standard and its disclosure requirement
will provide transparency in the valuation of goods and services.
This standard shall further ensure adequate accuracy in computing Transaction Value of
supply for goods or services or both, where the open market value of supply of goods and
services or value of supply of goods or services of like kind and quality are not available or
same is not verifiable.
3. Scope
This standard should be applied to cost statements which require classification,
measurement, assignment, presentation, and disclosure of related costs for
determination of the following under the relevant provisions of GST Acts/Rules.
(i) Determination of cost of production of goods;
(ii) Determination of cost of acquisition of goods;
(iii) Determination of cost of supply of goods;
(iv) Determination of cost of provision/supply of services ; and
(v) Determination of value of supply of goods or services as per open market value
or as per goods or services of like kind and quality.
4. Definitions
The following terms are being used in this standard with the meaning specified.
4.1. Abnormal cost: An unusual or atypical cost whose occurrence is usually
irregular and unexpected and/or due to some abnormal situation of the
production or operation.
4.2. Actual Capacity Utilization: Actual capacity utilization is the volume of
production achieved or services provided in a specified period, expressed as a
percentage of installed capacity.
Volume may be measured in terms of units produced or services provided or
equivalent machine or man hours, as applicable.

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Actual capacity utilization is usually expressed as a percentage of installed capacity.

4.3. Administrative Overheads: Cost of all activities relating to general management
and administration of an entity.
Administrative overheads shall exclude production overheads, marketing overheads
and finance cost. Production overheads include administration cost relating to
production, factory, work or manufacturing.
4.4. Allocation of Overheads: Allocation of overheads is assigning total amount of an
item of cost directly to a cost object.
4.5. Amortization: Amortisation is the systematic allocation of the depreciable
amount of an intangible asset over its useful life.
4.6. Apportionment of Overheads: Distribution of overheads to more than one cost
objects on some equitable basis.
4.7. By-product: Product with relatively low value produced incidentally in the
manufacturing of the product or service.
4.8. Cost: Cost is a measurement, in monetary terms, of the amount of resources used
for the purpose of production of goods or rendering services.
4.9. Cost of Purchase/ Acquisition: The costs of purchase/ acquisition of Goods
comprise the purchase price, import duties and other taxes (net of trade
discounts, rebate, taxes and duties), and transport, handling, storage and other
costs directly attributable to the acquisition of goods and services.
Cost of acquisition of goods or services is conceptually synonymous to cost of
purchase of goods.
4.10. Cost of Production of goods: Cost of production of a product consists of materials
consumed, Direct Wages and Salaries, direct expenses, works overheads, quality
control costs, research and development costs, packing costs, administrative
overheads relating to production.
To arrive at cost of production of goods dispatched for captive consumption,
adjustment for stock of Work-in-progress, finished goods, recoveries for sales of
scrap, wastages etc. shall be made.
The terms Cost of Production or Cost of Manufacturing or Cost or Processing denote
the same meaning and are used interchangeably.
4.11. Cost of Provision of Service: Cost of provision of services consists of cost of

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materials consumed, direct employee costs, direct expenses, quality control costs,
research and development costs, operation overheads and administrative
overheads relating to provision of services.
4.12. Defectives: Materials Product or intermediate products that do not meet quality
standards. This may include reworks or rejects.
An intermediate product is a product that might require further processing before it
is saleable to the ultimate consumer.
4.12.1. Reworks: Defectives which can be brought up to the standards by putting
in additional resources.
Rework includes repairs, reconditioning, retro-fitment and refurbishing.
4.12.2. Rejects: Defectives which cannot meet the quality standards even after
putting in additional resources.
Rejects may be disposed off as waste or sold for salvage value or recycled in
the production process.
4.13. Depreciation: Depreciation is the systematic allocation of the depreciable
amount of an asset over its useful life.
4.13.1 Depreciable amount: The cost of an asset, or other amount substituted
for cost in the financial statement, less its residual value.
4.13.2 Depreciable property, plant and equipment are tangible assets that:
(a) are held for use in the production of goods or supply of services, for
rental to other, for administrative, selling or distribution purposes; and
(b) are expected to be used during more than one accounting period.
Land is not a depreciable asset as it does not have a defined useful life.
4.13.3 Useful life of asset: Useful life of asset is either:
(a) the period over which a asset is expected to be available for use by
an entity: or
(b) the number of production or similar units expected to be obtained
from use of the asset by the entity.
4.14. Development Cost: Development cost Development cost is the cost for application
of research findings or other knowledge to a plan or design for the production of
new or substantially improved materials, devices, products, processes, systems

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or services before the start of commercial production or use.

4.15. Direct Expenses: Expenses relating to manufacture of a product or rendering a
service, which can be identified or linked with the cost object other than direct
material cost and direct employee cost.
4.16. Employee Cost: Employee Benefits paid or payable in all forms of consideration
given for the service rendered by employees (including temporary, part time and
contract employees) of an entity.
Explanation:
1. Contract employees include employees directly engaged by the employer on
contract basis but does not include employees of any contractor engaged in the
organisation.
2. Compensation paid to employees for the past period on account of any dispute /
court orders shall not form part of Employee Cost.
3. Short provisions of prior period made up in current period shall not form part of
the employee cost in the current period. Employee cost includes payment made
in cash or kind.
4.16.1. Direct Employee Cost: Employee cost, which can be attributed to a Cost
object in an economically feasible way.
4.16.2. Indirect Employee Cost: Employee cost, which cannot be directly
attributed to a particular cost object.
4.17. Excess Capacity Utilization: Excess capacity utilization is the difference between
installed capacity and the actual capacity utilization when actual capacity
utilization is more than installed capacity.
4.18. Idle Capacity: Idle capacity is the difference between installed capacity and the
actual capacity utilization when actual capacity utilization is less than installed
capacity.
4.18.1. Abnormal Idle Capacity: Abnormal idle capacity is the difference
between normal capacity and actual capacity utilization where the
actual capacity is lower than the normal capacity.
4.18.2. Normal Idle Capacity: Normal idle capacity is the difference between
installed capacity and normal capacity.
4.19. Installed Capacity: Installed capacity is the maximum capacity of producing
goods or providing services, according to the manufacturer’s specifications or
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determined through an expert study.

4.20. Interest and Finance Costs: Interest and Financing Charges are interest and
other costs incurred by an entity in connection with the arrangements.
Examples are:
1. Interest and commitments charges on bank borrowings, other short term and
long term borrowings:
2. Financing charges in respect of finance leases and other similar arrangements:
and
3. Exchange difference arising out from foreign currency borrowings to the extent
they are regarded as an adjustment to the interest costs.
The terms interest and financing charges, finance costs and borrowing costs are used
interchangeably.
4.21. Joint Costs: Joint costs are the cost of common resources used to produce two or
more products or services simultaneously.
4.22. Joint Product: Products or services that are produced simultaneously, by the
same process, identifiable at the end of the process and recognised as main
products or services having sufficient value.
4.23. Material Consumed: Material Consumed includes materials directly identified for
production of goods or provision of Services such as:
(a) Indigenous materials;
(b) Imported materials;
(c) Bought out items;
(d) Self-manufactured items;
(e) Process materials and other items;
(f) Materials received free of cost or at concessional value from the buyer;
(g) Accessories which are supplied along with the final product.
Cost of material consumed consists of cost of material, freight inwards, insurance
and other expenditure directly attributable to procurement and goods used for
providing free warranty. (Net off duties and taxes, Trade discount, rebates, subsidies
and other similar items)
4.24. Materials Cost: The cost of material used for the purpose of production of a
product or rendering a service.
4.24.1. Direct Materials: Materials, the costs of which can be attributed to a cost

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object in an economically feasible way.

4.24.2. Indirect Materials: Materials, the costs of which cannot be directly
attributed to a particular cost object.
4.25. Normal Capacity: Normal Capacity is the production achieved or achievable on
an average over a numbers of period or season under normal circumstances
taking into account the loss of capacity resulting from planned maintenance.
4.26. Overheads: Overheads comprise costs of indirect materials, indirect employees
and indirect expenses.
4.27. Packing Materials: Materials used to hold, identify, describe, store, protect,
display, transport, promote and make the product marketable.
4.28. Packing Material Cost: The cost of material of any nature used for the purpose of
packing of product.
4.29. Production or Operation Overheads: Indirect costs involved in the production of
a product or in providing service.
The terms Production Overheads, Operation Overheads, Factory Overheads, Works
Overheads and Manufacturing Overheads denotes the same meaning and are used
interchangeably.
Production or Operation Overheads shall include administration cost relating to
production, factory, works or manufacturing and providing of services.
In addition, Production or Operation Overheads shall be classified on the basis of
behaviour such as variable Production or Operation Overheads, semi-variable
Production or Operation Overheads and fixed Production or Operation Overheads.
• Variable Production or Operation Overheads comprise of expenses which
vary in proportion to the change of volume of production or activity or
services provided.
• Semi-variable Costs are the costs that contain both fixed and variable
elements. They partly change with the change in the level of activity.
• Fixed Overheads are the costs which do not vary with the change in volume of
production or activity or service provided.
4.30. Quality Control Cost: Cost of resources consumed towards quality control
procedures.
4.31. Repairs & Maintenance Cost: Cost of all activities which have the objective of
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maintaining or restoring an asset in or to a state in which it can perform its

required function at intended capacity and efficiency.
4.32. Research cost: Research cost is the cost of original and planned investigation
undertaken with the prospect of gaining new scientific or technical knowledge
and understanding.
4.33. Royalty: Royalty is any consideration for the use of asset (tangible and/or
intangible) to the owner.
4.34. Scrap: Discarded material having no or insignificant value and which is usually
either disposed of without further treatment (other than reclamation and
handling) or reintroduced in place of raw material.
4.35. Selling Overheads: Selling overheads are the expenses related to sale of products
or services and include all indirect expenses incurred in selling the products or
services.
4.36. Standard Cost: A predetermined cost of a product or service based on technical
specifications and efficient operating conditions.
4.37. Support Service Cost Centre: The cost centre which primarily provides auxiliary
services across the entity.
4.38. Technical Know-how Fee: Technical Know-how Fee is a lump sum or periodical
amount payable to provider of Technical Know-how in the form of design,
drawings, training of personnel, or practical knowledge, skills or experience.
4.39. Waste and Spoilage:
4.39.1. Waste: Material lost during production or storage and discarded
material which may or may not have any value.
4.39.2. Spoilage: Production that does not meet the quality requirements or
specification cannot be rectified economically
5. Principles of Measurement
5.1. Cost of production or acquisition of goods or provision of services shall be
measured for each type of goods or services separately.
5.2. Cost of production or acquisition or supply of each type of goods shall be the
aggregate of direct and indirect costs relating to the production or acquisition or
supply activity of those goods.
5.3. Cost of provision of each type of service shall be the aggregate of direct and
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indirect cost relating to that service activity.

5.4. Material cost shall be measured separately for each type of material, that is, for
indigenous material, imported material, bought out components, process
materials, self-manufactured items, and accessories for each type of goods or
services.
5.5. The material cost of normal scrap/defectives which are rejects shall be included
in the material cost of goods produced or services provided. The material cost of
actual scrap/ defectives, not exceeding the normal quantity shall be adjusted in
the material cost of good production. Realized or realizable value of scrap or
waste shall be deducted for determination of cost of production or acquisition of
goods or provision of services. Material Cost of abnormal scrap /defectives
should not be included in material cost but treated as loss after deducting the
realisable value of such scrap / defectives.
5.6. Employee Cost for each type of goods or services shall be measured separately.
5.7. The cost of utilities consumed for the production or acquisition or supply of each
type of goods or provision of services shall be measured for each type of utility
separately i.e. power, electricity, water, steam & gas.
5.8. Cost of packing material used for the production or acquisition or supply of
goods or provision of services shall be measured for each type of goods or
services separately.
If goods are transferred / dispatched or supplied duly packed, the cost of such
packing shall be included in the cost of goods transferred/dispatched or supplied.
5.9. Direct Expenses for the production or acquisition or supply of goods or provision
of services shall be measured for each type of goods or services separately.
5.10. High value spare shall be recognised as property, plant and equipment when
they meet the definition of property, plant and equipment and depreciated
accordingly. Otherwise, such items are classified as inventory and recognised in
cost as and when they are consumed.
5.11. Repairs and maintenance cost for the production or acquisition or supply of
goods or provision of services shall be measured for each type of goods or
services separately.
5.12. Depreciation and Amortisation cost for the production or acquisition or supply
of goods or provision of services shall be measured for each type of goods or

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services separately.
Depreciation of an asset begins when it is available for use, i.e. when it is in the
location and condition necessary for it to be capable of operating in the manner
intended by management.
5.13. Research & Development cost for the production or acquisition or supply of
goods or provision of services shall be measured for each type of goods or
services separately.
5.14. Cost incurred for the production or acquisition or supply of goods or provision of
services after split-off point shall be measured for each type of Joint/By-Product
or service for the resources consumed.
In case the production process generates scrap or waste, realized or realizable value
net of cost of disposal, of such scrap and waste shall be deducted from the cost of
Joint Product.
5.15. Royalty and Technical Know-how Fee for production or acquisition or supply of
goods or provision of services paid or incurred in lump-sum or which are in the
nature of ‘one-time’ payment, shall be amortised on the basis of the estimated
output or benefit to be derived from the related Technical Know-how.
5.16. Royalty paid as a consideration for use of asset or on technology transfer, in any
form, will form part of cost, however royalty paid on brand usage shall not form
part of cost of production.
5.17. Quality Control cost incurred in-house for the production or acquisition or
supply of goods or provision of services shall be the aggregate of the cost of
resources used in the Quality Control activities in relation to each type of goods
or service. The cost of resources procured from outside shall be determined at
invoice or agreed price including duties and taxes, and other expenditure
directly attributable thereto net of discounts, taxes and duties refundable or to
be credited as input tax credit.
5.18. Production or Operation Overheads representing procurement of resources shall
be determined at invoice or agreed price including duties and taxes, and other
expenditure directly attributable thereto net of discounts; taxes and duties
refundable or to be credited as input tax credit. Production or Operation
Overheads other than those referred to above shall be determined on the basis of
cost incurred in connection therewith.
Industry Specific Operating Expenses: In case of process peculiarity of a particular
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industry, it may not be easily practicable to determine element- wise conversion cost
of a product. In such situation, the company may calculate cost center/cost object-
wise conversion cost. It may be summarized under ‘industry specific operating
expenses’, instead of element-wise conversion cost e.g. Textile industry-spinning,
weaving, processing.
5.19. Any abnormal cost, where it is material and quantifiable, shall not form part of
the cost of production or acquisition or supply of goods or provision of service.
5.20. Interest and other Finance costs shall not form part of cost of production or
acquisition of goods or provision of services.
5.21. Impairment loss on assets shall not form part of cost of production or acquisition
or supply of goods or provision of services.
5.22. Imputed costs shall not form part of cost of production or acquisition or supply of
goods or provision of services.
5.23. Cost of production or acquisition or supply of goods or provision of services shall
include cost of inputs received free of cost or at concessional value, net of input
tax credit, from the recipient of goods or services and amortisation cost of free
tools, pattern, dies, drawings, blue prints, technical maps, charts, engineering,
development, art work, design work, plans, sketches, and the like necessary for
the production or acquisition or supply of goods or provision of services.
5.24. Cost of production or acquisition or supply of goods or provision of services shall
also include cost of rework, reconditioning, retro-fitment, production or
operation overheads and other costs allocable to such activity, adjustment for
stock of work-in-process and recoveries from sales of scrap and wastages and
the like necessary for the production or acquisition or supply of goods or
provision of services.
5.25. Subsidy or Grant or Incentive or any such payment received or receivable, from
any entity other than the recipient of goods or service, with respect to any
element of cost shall be deducted for ascertainment of the cost of production or
acquisition or supply of goods or provision of services to which such amounts are
related.
5.26. Any Grants recognized as deferred income in the financial statements shall also
be reduced from the relevant element of cost of production or acquisition or
supply of goods or provision of services.
5.27. The cost of production or acquisition or supply of goods or provision of services
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shall be determined based on the normal capacity or actual capacity utilization

whichever is higher and unabsorbed cost, if any, shall be treated as abnormal
cost.
5.28. Fines, penalties, damages, demurrage and similar levies paid to statutory
authorities or other third parties shall not form part of the cost of production or
acquisition or supply of goods or provision of services.
5.29. The forex component of imported material or other element of cost shall be
converted at the rate on the date of the transaction. Any subsequent change in
the exchange rate till payment or otherwise shall not form part of the cost of
production or acquisition or supply of goods or provision of services.
5.30. Credits or recoveries relating to any element of cost including the facilities
provided to outside parties, which are material and quantifiable, shall be
deducted from the total cost of production or acquisition or supply of goods or
provision of services.
5.31. Work in process/progress stock shall be measured at cost computed for different
stages of completion.
Stock of work-in-process/progress shall be valued at cost on the basis of stages of
completion as per cost accounting principles. Opening and closing stock of work-in-
process/progress shall be adjusted for computation of cost of production or
acquisition of goods or provision of services.
6. Assignment of Cost
6.1. Cost of production or acquisition or supply of goods or provision of services shall
be determined on 'normal cost' basis. For this purpose, any abnormal and non-
recurring costs, abnormally low plant utilization, abnormal rejections, accidents,
strikes, fires, unexpected Court orders etc. shall be ignored.
6.2. While assigning various elements of cost, traceability to goods or services in an
economically feasible manner shall be the guiding principle. The cost which can
be traced directly to each type of goods or services shall be directly assigned.
6.3. Assignment of cost of producing or acquisition or supply of goods or providing
services, which are not directly traceable to the goods or services shall be based
on either of the following two principles;
6.3.1. Cause and Effect – Cause is the process or operation or activity and effect
is the incurrence of cost.

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 Cost Accounting Standards Board

6.3.2. Benefits received – to be apportioned to various cost objects in

proportion to the benefits received by them.
6.4. The variable production or operation overheads shall be absorbed based on
actual production.
6.5. The fixed production or operation overheads and other similar item of fixed costs
such as quality control cost, research and development costs and administrative
overheads relating to manufacturing shall be absorbed in the cost of production
or acquisition or supply of goods or provision of services on the basis of the
normal capacity or actual capacity utilization of the plant or service centre,
whichever is higher.
6.6. In case a production process results in more than one product being produced
simultaneously, treatment of joint products and by-products shall be as under:
6.6.1. In case joint products are produced, joint costs incurred upto the split off
point are allocated between the products on a rational, equitable, and
consistent basis.
Joint cost incurred shall be assigned to the joint products based on
benefits received measured by using the physical unit method or
equivalent cost or net realisable value at split off point. Net realisable
value for this purpose means the net selling price per unit multiplied by
quantity sold, adjusted for the post-split off costs.
6.6.2. In case by-products are produced, the net realisable value of by-products
is credited to the manufacturing cost of the main product.
6.7. In case a process results in more than one service being produced simultaneously,
joint costs incurred upto the split off point are allocated between the services on a
rational, equitable, and consistent basis.
6.8. Miscellaneous Income relating to production or operations shall be adjusted in
the determination of cost of production or acquisition or supply of goods or of cost
of providing a service.
For example, income from sale of empty containers used for procurement of raw
material shall be deducted in determination of manufacturing cost.
7. Presentation
7.1. Cost Statements should be prepared as per the applicable format given in the
Appendix to this Standard or as near thereto as possible, as listed below:
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 Cost Accounting Standards Board

7.1.1. Appendix-1: Statement of Cost of Production of the taxable goods

7.1.2. Appendix-2: Statement of Cost of Provision/Supply of the taxable Services
7.1.3. Appendix-3: Statement of Cost of Acquisition of taxable goods
7.1.4. Appendix-4: Statement of Open Market Value / Value as per Goods or
Services of like kind and quality
7.2. Companies covered under the Companies (Cost Records and Audit) Rules, 2014
issued under section 148 of the Companies Act 2013 shall prepare and present the
cost records and cost statements in compliance with the said Rules, applicable
Cost Accounting Standards, and Generally Accepted Cost Accounting Principles
issued by the Institute.
7.3. Companies not covered under these Rules and all other entities shall prepare and
present the cost records and cost statements in compliance with the applicable
Cost Accounting Standards and Generally Accepted Cost Accounting Principles
issued by the Institute.
7.4. Cost Statements as certified by the Cost Accountant in practice should enable the
business entity to determine value of taxable goods or services at the time of
supply and issue of tax invoice as required under section 31 of the CGST Act.
7.5. In cases where it may not be possible to determine true and fair cost of goods or
services at the time of supply of such goods or services or both, the company
should compute the cost on budgeted/estimated/standard cost basis and the Cost
Accountant may issue provisional Cost certificate on such basis. In such cases,
final certificate shall be issued after costs are finalized. In case of any variations
in the costs and hence the value of goods or services, the supplier shall issue a
Debit or Credit Note as per provisions of section 34 of the CGST Act.
Examples of such cases are – Input costs or prices based on the LME prices; existence
of cost escalation clauses in the supply contract; or where future costs of inputs and
input services are unpredictable, uncertain and volatile, etc.
7.6. Certified Cost Statements shall be presented with the following periodicity:
7.6.1. In case of registered person, whose aggregate turnover in the preceding
financial year did not exceed the limits prescribed in Section 10 (1) of the
CGST Act 2017, the Certified Cost Statement shall be issued for a six month
period. For example costs for April to September shall be certified in
March of the same year.

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7.6.2. In case of registered person, whose aggregate turnover in the preceding

financial year exceeds the limits prescribed in Section 10 (1) of the CGST
Act 2017, Certified Cost Statement shall be issued on quarterly basis e.g.
costs for July to September shall be certified in June of the same year.
7.6.3. Certified Cost Statement shall also be issued for the completed financial
year, annually based on audited accounts on or before 31st December of
the next financial year.
7.7. The cost statements shall be prepared by the Management and authenticated &
signed by any Key Management Personnel in case of company, partner in case of
partnership firm and proprietor in case of proprietary firm.
7.8. The statement shall be certified by a Cost Accountant in practice after the same is
duly authenticated as above. The certificate may contain any qualification or
disclosures as required.
8. Disclosures
8.1. Disclosure shall be made only where material, significant, and quantifiable.
8.2. If there is any change in cost accounting principles and practices during the
period under review which may materially affect the cost of production or
acquisition of goods or provision services in terms of comparability with previous
period(s), the same shall be disclosed.
8.3. If opening stock and closing stock of work-in-progress are not readily available
for certification purpose, the same should be disclosed.
8.4. Any fact which may have material impact on the costs as certified should be
disclosed.
9. Effective date
This Cost Accounting Standard shall be effective from 1st March 2019 and will apply
for preparation and certification of Cost Statements for determining the Cost of
Production / Acquisition / Supply of Goods / Provision of Services as required under
the provisions of GST Act/Rules, from the financial year 2018-19.

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Appendix 1
Statement of Cost of Production of the taxable goods
(refer Rule 30 of the CGST Rules, 2017)
A General Information
1 Name of the Manufacturer
2 Address of the Manufacturer
3 GSTIN of the Manufacturer
4 Description of the Product
5 HSN Code of the Product
6 Period of validity of Cost Statement
B Quantitative Information Unit Quantity
1 Quantity produced
Cost per
C Cost Information Unit Quantity Rate Amount
Unit
1 Cost of Material (Specify)
A.
B.
C.
Others
2 Process Materials/Chemicals
3 Cost of Utilities (specify)
A.
B.
C.....
4 Direct Employee Cost
5 Direct Expenses
6 Consumable Stores and Spares
7 Repairs and Maintenance Cost
8 Quality Control Cost
9 Research & Development Cost
Technical Know-how Fee/Royalty, if
10
any
11 Depreciation/Amortization
12 Other Production Overheads
13 Administrative Overheads relating

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 Cost Accounting Standards Board

to cost of production
Industry specific Operating
14
Expenses
15 Total(1 to 14)
16 Work-in-Progress Adjustments
17 Less Credit for Recoveries, if any
18 Net Amount (15+/-16-17)
19 Packing Cost
Cost of Inputs received free or at
concessional value from or on behalf
20
the recipient of the taxable goods
(net of input tax credit)
Amortised cost of moulds, tools, dies
and patterns, etc. received free of
21
cost from or on behalf of the
recipient of the taxable goods.
22 Cost of Production (18 to 21)
We hereby affirm as follows –
1. We have maintained the cost records as required.
2. The cost statement has been prepared in compliance with the applicable Cost
Accounting Standards and generally accepted cost accounting principles.

Date: Seal & Signature of the Company’s Authorised

Representative
I/We have verified the aforesaid cost data on test check basis with reference to the books of
account, cost accounting records and other records.
Based on the information and explanations given to me/us, and our test checks performed
and on the basis of Cost Accounting Standards and generally accepted cost accounting
principles and practices followed by the Industry, I/we certify that the above cost data
reflects true and fair view of the cost of production or manufacture of the above good.
Date: Seal & Signature of the Cost Accountant
Place: Membership No.: Firm Reg. No.:
Note:
1. Separate Cost Statement(s) shall be prepared for each type of goods.
2. Any other material and significant fact in relation to compilation of the cost
statement (s) should be disclosed by way of Notes.

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Appendix 2
Statement showing Cost of Provision of the taxable Service
(refer Rule 30 of the CGST Rules, 2017)
A General Information
1 Name of the Supplier of service
2 Address of the Supplier of service
3 GSTIN of the Supplier of service
4 Description of the Service
5 Service Code
Period of validity of the Cost
6
Statement
B Quantitative Information (if applicable) Unit Quantity
Quantum of Service Provided
Cost per
Rate Amount
C Cost Information Unit Quantity Unit
(Rs.) (Rs.)
(Rs.)
Materials consumed (specify major
1
items)
A.
B.
C.
Others
2 Utilities (specify)
A.
B.
C..
3 Direct Employee Cost
4 Direct Expenses
5 Consumable Stores and Spares
6 Repairs and Maintenance
7 Quality Control Expenses
8 Research & Development Expenses
9 Technical Know-how Fee/Royalty
10 Depreciation/Amortization
Operation Overheads relating to
11
provision of services
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Administrative Overheads relating

12
to supply of service
Industry specific Operating
13
Expenses
Free supplies received from
recipient or supplied on behalf of
14
recipient, if any (net of input tax
credit)
15 Total (1 to 14)
16 Less Credit for Recoveries, if any
17 Cost of Services Provided (15-16)
We hereby affirm as follows –
1. We have maintained the cost records as required.
2. The cost statement has been prepared in compliance with the applicable Cost Accounting
Standards and generally accepted cost accounting principles.

Date: Seal & Signature of the Company’s Authorised

Representative
I/We have verified the aforesaid cost data on test check basis with reference to the books of
account, cost accounting records and other records.
Based on the information and explanations given to me/us, and our test checks performed and
on the basis of Cost Accounting Standards and generally accepted cost accounting principles and
practices followed by the Industry, I/we certify that the above cost data reflects true and fair
view of the cost of providing the above taxable service.

Date: Seal & Signature of the Cost Accountant

Place: Membership No.: Firm Reg. No.:

Note:
1. Separate Cost Statement(s) shall be prepared for each service.
2. Any other material and significant fact in relation to compilation of the cost statement
(s) should be disclosed by way of Notes

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 Cost Accounting Standards Board

Appendix 3
Statement showing Cost of Acquisition of the taxable Goods
(refer Rule 30 of the CGST Rules, 2017)
A General Information
1 Name of the Acquirer
2 Address of the Acquirer
3 GSTIN of the Acquirer
4 Description of the Product acquired
5 HSN Code of the Product
Period during which the goods were
6
acquired
7 Source by which acquired Indigenous / Imported
B Quantitative Information Unit Quantity
1 Opening Stock of acquired Goods
2 Goods acquired during the period
3 Closing Stock of acquired goods
4 Quantity of acquired goods sold
Cost Information (when acquired Rate Amount Cost per
C Unit Quantity
from Indigenous sources) (Rs) (Rs) Unit (Rs)
Purchase Cost of the Goods
1
acquired
2 Inward Freight
3 Inward Insurance
Packing cost charged by the
4
Supplier
Incidental Expenses charged by the
5
Supplier
Commission charged by the
6
Supplier
Taxes, duties, cesses, fees and
7 charges levied under any law other
than the GST Laws
Interest or late fee or penalty for
8 delayed payment charged by the
Supplier

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 Cost Accounting Standards Board

Less : Subsidy/Grants etc. received

9
from the Government
10 Storage Charges
Administrative Overheads
11
relating to acquisition of goods
L/C Commission and other
12 expenses directly connected with
acquisition of goods
13 Total (1 to 12)
14 Less: Trade Discount or Rebate
given by the Supplier
15 Less: Credit for Recoveries, if any
16 Less: Input Tax Credit availed
17 Cost of Acquisition (13 to 17)
Cost Information (when acquired Rate Amount Cost per
D Unit Quantity
from Foreign sources) (Rs) (Rs) Unit (Rs)
Purchase Cost of the Goods
1
acquired
Inward Ocean/sea Freight from out
2
of India to customs port
3 Maritime Insurance
4 Clearing & Forwarding Charges
5 Inland Inward Freight
6 Inward Insurance within India
Packing cost charged by the
7
Supplier
Incidental Expenses charged by the
8
Supplier
Commission charged by the
9
Supplier
Taxes, duties, cesses, fees and
charges levied under any law other
10
than the GST Laws, where Input
Tax Credit is not available
Interest or late fee or penalty for
11
delayed payment charged by the

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Supplier
Subsidy/Grant etc. paid by person
12
other than Government
13 Storage Charges
Administrative Overheads relating
14
to acquisition of goods
15 L/C Commission Charged
16 Total(1 to 15)
17 Less: Trade Discount or Rebate
given by the Supplier
18 Less: Credit for Recoveries, if any
19 Less: Input Tax Credit availed
20 Cost of Acquisition (16 to 19)
We hereby affirm that we have maintained the cost records as required.
Date: Seal & Signature of the Company’s Authorised Representative

I/We have verified the aforesaid cost data on test check basis with reference to the books of
account, cost accounting records and other records.
Based on the information and explanations given to me/us, and our test checks performed and
on the basis of Cost Accounting Standards and generally accepted cost accounting principles
and practices followed by the Industry, I/we certify that the above cost data reflects true and
fair view of the cost of acquisition of the above taxable good.

Date: Seal & Signature of the Cost Accountant

Place: Membership No.: Firm Reg. No.:

Note:
1. Separate Cost Statement(s) shall be prepared for each goods.
2. Any other material and significant fact in relation to compilation of the cost statement
(s) should be disclosed by way of Notes

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Appendix 4
Statement of Open Market Value / Value as per Goods or Services of like kind and quality
(refer Rules 27 to 29 of the CGST Rules, 2017)
A General Information
1 Name of the Supplier of goods or services or both*
2 Address of the Supplier of goods or services or both*
3 GSTIN of the Supplier of goods or services or both*
4 Description of the Product / Service*
5 HSN Code of the Product / Service Code*
6 Period of validity of the Cost Statement
7 List of Documents Verified
On the basis of aforesaid documents and other details available with us, we hereby affirm
that the open market value / value as per goods or services or both of the like kind and
quality as stated above is Rs.____________.
Date: Seal & Signature of the Company’s Authorised
Representative

I/We have verified the aforesaid documents on test check basis.

Based on the information and explanations given to me/us, and our test checks performed,
I/we certify that the above value reflects true and fair value of the above taxable goods or
services or both.
Date: Seal & Signature of the Cost Accountant
Place: Membership No.: Firm Reg. No.:
Note:
1. Separate Statement(s) shall be prepared for each goods or for each service.
2. Any other material and significant fact in relation to compilation of the cost
statement (s) should be disclosed by way of Notes
*strike off whatever not relevant

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(CAS-5)
COST ACCOUNTING STANDARD
ON DETERMINATION OF AVERAGE (EQUALIZED) COST OF TRANSPORTATION

The following is the text of the Cost Accounting Standard 5 (CAS-5) issued by the Council of
the Institute of Cost & Works Accountants of India on “Determination of Average (Equalized)
Cost of Transportation”. This standard deals with the determination of average
transportation cost of a product. In this standard the standard portions have been set in bold
italic type. These are to be read in the context of the background material which has been set
in the normal type.

1. Introduction:

1.1 The cost accounting principles for tracing/identifying an element of cost, its
allocation/apportionment to a product or service are well established. Transportation
cost is an important element of cost for procurement of materials for production and for
distribution of product for sale. Therefore, Cost Accounting Records should present
transportation cost separately from the other cost of inward materials or cost of sales of
finished goods. The Finance Act 2003 also specifies the certification requirement of
transportation cost for claiming deduction while arriving at the assessable value of
excisable goods cleared for home consumption/ export. There is a need to standardize
the record keeping of expenses relating to transportation and computation of
transportation cost.

2. Objective

2.1 To bring uniformity in the application of principles and methods used in the
determination of averaged/equalized transportation cost.

2.2 To prescribe the system to be followed for maintenance of records for collection of
cost of transportation, its allocation/apportionment to cost centres, locations or
products.

For example, transportation cost needs to be apportioned among excisable, exempted,

non-excisable and other goods for arriving at the average of transportation cost of each
class of goods.

2.3 To provide transparency in the determination of cost of transportation.

3. Scope

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3.1 This standard should be applied for calculation of cost of transportation required
under any statute or regulations or for any other purpose. For example, this standard
can be used for :

(a) determination of average transportation cost for claiming the deduction for
arriving at the assessable value of excisable goods
(b) Insurance claim valuation
(c) Working out claim for freight subsidy under Fertilizer Industry Coordination
Committee
(d) Administered price mechanism of freight cost element
(e) Determination of inward freight costs included or to be included in the cost of
purchases attributable to the acquisition.
(f) Computation of freight included in the value of inventory for accounting on
inventory or valuation of stock hypothecated with Banks / Financial Institution, etc.

4. Definitions

The following terms are used in this standard with the meaning specified:

4.1 Cost of Transportation comprises of the cost of freight, cartage, transit insurance
and cost of operating fleet and other incidental charges whether incurred internally
or paid to an outside agency for transportation of goods but does not include
detention and demurrage charges.

Explanation: Cost of transportation is classified as inward transportation cost and

outward transportation Cost.

4.2 Inward Transportation cost is the transportation expenses incurred in connection

with materials /goods received at factory or place of use or sale/removal.

4.3 Outward Transportation cost is the transportation expenses incurred in connection

with the sale or delivery of materials or goods from factory or depot or any other
place from where goods are sold /removed

4.4 Freight is the charges paid or payable for transporting materials/ goods from one
location to another.

4.5 Cartage is the expenses incurred for movement of goods covering short distance for
further transportation for delivery to customer or storage.

4.6 Transit insurance cost is the amount of premium to be paid to cover the risk of loss
/damage to the goods in transit.

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4.7 Depot is the bounded premises /place managed internally or by an agent, including
consignment agent and C & F agent, franchisee for storing of materials/goods for
further dispatch including the premises of Consignment Agent and C&F Agent for the
purpose .

Depot includes warehouses, go-downs, storage yards, stock yards etc.

4.8 Equalized transportation cost means average transportation cost incurred during a
specified period.

4.9 Equalized freight means average freight.

5. Maintenance of records for ascertaining Transportation Cost

5.1 Proper records shall be maintained for recording the actual cost of transportation
showing each element of cost such as freight, cartage, transit insurance and others
after adjustment for recovery of transportation cost. Abnormal costs relating to
transportation, if any, are to be identified and recorded for exclusion of
computation of average transportation cost.

5.2 In case of a manufacturer having his own transport fleet, proper records shall be
maintained to determine the actual operating cost of vehicles showing details of
various elements of cost, such as salaries and wages of driver, cleaners and others,
cost of fuel, lubricant grease, amortized cost of tyres and battery, repairs and
maintenance, depreciation of the vehicles, distance covered and trips made, goods
hauled and transported to the depot.

5.3 In case of hired transport charges incurred for despatch of goods, complete details
shall be recorded as to date of despatch, type of transport used, description of the
goods, destination of buyer, name of consignee, challan number, quantity of goods
in terms of weight or volume, distance involved, amount paid, etc.

5.4 Records shall be maintained separately for inward and outward transportation
cost specifying the details particulars of goods despatched, name of supplier /
recipient, amount of freight etc.

5.5 Separate records shall be maintained for identification of transportation cost

towards inward movement of material (procurement) and transportation cost of
outward movement of goods removed /sold for both home consumption and
export.

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5.6 Records for transportation cost from factory to depot and thereafter shall be
maintained separately.

5.7 Records for transportation cost for carrying any material / product to job-workers
place and back should be maintained separately so as include the same in the
transaction value of the product.

5.8 Records for transportation cost for goods involved exclusively for trading activities
shall be maintained separately and the same will not be included for claiming any
deduction for for calculating assessable value excisable goods cleared for home
consumption.

5.9 Records of transportation cost directly allocable to a particular category of

products should be maintained separately so that allocation in appendix –3 can be
made.

5.10 For common transportation cost, both for own fleet or hired ones, proper records
for basis of apportionment should be maintained.

5.11 Records for transportation cost for exempted goods, excisable goods cleared for
export shall be maintained separately.

5.12 Separate records of cost for mode of transportation other than road like ship, air
etc are to be maintained in appendix –2 which will be included in total cost of
transportation.

6. Treatment of cost:

6.1 Inward transportation costs shall form the part of the cost of procurement of
materials which are to be identified for proper allocation/ apportionment to the
materials / products.

6.2 Outward transportation cost shall form the part of the cost of sale and shall be
allocated / apportioned to the materials and goods on a suitable basis.

Explanation: Outward transportation cost of a product from factory to depot or any

location of sale shall be included in the cost of sale of the goods available for sale.

6.3 The following basis may be used, in order of priority, for apportionment of outward
transportation cost depending upon the nature of products, unit of measurement
followed and type of transport used :

i) Weight
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 Cost Accounting Standards Board

ii) Volume of goods

iii) Tonne-Km
iv) Unit / Equivalent unit
v) Value of goods
vi) Percentage of usage of space

Once a basis of apportionment is adopted, the same should be followed consistently.

6.4 For determining the transportation cost per unit, distance shall be factored in to
arrive at weighted average cost.

6.5 Abnormal and non -recurring cost shall not be a part of transportation cost.

Explanation: Penalty, detention charges, demurrage and cost related to abnormal break
down will not be included in transportation cost.

7. Cost Sheet

The cost sheets shall be prepared and presented in a form as per Appendices 1,2 and 3 or
as near thereto. Appendix 1 and Appendix 2 show the details of information to be
maintained for compilation of transport cost for own fleet and hired transportation
charges respectively. Appendix 1 is applicable where the organization is having its own
fleet.

The directly allocable cost of own fleet ( outward) shall be identified against different
categories of products as shown in Appendix 3 and same shall be indicated there.
Similarly, total common cost of own fleet ( outward) shall be apportioned to different
categories of products as shown in Appendix 3 on a basis which should be specified. The
basis of apportionment may be adopted depending on the nature of product as indicated
in para 6.3. Similar approach shall also be applied for hired outward transport charges.

More columns may be required to be shown in Appendix 3 specifying different types of

transactions. For example : Sale on specific rate basis, sale of waste, scrap, return from
customer, goods sent for job work, goods received after job work etc.

Unit of Measurement ( UM) may vary depending upon the nature of the product. For
example, Number, MT, Meter, Litre etc.

Proper records shall be maintained to show separately the Transportation Cost relating
to sending of jobs to job contractors/convertors and receipt back of processed
jobs/converted materials.

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 Cost Accounting Standards Board

An enterprise shall be required to maintain cost records and other books of account in a
manner which would facilitate preparation and verification of cost of transportation and
other related charges and its apportioning to various products.

8. Transaction value :

‘Transaction value’ shall have the meaning assigned to it in Section 4 of The Central Excise Act,
1944 or Section 14 of The Customs Act , 1962 or as defined in any other Act or Regulations as
the case may be.

9. The standard will be operative from the date of issue.

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 Cost Accounting Standards Board

Appendix 1

Name of the Manufacturer:

Address of the Manufacturer:

Statement of Operating Cost of own Fleet for the period…….

Sl
No

A QUANTITATIVE INFORMATION

A1 Number of Vehicles

A2 Number of trips

A3 Goods Transported – inward (UM)

A4. Goods transported – outward (UM)

A5. Goods transported – inward – Km

A6. Goods transported – outward – Km

A7. Total Goods transported inward – basis of

apportionment ( Specify)

A8. Total Goods transported outward – basis of

apportionment ( Specify)

A9 Total ( A7+A8)

B COST INFORMATION (Rs)

Cost of Operation

Variable Cost

B1. Salaries & Wages of Drivers, Cleaners and others

B2. Fuel & Lubricants

B3. Consumables

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 Cost Accounting Standards Board

B4. Amortized cost of Tyre, Tube & Battery

B5. Spares

B6. Repair & Maintenance

B7. Other Variable Cost ( specify)

B8. Total Variable Cost ( B1 to B7)

Fixed Cost

B9. Insurance

B10. Licence Fee, Permit Fee and Taxes

B11. Depreciation

B12. Other Fixed Costs ( Specify)

B13. Total Fixed Cost ( B9 to B12)

B14. Total Operating Cost (B8+B13)

C APPORTIONMENT ( Basis to be specified) - usage

C1. Inward Transport Cost ( B14 *A7/ A9)

C2. Outward Transport Cost (B14 *A8/A9)

C3. Transit insurance for inward movement

C4. Transit insurance for outward movement

C5. Total transportation cost for inward movement

(C1+C3)

C6. Total transportation cost for outward movement

(C2+C4)

Note:
1. Cost of Battery, and Tyres and Tubes shall to be amortised over its useful life.
2. Asset Register shall be maintained for determination of depreciation and amortization
cost.
3. Separate Cost Sheet shall be prepared for different types of vehicles.
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 Cost Accounting Standards Board

Appendix 2

Name of the Manufacturer:

Address of the Manufacturer:

Statement of Hired Outward Transportation Cost for the period ending…….

A Quantitative Information

A1 Quantity of goods transported – outward (UM)

B COST INFORMATION ) (Rs)

B1 Hired Transport Charges

B2 Transit Insurance

B3 Other ( specify)

B4 Total Transportation cost ( B1 to B3)

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 Cost Accounting Standards Board

Appendix -3

Name of the Manufacturer:

Address of the Manufacturer:

Statement of apportionment of Outward Transportation Cost to different goods and

Determination of Averaged Outward Transport Cost for the period ending…….

A Quantitati Tot Excisable goods Speci Good Exempt Good Goods Goods Other
ve al fic s ed s cleare cleared s
Informatio clear goods Clear d from from
n Rated ed ed factory Depot (
good for on to to specif
s Expo MRP custo Custo y)
rt Basis mer mer

Produ Prod Prod

ct- uct uct
group
1 group group
2 3

A Goods
transporte
d
Outwards(
UM *)

A Goods
Transporte
d Outward
( KM)

B Outward
Transport
Cost ( Rs)

B Directly
allocated
own fleet
transportat
ion cost
(Rs)

B Basis of
Apportion
ment of
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 Cost Accounting Standards Board

own fleet
cost (
Specify)

B Common
own fleet
transport
cost to be
apportione
d

B Directly
allocated
hired
transportat
ion
charges
(Rs)

B Basis of
Apportion
ment of
hired
transportat
ion cost (
Specify)

B Common
hired
transport
charges to
be
apportione
d

B Total
Transport
Cost

( B1+
B3+B4+B6)

B Averaged
transport
cost per
unit ( Rs)
(B7/A1)

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 Cost Accounting Standards Board

* UM is the Unit of measurement

Seal and signature of Company’s authorized

representative

I /We, have verified above data and calculation in the appendix 1, 2 and 3 on test check basis
with reference to the books of account, cost accounting records and other records. Based on
the information and explanations given to me/us, and on the basis of generally accepted cost
accounting principles and practices followed by the industry, I /We certify that the above cost
data reflect true and fair view of averaged transport cost.

Date : Seal & Signature of

Cost Accountant
Place
: Membership No.

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 Cost Accounting Standards Board

(CAS-6)
COST ACCOUNTING STANDARD ON MATERIAL COST

The following is the COST ACCOUNTING STANDARD 6 (CAS 6) issued by the Council of The
Institute of Cost Accountants of India on “MATERIAL COST”. In this Standard, the standard
portions have been set in bold italic type. This standard should be read in the context of the
background material, which has been set in normal type.

1. Introduction

1.1 This standard deals with principles and methods of determining the Material Cost.

Material for the purpose of this standard includes raw materials, process materials,
additives, manufactured / bought out components, sub-assemblies, accessories, semi
finished goods, consumable stores, spares and other indirect materials. This standard does
not deal with Packing Materials as a separate standard is being issued on the subject.

1.2 This standard deals with the principles and methods of classification, measurement
and assignment of material cost, for determination of the Cost of product or service, and
the presentation and disclosure in cost statements.

1.3 The Standard deals with the following issues.

• Principle of Valuation of receipt of materials.

• Principle of Valuation of issue of materials.
• Assignment of material cost to cost objects.

2. Objective

The objective of this standard is to bring uniformity and consistency in the principles
and methods of determining the material cost with reasonable accuracy.

3. Scope

This standard should be applied to cost statements which require classification,

measurement, assignment, presentation and disclosure of material costs including
those requiring attestation.

4. Definitions

The following terms are being used in this standard with the meaning specified.

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4.1 Abnormal cost: An unusual or atypical cost whose occurrence is usually irregular
and unexpected and/ or due to some abnormal situation of the production or
operation 3.

4.2 Administrative overheads: Cost of all activities relating to general management

and administration of an entity.

4.3 Cost Object: An activity, contract, cost centre, customer, process, product, project,
service or any other object for which costs are ascertained.

4.4 Defectives: Materials, products or intermediate products that do not meet quality
standards. This may include reworks or rejects.

4.4.1 Reworks: Defectives which can be brought up to the standards by putting in

additional resources.

Rework includes repairs, reconditioning and refurbishing.

4.4.2 Rejects: Defectives which cannot meet the quality standards even after
putting in additional resources.

Rejects may be disposed off as waste or sold for salvage value or recycled in the
production process.

4.5 Intermediate Product: An intermediate product is a product that requires further

processing before it is saleable.

4.6 Materials:

4.6.1 Direct Materials: Materials the costs of which can be attributed to a cost
object in an economically feasible way 4.

4.6.2 Indirect Materials: Materials, the costs of which cannot be directly attributed
to a particular cost object 5.

4.7 Material Cost: The cost of material used for the purpose of production of a product or
rendering a service.

4.8 Production overheads: Indirect costs involved in the production of a product or in

rendering service

3 Adapted fromCAS-1 Para 6.5.19

4 Adapted from CAS 1-6.2.3
5
Adapted from CAS 1– 6.2.8
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 Cost Accounting Standards Board

The terms Production Overheads, Factory Overheads, Works Overheads and Manufacturing
Overheads denote the same meaning and are used interchangeably.

4.9 Property, plant and equipment are tangible assets that:

(a) are held for use in the production of goods or supply of services, for rental to
others, for administrative, selling or distribution purposes; and

(b) are expected to be used during more than one accounting period.

4.10 Scrap: Discarded material having no or insignificant value and which is usually
either disposed off without further treatment (other than reclamation and handling) or
reintroduced into the process in place of raw material.

4.11 Standard Cost: A predetermined cost of a product or service based on technical

specifications and efficient operating conditions

The standard cost serves as a basis of cost control and as a measure of productive efficiency
when ultimately posed with an actual cost. It provides management with a medium by which
the effectiveness of current results is measured and responsibility for deviation is placed. 6
Standard costs are used to compare the actual costs with the standard cost with a view to
determine the variances, if any, and analyse the causes of variances and take proper
measure to control them.

4.12 Waste and spoilage:

4.12.1 Waste: Material lost during production or storage and discarded material
which may or may not have any value.

4.12.2 Spoilage: Production that does not meet the quality requirements or
specifications and cannot be rectified economically.

5. Principles of Measurement

5.1. Principle of valuation of receipt of materials:

5.1.1 The material receipt should be valued at purchase price including duties and
taxes, freight inwards, insurance, and other expenditure directly attributable to
procurement (net of trade discounts, rebates, taxes and duties refundable or to be
credited by the taxing authorities) that can be quantified with reasonable
accuracy at the time of acquisition.

6
Adapted from CAS 1_ Para 6.7.5
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Examples of taxes and duties to be deducted from cost are cenvat credits, credit for
countervailing customs duty, sales tax set off/ vat credits and other similar items of
credit recovered/ recoverable.

5.1.2 Finance costs incurred in connection with the acquisition of materials shall
not form part of material cost.

5.1.3 Self manufactured materials shall be valued including direct material cost,
direct employee cost, direct expenses, factory overheads, share of administrative
overheads relating to production but excluding share of other administrative
overheads, finance cost and marketing overheads. In case of captive consumption,
the valuation shall be in accordance with Cost Accounting Standard 4.

5.1.4 Items such as spare parts, stand-by equipment and servicing equipment are
recognised as property, plant and equipment when they meet the definition of
property, plant and equipment and depreciated accordingly. Otherwise, such items
are classified as inventory and recognised in cost as and when these are consumed.

5.1.5 Normal loss or spoilage of material prior to reaching the factory or at places
where the services are provided shall be absorbed in the cost of balance materials
net of amounts recoverable from suppliers, insurers, carriers or recoveries from
disposal.

5.1.6 Losses due to shrinkage or evaporation and gain due to elongation or

absorption of moisture etc., before the material is received shall be absorbed in
material cost to the extent they are normal, with corresponding adjustment in the
quantity.

The adjustment for moisture will depend on whether dry weight is used for
measurement.

5.1.7 The forex component of imported material cost shall be converted at the rate
on the date of the transaction. Any subsequent change in the exchange rate till
payment or otherwise shall not form part of the material cost.

Explanation: The date on which a transaction (whether for goods or services) is

recognised in accounting in conformity with generally accepted accounting principles

5.1.8 Any demurrage or detention charges, or penalty levied by transport or other

authorities shall not form part of the cost of materials.

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5.1.9 Subsidy/Grant/Incentive and any such payment received/receivable with

respect to any material shall be reduced from cost for ascertainment of the cost of
the cost object to which such amounts are related.

5.2. Principle of valuation of issue of material

5.2.1 Issues shall be valued using appropriate assumptions on cost flow.

E.g. First In First Out, Last In First Out, Weighted Average Rate.

The method of valuation shall be followed on a consistent basis.

5.2.2 Where materials are accounted at standard cost, the price variances related
to materials shall be treated as part of material cost.

5.2.3 Any abnormal cost shall be excluded from the material cost.

5.2.4 Wherever, material costs include transportation costs, determination of

costs of transportation shall be governed by CAS 5 – Cost Accounting Standard on
Determination of Average (Equalized) Cost of Transportation.

5.3 Self manufactured components and sub-assemblies shall be valued including direct
material cost, direct employee cost, direct expenses, factory overheads, share of
administrative overheads relating to production but excluding share of other
administrative overheads, finance cost and marketing overheads. In case of captive
consumption, the valuation shall be in accordance with Cost Accounting Standard 4.

5.4 The material cost of normal scrap/ defectives which are rejects shall be included in
the material cost of goods manufactured. The material cost of actual scrap / defectives,
not exceeding the normal shall be adjusted in the material cost of good production.
Material Cost of abnormal scrap /defectives should not be included in material cost but
treated as loss after giving credit to the realisable value of such scrap / defectives.

6. Assignment of costs

The basis of assignment of costs to the cost of product or service is dealt within this section.

6.1 Assignment of costs – Materials

6.1.1 Assignment of material costs to cost objects: Material costs shall be directly
traced to a Cost object to the extent it is economically feasible and /or shall be
assigned to the cost object on the basis of material quantity consumed or similar
identifiable measure and valued as per the principles laid under Paragraph 5.

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6.1.2 Where the material costs are not directly traceable to the cost object,
these may be assigned on a suitable basis like technical estimates.

6.2 Assignment of costs – Direct Expenses

6.2.1 Where a material is processed or part manufactured by a third party

according to specifications provided by the buyer, the processing/ manufacturing
charges payable to the third party shall be treated as part of the material cost.

6.2.2 Wherever part of the manufacturing operations / activity is subcontracted, the

subcontract charges related to materials shall be treated as direct expenses and
assigned directly to the cost object.

6.3 Assignment of costs– Indirect materials

6.3.1 The cost of indirect materials shall be assigned to the various Cost objects
based on a suitable basis such as actual usage or technical norms or a similar
identifiable measure.

6.3.2 The cost of materials like catalysts, dies, tools, moulds, patterns etc, which are
relatable to production over a period of time shall be amortized over the production
units benefited by such cost.

6.3.3 The cost of indirect material with life exceeding one year shall be included in
cost over the useful life of the material.

7. Presentation

Cost Statements governed by this standard, shall present material costs as detailed below:

7.1 Direct Materials shall be classified in the cost statement under suitable heads.

For example
• Raw materials,
• Components,
• Semi finished goods and
• Sub-assemblies

7.2 Direct Materials shall be classified as Purchased - indigenous, imported and self
manufactured.

7.3 Indirect Materials shall be classified in the cost statement under suitable heads.

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Indirect materials may be grouped under major heads like tools, stores and spares,
machinery spares, jigs and fixtures, consumable stores, etc., if they are significant.

8. Disclosures

The following information should be disclosed in the cost statements dealing with
determination of material cost.

8.1 Quantity and rates of major items of materials shall be disclosed. Major items are
defined as those who form 5% of cost of materials.

8.2 The basis of valuation of materials shall be disclosed.

8.3 Any change in the cost accounting principles and methods applied for the
determination of the material cost during the period covered by the cost statement
which has a material effect on the cost of the material shall be disclosed. Where the
effect of such change is not ascertainable wholly or partly, the fact shall be indicated.

8.4 Any abnormal cost excluded from the material cost shall be disclosed.

8.5 Any demurrage or detention charges, penalty levied by transport or other

authorities excluded from the material cost shall be disclosed.

8.6 Any Subsidy/Grant/Incentive or any such payment reduced from material cost shall
be disclosed.

8.7 Cost of Materials procured from related parties 7 shall be disclosed

8.8 Disclosures shall be made only where significant, material and quantifiable.

8.9 Disclosures may be made in the body of the Cost statement or as a footnote or as a
separate schedule.

7
Related party as per the applicable legal requirements relating to the cost statement as on the date of statements
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 Cost Accounting Standards Board

CAS -7
COST ACCOUNTING STANDARD ON EMPLOYEE COST

The following is the COST ACCOUNTING STANDARD 7 (CAS - 7) issued by the Council of The
Institute of Cost Accountants of India on “EMPLOYEE COST”. In this Standard, the standard
portions have been set in bold italic type. This standard should be read in the context of the
background material, which has been set in normal type.

1 Introduction

1.1 This standard deals with the principles and methods of determining the Employee
cost.

1.2 This standard deals with the principles and methods of classification, measurement
and assignment of Employee cost, for determination of the Cost of product or
service, and the presentation and disclosure in cost statements.

2 Objective

The objective of this standard is to bring uniformity and consistency in the principles and
methods of determining the Employee cost with reasonable accuracy.

3 Scope

This standard should be applied to cost statements which require classification,

measurement, assignment, presentation and disclosure of Employee cost including those
requiring attestation.

4 Definitions

The following terms are being used in this standard with the meaning specified.

4.1. Abnormal cost: An unusual or atypical cost whose occurrence is usually

irregular and unexpected and/ or due to some abnormal situation of the
production or operation. 8

4.2. Abnormal Idle time: An unusual or atypical idle time occurrence of which is
irregular and unexpected or due to some abnormal situations.

E.g.: Idle time due to a strike, lockout or an accident

8
Adapted from CAS 1 paragraph 6.5.19
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 Cost Accounting Standards Board

4.3. Administrative overheads: Cost of all activities relating to general management

and administration of an entity.

4.4. Cost Object: An activity, contract, cost centre, customer, process, product,
project, service or any other object for which costs are ascertained.

4.5. Direct Employee Cost: Employee cost, which can be attributed to a Cost object in
an economically feasible way. 9

4.6. Distribution Overheads: Distribution overheads, also known as distribution

costs, are the costs incurred in handling a product or service from the time it is
ready for despatch or delivery until it reaches the ultimate consumer including
the units receiving the product or service in an inter-unit transfer

The cost of any non manufacturing operations such as packing, repacking, labelling,
etc. at an intermediate storage location will be part of distribution cost.

4.7. Employee Cost: Employee Benefits paid or payable in all forms of consideration
given for the service rendered by employees (including temporary, part time
and contract employees) of an entity.

Explanation:

1. Contract employees include employees directly engaged by the employer on

contract basis but does not include employees of any contractor engaged in the
organisation.

2. Compensation paid to employees for the past period on account of any dispute /
court orders shall not form part of Employee Cost.

3. Short provisions of prior period made up in current period shall not form part of
the employee cost in the current period.

Employee cost includes payment made in cash or kind.

For example:
Employee cost
 Salaries, wages, allowances and bonus/ incentives.
 Contribution to provident and other funds.
 Employee welfare
 Other benefits

9
Adapted from CAS 1 paragraph 6.2.4 (Direct labour cost)
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 Cost Accounting Standards Board

Employee cost – Future benefits

 Gratuity.
 Leave encashment.
 Other retirement/separation benefits.
 VRS/ other deferred Employee cost.
 Other future benefits
Benefits generally include
 Paid holidays.
 Leave with pay.
 Statutory provisions for insurance against accident or health scheme.
 Statutory provisions for workman’s compensation.
 Medical benefits to the Employees and dependents.
 Free or subsidised food.
 Free or subsidised housing.
 Free or subsidised education to children.
 Free or subsidised canteen, crèches and recreational facilities.
 Free or subsidised conveyance.
 Leave travel concession.
 Interest Free or subsidised Loans
 Any other free or subsidised facility.
 Cost of Employees’ stock option.

4.8. Idle time: The difference between the time for which employees are paid /payable
to employees and the employees’ time booked against cost objects.

The time for which the employees are paid includes holidays, paid leave and other
allowable time offs such as lunch, tea breaks.

4.9. Imputed Costs: Notional cost, not involving cash outlay, computed for any purpose.

4.10. Indirect Employee Cost: Employee cost, which cannot be directly attributed to a
particular cost object. 10

4.11. Marketing overheads: Marketing overheads comprise of selling overheads and

distribution overheads.

4.12. Overtime Premium: The extra amount payable beyond the normal wages and
salaries for beyond the normal working hours.

10
Adapted from CAS 1 paragraph 6.2.10
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 Cost Accounting Standards Board

4.13. Production Overheads: Indirect costs involved in the production of a product or in

rendering service.

The terms Production Overheads, Factory Overheads, Works Overheads and

Manufacturing Overheads denote the same meaning and are used interchangeably.

4.14. Selling Overheads: Selling overheads are the expenses related to sale of products
or services and include all indirect expenses incurred in selling the products or
services.

4.15. Standard Cost: A predetermined cost of a product or service based on technical

specifications and efficient operating conditions.

Standard costs are used as scale of reference to compare the actual costs with the
standard cost with a view to determine the variances, if any, and analyse the causes of
variances and take proper measure to control them. Standard costs are also used for
estimation.

5 Principles of Measurement

5.1. Employee Cost shall be ascertained taking into account the gross pay including all
allowances payable along with the cost to the employer of all the benefits.

5.2. Bonus whether payable as a Statutory Minimum or on a sharing of surplus shall be

treated as part of employee cost. Ex gratia payable in lieu of or in addition to
Bonus shall also be treated as part of the employee cost.

5.3. Remuneration payable to Managerial Personnel including Executive Directors on

the Board and other officers of a corporate body under a statute will be considered
as part of the Employee Cost of the year under reference whether the whole or part
of the remuneration is computed as a percentage of profits.

Explanation: Remuneration paid to non-executive directors shall not form part of

Employee Cost but shall form part of Administrative Overheads.

5.4. Separation costs related to voluntary retirement, retrenchment, termination etc.

shall be amortised over the period benefitting from such costs.

5.5. Employee cost shall not include imputed costs.

5.6. Cost of Idle time is ascertained by the idle hours multiplied by the hourly rate
applicable to the idle employee or a group of employees.

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 Cost Accounting Standards Board

5.7. Where Employee cost is accounted at standard cost, variances due to normal
reasons related to Employee cost shall be treated as part of Employee cost.
Variances due to abnormal reasons shall be treated as part of abnormal cost.

5.8. Any Subsidy, Grant, Incentive or any such payment received or receivable with
respect to any Employee cost shall be reduced for ascertainment of cost of the cost
object to which such amounts are related.

5.9. Any abnormal cost where it is material and quantifiable shall not form part of the
Employee cost.

5.10. Penalties, damages paid to statutory authorities or other third parties shall not
form part of the Employee cost.

5.11. The cost of free housing, free conveyance and any other similar benefits provided
to an employee shall be determined at the total cost of all resources consumed in
providing such benefits.

5.12. Any recovery from the employee towards any benefit provided e.g. housing shall be
reduced from the employee cost.

5.13. Any change in the cost accounting principles applied for the determination of the
Employee cost should be made only if it is required by law or for compliance with
the requirements of a cost accounting standard or a change would result in a more
appropriate preparation or presentation of cost statements of an enterprise.

6 Assignment of costs

6.1. Where the Employee services are traceable to a cost object, such Employees’ cost
shall be assigned to the cost object on the basis such as time consumed or number
of employees engaged etc or similar identifiable measure.

6.2. While determining whether a particular Employee cost is chargeable to a separate

cost object, the principle of materiality shall be adhered to.

6.3. Where the Employee costs are not directly traceable to the cost object, these may
be assigned on suitable basis like estimates of time based on time study.

6.4. The amortised separation costs related to voluntary retirement, retrenchment,

and termination etc. for the period shall be treated as indirect cost and assigned to
the cost objects in an appropriate manner. However unamortised amount related
to ‘discontinued operations’ shall not be treated as employee cost.

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 Cost Accounting Standards Board

6.5. Recruitment costs, training cost and other such costs shall be treated as overheads
and dealt with accordingly.

6.6. Overtime premium shall be assigned directly to the cost object or treated as
overheads depending on the economic feasibility and the specific circumstance
requiring such overtime.

6.7. Idle time cost shall be assigned direct to the cost object or treated as overheads
depending on the economic feasibility and the specific circumstances causing such
idle time.

Cost of idle time for reasons anticipated like normal lunchtime, holidays etc is normally
loaded in the Employee cost while arriving at the cost per hour of an Employee/a
group of Employees whose time is attributed direct to cost objects.

7 Presentation

7.1. Direct Employee costs shall be presented as a separate cost head in the cost
statement.

7.2. Indirect Employee costs shall be presented in cost statements as a part of

overheads relating to respective functions e.g. manufacturing, administration,
marketing etc.

7.3. The cost statement shall furnish the resources consumed on account of Employee
cost, category wise such as wages salaries to permanent, temporary, part time
and contract employees piece rate payments, overtime payments, Employee
benefits (category wise)etc wherever such items form a material part of the total
Employee cost.

8 Disclosures

8.1. The cost statements shall disclose the following:

1. Employee cost attributable to capital works or jobs in the nature of deferred

revenue expenditure indicating the method followed in determining the cost
of such capital work.

2. Separation costs payable to employees.

3. Any abnormal cost excluded from Employee cost.

4. Penalties and damages paid etc excluded from Employee cost.

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 Cost Accounting Standards Board

5. Any Subsidy, Grant, Incentive and any such payment reduced from Employee
cost

6. The Employee cost paid to related parties 11.

7. Employee cost incurred in foreign exchange.

8.2. Any change in the cost accounting principles and methods applied for the
measurement and assignment of the Employee Cost during the period covered by
the cost statement which has a material effect on the Employee Cost. Where the
effect of such change is not ascertainable wholly or partly the fact shall be
indicated.

8.3. Disclosures shall be made only where material, significant and quantifiable.

8.4. Disclosures shall be made in the body of the Cost Statement or as a foot note or as a
separate schedule.

11
Related party as per the applicable legal requirements relating to the cost statement as on the date of the statement
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 Cost Accounting Standards Board

(CAS-8)
COST ACCOUNTING STANDARD ON COST OF UTILITIES

The following is the COST ACCOUNTING STANDARD – 8 (CAS-8) issued by the Council of The
Institute of Cost Accountants of India on “Cost of Utilities”. In this Standard, the standard
portions have been set in bold italic type. This standard should be read in the context of the
background material which has been set in normal type.

1. Introduction

1.1 This standard deals with the principles and methods of determining the cost of
utilities.

1.2 This standard deals with the principles and methods of classification,
measurement and assignment of cost of utilities, for determination of the cost of
product or service, and the presentation and disclosure in cost statements.

2. Objective

The objective of this standard is to bring uniformity and consistency in the principles and
methods of determining the cost of utilities with reasonable accuracy.

3. Scope

3.1 This standard shall be applied to cost statements which require classification,
measurement, assignment, presentation and disclosure of cost of utilities including
those requiring attestation.

3.2 For determining the cost of production to arrive at an assessable value of

excisable utilities used for captive consumption, Cost Accounting Standard 4 on Cost
of Production for Captive Consumption (CAS 4) shall apply.

3.3 This standard shall not be applicable to the organizations primarily engaged in
generation and sale of utilities.

3.4 This standard does not cover issues related to the ascertainment and treatment
of carbon credits, which shall be dealt with in a separate standard.

4. Definitions

The following terms are being used in this standard with the meaning specified.

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 Cost Accounting Standards Board

4.1 Abnormal cost: An unusual or atypical cost whose occurrence is usually

irregular and unexpected and/ or due to some abnormal situation of the
production or operation. 12

4.2 Committed Cost: The cost of maintaining stand-by utilities shall be the
committed cost.

4.3 Cost Object: An activity, contract, cost centre, customer, process, product,
project, service or any other object for which costs are ascertained.

4.4 Imputed Costs: Notional cost, not involving cash outlay, computed for any
purpose.

4.5 Interest and Finance charges: Interest and Financing Charges are interest and
other costs incurred by an entity in connection with the financing arrangements.

Examples are:

1. Interest and commitment charges on bank borrowings, other short term and
long term borrowings:

2. Financing Charges in respect of finance leases and other similar arrangements:

and

3. Exchange differences arising from foreign currency borrowings to the extent

they are regarded as an adjustment to the interest costs.

The terms Interest and financing charges, finance costs, and borrowing costs are used
interchangeably.

4.6 Normal capacity: Normal Capacity is the production achieved or achievable on

an average over a number of periods or seasons under normal circumstances
taking into account the loss of capacity resulting from planned maintenance. 13

In case of any standby utility the normal capacity will be the same as actual production
of the utility.

The normal capacity of a utility meant for captive consumption would be based on the
normal capacity for the production facility of the end product of the consuming unit.

12
Adapted from CAS 1 paragraph 6.5.19
13
Adapted from CAS 2 paragraph 4.4
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 Cost Accounting Standards Board

4.7 Standard Cost: A predetermined cost of a product or service based on technical

specifications and efficient operating conditions.

Standard costs are used as scale of reference to compare the actual costs with the
standard cost with a view to determine the variances, if any, and analyse the causes of
variances and take proper measure to control them. Standard costs are also used for
estimation.

4.8 Stand-by utilities: Any utility created as backup against any failure of the main
source of utilities.

4.9 Utilities: Significant inputs such as power, steam, water, compressed air and
the like which are used for manufacturing process but do not form part of the final
product.

5. Principles of measurement

5.1 Each type of utility shall be treated as a distinct cost object.

5.2 Cost of utilities purchased shall be measured at cost of purchase including duties
and taxes, transportation cost, insurance and other expenditure directly
attributable to procurement (net of trade discounts, rebates, taxes and duties
refundable or to be credited) that can be quantified with reasonable accuracy at the
time of acquisition.

5.3.1 Cost of self-generated utilities for own consumption shall comprise direct
material cost, direct employee cost, direct expenses and factory overheads.

5.3.2 In case of Utilities generated for the purpose of inter unit transfers, the
distribution cost incurred for such transfers shall be added to the cost of utilities
determined as per paragraph 5.3.1.

5.3.3 Cost of Utilities generated for the intercompany transfers shall comprise
direct material cost, direct employee cost, direct expenses, factory overheads,
distribution cost and share of administrative overheads.

5.3.4 Cost of Utilities generated for the sale to outside parties shall comprise direct
material cost, direct employee cost, direct expenses, factory overheads,
distribution cost, share of administrative overheads and marketing overheads.

The sale value of such utilities will also include the margin.

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 Cost Accounting Standards Board

5.4 Finance costs incurred in connection with the utilities shall not form part of cost
of utilities.

5.5 The cost of utilities shall include the cost of distribution of such utilities.

The cost of distribution will consist of the cost of delivery of utilities up to the point of
consumption.

5.6 Cost of utilities shall not include imputed costs.

5.7 Where cost of utilities is accounted at standard cost, the price variances related
to utilities shall be treated as part of cost of utilities and the portion of usage
variances due to normal reasons shall be treated as part of cost of utilities. Usage
variances due to abnormal reasons shall be treated as part of abnormal cost.

5.8 Any Subsidy/Grant/Incentive or any such payment received/receivable with

respect to any cost of utilities shall be reduced for ascertainment of the cost to which
such amounts are related.

5.9 The cost of production and distribution of utilities shall be determined based on
the normal capacity or actual capacity utilization whichever is higher and
unabsorbed cost, if any, shall be treated as abnormal cost14. Cost of a Stand-by
Utility shall include the committed costs of maintaining such a utility.

5.10 Any abnormal cost where it is material and quantifiable shall not form part of
the cost of utilities.

5.11 Penalties, damages paid to statutory authorities or other third parties shall not
form part of the cost of utilities.

5.12 Credits/recoveries relating to the utilities including cost of utilities provided to

outside parties, material and quantifiable, shall be deducted from the total cost of
utility to arrive at the net cost of utility.

5.13 Any change in the cost accounting principles applied for the measurement of
the cost of utilities should be made only if, it is required by law or for compliance
with the requirements of a cost accounting standard, or a change would result in a
more appropriate preparation or presentation of cost statements of an
organisation.

6. Assignment of costs

14
Adapted from paragraph 5.7 of CAS 3
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 Cost Accounting Standards Board

6.1 While assigning cost of utilities, traceability to a cost object in an economically

feasible manner shall be the guiding principle.

6.2 Where the cost of utilities is not directly traceable to cost object, it shall be
assigned on the most appropriate basis.

6.3 The most appropriate basis of distribution of cost of a utility to the departments
consuming services is to be derived from usage parameters.

7. Presentation

7.1 Utilities costs shall be presented as a separate cost head for each type of utility
in the cost statement, if material.

7.2 Where separate cost statements are prepared for utilities, cost of utilities shall
be classified as purchased or generated. Such statement shall also include cost of
utilities consumed along with quantitative information by individual consuming
units, inter unit transfers, intercompany transfers and sale to outside parties
wherever applicable.

8. Disclosures

8.1 The cost statements shall disclose the following:

1. The basis of distribution of Cost of Utility to the consuming centres.

2. The cost of purchase, production, distribution, marketing and price with
reference to sales to outside parties.
3. Where cost of utilities is disclosed at standard cost, the price and usage
variances.
4. The cost and price of Utility received from/supplied to related parties 15.
5. The cost and price of Utility received from/supplied as inter unit transfers and
intercompany transfers
6. Cost of utilities incurred in foreign exchange.
7. Any Subsidy/Grant/Incentive and any such payment reduced from Cost of
utilities.
8. Credits/recoveries relating to the Cost of utilities.
9. Any abnormal cost excluded from Cost of utilities.

15
Related party as per the applicable legal requirements relating to the cost statement as on the date of the statement
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10. Penalties and damages paid etc excluded from cost of utilities.

8.2 Any change in the cost accounting principles and methods applied for the
measurement and assignment of the Cost of utilities during the period covered by the
cost statement which has a material effect on the Cost of utilities. Where the effect of
such change is not ascertainable wholly or partly the fact shall be indicated.

8.3 Disclosures shall be made only where material, significant and quantifiable.

8.4 Disclosures shall be made in the body of the Cost Statement or as a foot note or as
a separate schedule.

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(CAS 9)
COST ACCOUNTING STANDARD ON PACKING MATERIAL COST

The following is the COST ACCOUNTING STANDARD - (CAS - 9) issued by the Council of The
Institute of Cost Accountants of India on “PACKING MATERIAL COST”. In this Standard, the
standard portions have been set in bold italic type. This standard should be read in the
context of the background material which has been set in normal type.

1. Introduction

1.1 This standard deals with the principles and methods of determining the Packing
Material Cost.

1.2 This standard deals with the principles and methods of classification,
measurement and assignment of Packing Material Cost, for determination of the cost
of product, and the presentation and disclosure in cost statements.

1.3 Packing Materials for the purpose of this standard are classified into primary and
secondary packing materials.

2. Objective

The objective of this standard is to bring uniformity and consistency in the principles
and methods of determining the packing material cost with reasonable accuracy.

3. Scope

This standard should be applied to cost statements, which require classification,

measurement, assignment, presentation and disclosure of Packing Material Cost
including those requiring attestation.

4. Definitions

The following terms are being used in this standard with the meaning specified.

4.1 Abnormal cost: An unusual or atypical cost whose occurrence is usually irregular
and unexpected and/ or due to some abnormal situation of the production or
operation. 16

For example: the cost of packing material which is rejected after issue due to abnormal
causes such as misprinting, use of material of wrong specification etc. (net of realisable
value) may be treated as abnormal cost.

16
Adapted from CAS 1 Para 6.5.19
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4.2 Administrative Overheads: Cost of all activities relating to general management

and administration of an entity. Administrative overheads shall exclude any overhead
relating to production, operations and marketing.

4.3 Cost Object: An activity, contract, cost centre, customer, process, product, project,
service or any other object for which costs are ascertained.

4.4 Direct Employee Cost: Employee cost, which can be attributed to a cost object in an
economically feasible way. 17

4.5 Direct Expenses: Expenses relating to manufacture of a product or rendering a

service, which can be identified or linked with the cost object other than direct
material or direct employee cost 18. Examples of Direct Expenses are royalties charged on
production, job charges, hire charges for use of specific equipment for a specific job, cost of
special designs or drawings for a job, software services specifically required for a job,
travelling Expenses for a specific job.

4.6 Direct Materials: Materials, the costs of which can be attributed to a cost object in
an economically feasible way.

4.7 Distribution Overheads: Distribution overheads, also known as distribution costs,

are the costs incurred in handling a product or service from the time it is ready for
despatch or delivery until it reaches the ultimate consumer including the units
receiving the product or service in an inter-unit transfer.

For example:

• Secondary packing
• Transportation cost
• Warehousing cost
• Cost of delivering the products to customers etc.
• Clearing and forwarding charges
• Cost of mending or replacing packing materials at distribution point.

4.8 Imputed Costs: Notional cost, not involving cash outlay, computed for any purpose.

For example: packing material supplied by the customer.

4.7 Interest and Finance charges: Interest and Financing Charges are interest and
other costs incurred by an entity in connection with the financing arrangements.

17 Adapted from CAS 7 Para 4.6

18
Adapted from CAS 1 Para 6.2.6 and also proposed in the CAS on Direct Expenses
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Examples are:

4. Interest and commitment charges on bank borrowings, other short term and long
term borrowings:

5. Financing Charges in respect of finance leases and other similar arrangements: and

6. Exchange differences arising from foreign currency borrowings to the extent they
are regarded as an adjustment to the interest costs.

The terms Interest and financing charges, finance costs, and borrowing costs are used
interchangeably.

4.10 Marketing overheads: Marketing Overheads comprise of selling overheads and

distribution overheads.

4.11 Packing Materials: Materials used to hold, identify, describe, store, protect,
display, transport, promote and make the product marketable.

4.11.1 Defectives: Materials, products or intermediate products that do not meet

quality standards. This may include reworks or rejects.

4.11.1.1 Reworks: Defectives which can be brought up to the standards by putting in

additional resources. 19

Rework includes repairs, reconditioning and refurbishing.

4.11.1.2 Rejects: Defectives which can not meet the quality standards even after
putting in additional resources. 20

Rejects may be disposed-off as waste or sold for salvage value or recycled in the
production process.

4.11.2 Packing Material Cost: The cost of material of any nature used for the
purpose of packing of a product.

4.11.3 Primary Packing Material: Packing material which is essential to hold and
preserve the product for its use by the customer.

For example:

19 Adapted from CAS 6 Para 4.4.1

20
Adapted from CAS 6 Para 4.4.2
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• Pharmaceutical industry: Insertions related to product, Foils for strips of

tablets/capsules, vials.
• Industrial gases: Cylinders / bottles used for filling the gaseous products
• Confectionary Industry: Butter paper and wrappers.

4.11.4 Reusable Packing Material: Packing materials that are used more than once
to pack the product.

4.11.5 Scrap: Discarded material having no or insignificant value and which is

usually either disposed off without further treatment (other than reclamation and
handling) or reintroduced into the process in place of raw material.

4.11.6 Secondary Packing Material: Packing material that enables to store,

transport, inform the customer, promote and otherwise make the product
marketable.

For example:

• Pharmaceutical industry: Cartons used for holding strips of tablets and card board
boxes used for holding cartons.
• Textile industry: Card board boxes used for holding cones on which yarn is woven.
• Confectionary Industry: Jars for holding wrapped chocolates, Cartons containing
packs of biscuits.

4.12 Packing Material Development Cost: Cost of evaluation of packing material such
as pilot test, field test, consumer research, feedback, and final evaluation cost.

4.13 Production overheads: Indirect costs involved in the production of a product or in

rendering service.

The terms Production Overheads, Factory Overheads, Works Overheads and Manufacturing
Overheads denote the same meaning and are used interchangeably. Production overheads
shall include administration cost relating to production, factory, works or manufacturing.

4.14 Selling Overheads: Selling overheads are the expenses related to sale of products
or services and include all indirect expenses incurred in selling the products or
services.

4.15 Standard Cost: A predetermined cost of a product or service based on technical

specifications and efficient operating conditions.

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Standard costs are used as scale of reference to compare the actual costs with the standard
cost with a view to determine the variances, if any, and analyse the causes of variances and
take proper measure to control them. Standard costs are also used for estimation.

5. Principles of Measurement

5.1 Principle of valuation of receipts of packing material:

5.1.1 The packing material receipts should be valued at purchase price including
duties and taxes, freight inwards, insurance, and other expenditure directly
attributable to procurement (net of trade discounts, rebates, taxes and duties
refundable or to be credited) that can be quantified at the time of acquisition.

Examples of taxes and duties to be deducted from cost are CENVAT credits, credit for
countervailing customs duty, sales tax set off/ vat credits and other similar items of
credit recovered/ recoverable.

5.1.2 Finance costs directly incurred in connection with the acquisition of Packing
Material shall not form part of Packing Material Cost.

5.1.3 Self manufactured packing materials shall be valued including direct material
cost, direct employee cost, direct expenses, job charges, factory overheads including
share of administrative overheads comprising factory management and
administration and share of research and development cost incurred for
development and improvement of existing process or product.

5.1.4 The valuation of captive consumption of packing materials shall be in

accordance with paragraph 5 of Cost Accounting Standard 4.

5.1.5 Normal loss or spoilage of packing material prior to receipt in the factory shall
be absorbed in the cost of balance materials net of amounts recoverable from
suppliers, insurers, carriers or recoveries from disposal.

5.1.6 The forex component of imported packing material cost shall be converted at
the rate on the date of the transaction. Any subsequent change in the exchange rate
till payment or otherwise shall not form part of the packing material cost.

Explanation: The date on which a transaction (whether for goods or services) is

recognised in accounting in conformity with generally accepted accounting principles.

5.1.7 Any demurrage, detention charges or penalty levied by the transport agency
or any authority shall not form part of the cost of packing materials.

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5.1.8 Any Subsidy/Grant/Incentive or any such payment received/receivable with

respect to packing material shall be reduced for ascertainment of the cost to which
such amounts are related.

5.2. Principle of valuation of issue of packing material

Issues shall be valued using appropriate assumptions on cost flow.

For example: First In First Out, Last In First Out, Weighted Average Rate.

The method of valuation shall be followed on a consistent basis.

5.3 Wherever, packing material costs include transportation costs, determination of

costs of transportation shall be governed by CAS 5 – Cost Accounting Standard on
determination of average (equalized) cost of transportation.

5.4 Packing Material Costs shall not include imputed costs. However in case of Cost of
Production of Excisable Goods for Captive Consumption the computation of cost shall
be as per CAS 4.

5.5 Where packing materials are accounted at standard cost, the price variances
related to such materials shall be treated as part of packing material cost and the
portion of usage variances due to normal reasons shall be treated as part of packing
material cost. Usage variances due to abnormal reasons shall be treated as part of
abnormal cost.

5.6 The normal loss arising from the issue or consumption of packing materials shall
be included in the packing materials cost.

5.7 Any abnormal cost where it is material and quantifiable shall be excluded from the
packing material cost.

5.8 The credits/recoveries in the nature of normal scrap arising from packing
materials if any, should be deducted from the total cost of packing materials to arrive
at the net cost of packing materials.

6. Assignment of Cost

6.1 Assignment of packing material costs to cost objects: Packing material costs shall
be directly traced to a cost object to the extent it is economically feasible.

6.2 Where the packing material costs are not directly traceable to the cost object, these
may be assigned on the basis of quantity consumed or similar measures like technical
estimates.
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6.3 The packing material cost of reusable packing shall be assigned to the cost object
taking into account the number of times or the period over which it is expected to be
reused.

6.4 Cost of primary packing materials shall form part of the cost of production.

6.5 Cost of secondary packing materials shall form part of distribution overheads.

7. Presentation

7.1 Packing Materials shall be classified as primary and secondary and within this
classification as purchased – indigenous, imported and self manufactured.

7.2 Where separate cost statements are prepared for packing costs, the cost of packing
materials consumed shall be presented in terms of type of packing in which the
materials are used (For example; Bale, Bag, Carton, Pallet). Such statements shall also
include cost and quantitative information, wherever it is found material and
quantifiable.

8. Disclosures

8.1 The cost statements shall disclose the following:

1. The basis of valuation of Packing Materials.

2. Where Packing Materials Cost is disclosed at standard cost, the price and usage
variances.
3. The cost and price of Packing Materials received from/supplied to related
parties 21.
4. Packing Materials cost incurred in foreign exchange.
5. Any Subsidy/Grant/Incentive and any such payment reduced from Packing
Materials Costs.
6. Credits/recoveries relating to the Packing Materials Costs.
7. Any abnormal cost excluded from Packing Materials Costs.
8. Penalties and damages paid etc. excluded from Packing Materials Costs.

8.2 Any change in the cost accounting principles and methods applied for the
measurement and assignment of the Packing Materials Costs during the period
covered by the cost statement which has a material effect on the Packing Materials

21
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 Cost Accounting Standards Board

Cost shall be disclosed. Where the effect of such change is not ascertainable wholly or
partly the fact shall be indicated.

8.3 Disclosures shall be made only where material, significant and quantifiable.

8.4 Disclosures shall be made in the body of the Cost Statement or as a foot note or as a
separate schedule.

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(CAS-10)
COST ACCOUNTING STANDARD ON DIRECT EXPENSES

The following is the COST ACCOUNTING STANDARD – 10 (CAS-10) issued by the Council of
The Institute of Cost Accountants of India on “DIRECT EXPENSES”. In this Standard, the
standard portions have been set in bold italic type. This standard should be read in the
context of the background material which has been set in normal type.

1. Introduction

1.1 This standard deals with the principles and methods of determining the Direct
Expenses.

1.2 This standard deals with the principles and methods of classification,
measurement and assignment of Direct Expenses, for determination of the cost of
product or service, and the presentation and disclosure in cost statements.

2. Objective

The objective of this standard is to bring uniformity and consistency in the principles
and methods of determining the Direct Expenses with reasonable accuracy.

3. Scope

This standard should be applied to cost statements, which require classification,

measurement, assignment, presentation and disclosure of Direct Expenses including
those requiring attestation.

4. Definitions

The following terms are being used in this standard with the meaning specified.

4.1 Abnormal cost: An unusual or atypical cost whose occurrence is usually irregular
and unexpected and/ or due to some abnormal situation of the production or
operation. 22

4.2 Cost Object: An activity, contract, cost centre, customer, process, product, project,
service or any other object for which costs are ascertained.

4.3 Direct Employee Cost: Employee cost, which can be directly attributed to a cost
object in an economically feasible way. 23

22 Adapted from CAS 1 paragraph 6.5.19

23
Adapted from CAS 1 paragraph 6.2.4 (Direct labour cost)
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4.4 Direct Expenses: Expenses relating to manufacture of a product or rendering a

service, which can be identified or linked with the cost object other than direct
material cost and direct employee cost 24. Examples of Direct Expenses are royalties
charged on production, job charges, hire charges for use of specific equipment for a
specific job, cost of special designs or drawings for a job, software services specifically
required for a job, travelling Expenses for a specific job.

4.5 Direct Material Cost: The cost of material which can be attributed to a cost object
in an economically feasible way 25.

4.6 Imputed Costs: Notional cost, not involving cash outlay, computed for any purpose.

4.7 Interest and Finance charges: Interest and Financing Charges are interest and
other costs incurred by an entity in connection with the financing arrangements.

Examples are:

7. Interest and commitment charges on bank borrowings, other short term and long
term borrowings:

8. Financing Charges in respect of finance leases and other similar arrangements: and

9. Exchange differences arising from foreign currency borrowings to the extent they
are regarded as an adjustment to the interest costs.

The terms Interest and financing charges, finance costs, and borrowing costs are used
interchangeably.

4.8 Overheads: Overheads comprise costs of indirect materials, indirect employees

and indirect expenses.

4.9 Standard Cost: A predetermined cost of a product or service based on technical

specifications and efficient operating conditions.

Standard costs are used as scale of reference to compare the actual costs with the standard
cost with a view to determine the variances, if any, and analyse the causes of variances and
take proper measure to control them. Standard costs are also used for estimation.

5. Principles of Measurement:

5.1 Identification of Direct Expenses shall be based on traceability in an economically

feasible manner.
24 Adapted from CAS 1 paragraph 6.2.6
25
Adapted from CAS 1-6.2.3
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5.2.1 Direct expenses incurred for the use of bought out resources shall be determined
at invoice or agreed price including duties and taxes, and other expenditure directly
attributable thereto net of trade discounts, rebates, taxes and duties refundable or to
be credited.

5.2.2 Direct expenses other than those referred to in paragraph 5.2.1 shall be
determined on the basis of amount incurred in connection therewith.

Examples: in case of dies and tools produced internally, the cost of such dies and tools will
include direct material cost, direct employee cost, direct expenses, factory overheads
including share of administrative overheads relating to production comprising factory
management and administration.

In the case of research and development cost, the amount traceable to the cost object for
development and improvement of the process for the existing product shall be included in
Direct Expenses.

5.2.3 Direct Expenses paid or incurred in lump-sum or which are in the nature of ‘one
– time’ payment, shall be amortised on the basis of the estimated output or benefit to
be derived from such direct expenses.

Examples: Royalty or Technical know-how fees, or drawing designing fees, are paid for
which the benefit is ensued in the future period. In such case, the production / service
volumes shall be estimated for the effective period and based on volume achieved during
the Cost Accounting period, the charge for amortisation be determined.

5.3 If an item of Direct Expenses does not meet the test of materiality, it can be treated
as part of overheads.

5.4 Finance costs incurred in connection with the self generated or procured resources
shall not form part of Direct Expenses.

5.5 Direct Expenses shall not include imputed costs. In case of goods produced for
captive consumption, treatment of imputed cost shall be in accordance with Cost
Accounting Standard – 4 (CAS-4).

5.6 Where direct expenses are accounted at standard cost, variances due to normal
reasons shall be treated as part of the Direct Expenses. Variances due to abnormal
reasons shall not form part of the Direct Expenses.

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5.7 Any Subsidy/Grant/Incentive or any such payment received/receivable with

respect to any Direct Expenses shall be reduced for ascertainment of the cost of the
cost object to which such amounts are related.

5.8 Any abnormal portion of the direct expenses where it is material and quantifiable
shall not form part of the Direct Expenses.

5.9 Penalties, damages paid to statutory authorities or other third parties shall not
form part of the Direct Expenses.

5.10 Credits/ recoveries relating to the Direct Expenses, material and quantifiable,
shall be deducted to arrive at the net Direct Expenses.

5.11 Any change in the cost accounting principles applied for the measurement of the
Direct Expenses should be made only if, it is required by law or for compliance with
the requirements of a cost accounting standard, or a change would result in a more
appropriate preparation or presentation of cost statements of an organisation.

6. Assignment of costs

6.1 Direct Expenses that are directly traceable to the cost object shall be assigned to
that cost object.

7. Presentation

7.1 Direct Expenses, if material, shall be presented as a separate cost head with
suitable classification.

Examples:
• Subcontract charges
• Royalty on production

8. Disclosures

8.1 The cost statements shall disclose the following:

1. The basis of distribution of Direct Expenses to the cost objects/ cost units.
2. Quantity and rates of items of Direct Expenses, as applicable.
3. Where Direct Expenses are accounted at standard cost, the price and usage
variances.
4. Direct expenses representing procurement of resources and expenses
incurred in connection with resources generated.
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5. Direct Expenses paid/ payable to related parties 26.

6. Direct Expenses incurred in foreign exchange.
7. Any Subsidy/Grant/Incentive and any such payment reduced from Direct
Expenses.
8. Credits/recoveries relating to the Direct Expenses.
9. Any abnormal portion of the Direct Expenses.
10. Penalties and damages excluded from the Direct Expenses

8.2 Disclosures shall be made only where material, significant and quantifiable.

8.3 Disclosures shall be made in the body of the Cost Statement or as a foot note or as
a separate schedule.

8.4 Any change in the cost accounting principles and methods applied for the
measurement and assignment of the Direct Expenses during the period covered by the
cost statement which has a material effect on the Direct Expenses. Where the effect of
such change is not ascertainable wholly or partly the fact shall be indicated.

26
Related party as per the applicable legal requirements relating to the cost statement as on the date of the statement
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CAS - 11
COST ACCOUNTING STANDARD ON ADMINISTRATIVE OVERHEADS

The following is the COST ACCOUNTING STANDARD – (CAS-11) issued by the Council of The
Institute of Cost Accountants of India on “ADMINISTRATIVE OVERHEADS”. In this Standard,
the standard portions have been set in bold italic type. This standard should be read in the
context of the background material which has been set in normal type.

1. Introduction

1.1. This standard deals with the principles and methods of determining the
administrative overheads.

1.2 This standard deals with the principles and methods of classification,
measurement and assignment of administrative overheads, for determination of the
Cost of product or service, and the presentation and disclosure in cost statements.

2. Objective

The objective of this standard is to bring uniformity and consistency in the principles
and methods of determining the administrative overheads with reasonable accuracy.

3. Scope

This standard should be applied to cost statements, which require classification,

measurement, assignment, presentation and disclosure of administrative overheads
including those requiring attestation.

4. Definitions

The following terms are being used in this standard with the meaning specified.

4.1 Abnormal cost: An unusual or atypical cost whose occurrence is usually irregular
and unexpected and/ or due to some abnormal situation of the production or
operation. 27

4.2 Absorption of overheads: Assigning of overheads to cost objects by means of

appropriate absorption rate.

Overhead Absorption Rate = Overheads of the Cost object / Quantum of base.

27
Adapted from CAS 1 Para 6.5.19
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4.3 Administrative Overheads: Cost of all activities relating to general management

and administration of an entity.

Administrative overheads shall exclude production overheads 28, marketing overheads 29

and finance cost. Production overheads includes administration cost relating to
production, factory, works or manufacturing.

4.4 Cost Object: An activity, contract, cost centre, customer, process, product, project,
service or any other object for which costs are ascertained.

4.5 Imputed Costs: Notional cost, not involving cash outlay, computed for any purpose.

4.6 Interest and Finance charges: Interest and Financing Charges are interest and
other costs incurred by an entity in connection with the financing arrangements.

Examples are:

10. Interest and commitment charges on bank borrowings, other short term and
long term borrowings:

11. Financing Charges in respect of finance leases and other similar arrangements:
and

12. Exchange differences arising from foreign currency borrowings to the extent
they are regarded as an adjustment to the interest costs.

The terms Interest and financing charges, finance costs, and borrowing costs are used
interchangeably.

4.7 Normal capacity: Normal Capacity is the production achieved or achievable on an

average over a number of periods or seasons under normal circumstances taking into
account the loss of capacity resulting from planned maintenance. 30

4.8 Overheads: Overheads comprise costs of indirect materials, indirect employees

and indirect expenses.

5. Principles of Measurement

5.1 Administrative overheads shall be the aggregate of cost of resources consumed in

activities relating to general management and administration of an organisation.

28 Paragraph reference 4.13 CAS -9

29 Paragraph reference 4.11 CAS -7
30
Adapted from CAS 2 Para 4.4
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It usually represents the cost of shared services, cost of infrastructure and general
management costs. Administrative overheads comprise items such as employee costs,
utilities, office supplies, legal expenses and outside services. The principles of
measurement of Material Cost, Employee Costs, Utilities, Repairs and Maintenance and
Depreciation found in the respective standards will apply to these elements included in
administrative overheads.

5.2 In case of leased assets, if the lease is an operating lease, the entire rentals shall be
included in the administrative overheads. If the lease is a financial lease, the finance
cost portion shall be segregated and treated as part of finance costs.

5.3 The cost of software (developed in house, purchased, licensed or customised),

including up-gradation cost shall be amortised over its estimated useful life.

When hardware requires up-gradation along with software up-gradation, it is

recommended that compatible estimated lives be used for the two sets of cost.

5.4 The cost of administrative services procured from outside shall be determined at
invoice or agreed price including duties and taxes, and other expenditure directly
attributable thereto net of discounts (other than cash discount), taxes and duties
refundable or to be credited.

5.5 Any Subsidy/Grant/Incentive or any amount of similar nature received/receivable

with respect to any Administrative overheads shall be reduced for ascertainment of
the cost of the cost object to which such amounts are related.

5.6 Administrative overheads shall not include any abnormal administrative cost.

Example: Expense incurred in a situation of natural calamity.

5.7 Fines, penalties, damages and similar levies paid to statutory authorities or other
third parties shall not form part of the administrative overheads.

5.8 Credits/ recoveries relating to the administrative overheads including those

rendered without any consideration, material and quantifiable, shall be deducted to
arrive at the net administrative overheads.

5.9 Any change in the cost accounting principles applied for the measurement of the
administrative overheads should be made only if it is required by law or for
compliance with the requirements of a cost accounting standard or a change would
result in a more appropriate preparation or presentation of cost statements of an
organisation.

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6. Assignment of Cost

6.1 While assigning administrative overheads, traceability to a cost object in an

economically feasible manner shall be the guiding principle.

6.2 Assignment of administrative overheads to the cost objects shall be based on

either of the following two principles;

i) Cause and Effect - Cause is the process or operation or activity and effect is
the incurrence of cost.

ii) Benefits received – overheads are to be apportioned to the various cost

objects in proportion to the benefits received by them. 31

The costs of shared services should be assigned to user activities on the basis of actual
usage.

Where the resources by way of infrastructure are shared the cost should be assigned on a
readiness to serve basis.

General management costs should be assigned on rational basis.

For example: Number of employees, turnover, investment size etc.

7. Presentation

7.1 Administrative overheads shall be presented as a separate cost head in the cost
statement.

7.2 Element wise details of the administrative overheads based on materiality shall be
presented.

8. Disclosures

8.1 The cost statements shall disclose the following:

• The basis of assignment of administrative overheads to the cost objects.

• Any imputed cost included as a part of administrative overheads.
• Administrative overheads incurred in foreign exchange.
• Cost of administrative activities received from or supplied to related parties 32.
• Any Subsidy / Grant / Incentive or any amount of similar nature received /
receivable reduced from administrative overheads.

31 Adapted from of CAS 3 Para 5.1

32
Related party as per the applicable legal requirements relating to the cost statement as on the date of the statement
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• Credits / recoveries relating to the administrative overheads.

• Any abnormal portion of the administrative overheads.
• Penalties and damages excluded from the administrative overheads.

8.2 Disclosures shall be made only where material, significant and quantifiable.

8.3 Disclosures shall be made in the body of the Cost Statement or as a foot note or as
a separate schedule.

8.4 Any change in the cost accounting principles and methods applied for the
measurement and assignment of the administrative overheads during the period
covered by the cost statement which has a material effect on the administrative
overheads shall be disclosed. Where the effect of such change is not ascertainable
wholly or partly the fact shall be indicated.

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CAS – 12 (REVISED 2017)

COST ACCOUNTING STANDARD ON REPAIRS AND MAINTENANCE COST

The following is the COST ACCOUNTING STANDARD – 12 (CAS - 12) (Revised 2017) issued
by the Council of The Institute of Cost Accountants of India on “REPAIRS AND
MAINTENANCE COST”. In this Standard, the standard portions have been set in bold italic
type. This standard should be read in the context of the background material which has been
set in normal type.

1. Introduction

1.1 This standard deals with the principles and methods of determining the repairs and
maintenance cost.

1.2 This standard deals with the principles and methods of classification, measurement and
assignment of repairs and maintenance cost, for determination of the Cost of product or
service, and the presentation and disclosure in cost statements.

2. Objective

The objective of this standard is to bring uniformity and consistency in the principles
and methods of determining the repairs and maintenance cost with reasonable
accuracy.

3. Scope

This standard should be applied to cost statements which require classification,

measurement, assignment, presentation and disclosure of repairs and maintenance
cost including those requiring attestation.

4. Definitions

The following terms are being used in this standard with the meaning specified.

4.1 Cost Object: An activity, contract, cost centre, customer, process, product, project,
service or any other object for which costs are ascertained.

4.2 Direct Expenses: Expenses relating to manufacture of a product or rendering a

service, which can be identified or linked with the cost object other than direct
material cost and direct employee cost.

Examples of Direct Expenses are royalties charged on production, job charges, hire
charges for use of specific equipment for a specific job, cost of special designs or drawings

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for a job, software services specifically required for a job, travelling Expenses for a
specific job.

4.3 Imputed Costs: Notional cost, not involving cash outlay, computed for any
purpose.

4.4 Interest and Finance charges: Interest and Financing Charges are interest and
other costs incurred by an entity in connection with the financing arrangements.

1. Interest and commitment charges on bank borrowings, other short term and long
term borrowings:

2. Financing Charges in respect of finance leases and other similar arrangements: and

3. Exchange differences arising from foreign currency borrowings to the extent they are
regarded as an adjustment to the interest costs.

The terms Interest and financing charges, finance costs, and borrowing costs are used
interchangeably.

4.5 Normal capacity: Normal Capacity is the production achieved or achievable on an

average over a number of periods or seasons under normal circumstances taking into
account the loss of capacity resulting from planned maintenance. 33

4.6 Production overheads: Indirect costs involved in the production of a product or in

rendering service.

The terms Production Overheads, Factory Overheads, Works Overheads and

Manufacturing Overheads denote the same meaning and are used interchangeably.
Production overheads shall include administration cost relating to production, factory,
works or manufacturing.

4.7 Property, plant and equipment are tangible assets that:

(a) are held for use in the production of goods or supply of services, for rental to
others, for administrative, selling or distribution purposes; and

(b) are expected to be used during more than one accounting period.

4.8 Repairs and maintenance cost: Cost of all activities which have the objective of
maintaining or restoring an asset in or to a state in which it can perform its required
function at intended capacity and efficiency.

33
Adapted from CAS 2 paragraph 4.4
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Repairs and Maintenance activities for the purpose of this standard include routine or
preventive maintenance, planned (predictive or corrective) maintenance and breakdown
maintenance.

The repair or overhaul of an asset which results in restoration of the asset to intended
condition would also be a part of Repairs and Maintenance activity.

Major overhaul is a periodic (generally more than one year) repair work carried out to
substantially restore the asset to intended working condition.

4.9 Standard Cost: A predetermined cost of a product or service based on technical

specifications and efficient operating conditions.

Standard costs are used as scale of reference to compare the actual costs with the
standard cost with a view to determine the variances, if any, and analyse the causes of
variances and take proper measure to control them. Standard costs are also used for
estimation.

5. Principles of Measurement:

5.1 Repairs and maintenance cost shall be the aggregate of direct and indirect cost
relating to repairs and maintenance activity.

Direct cost includes the cost of materials, consumable stores, spares, manpower,
equipment usage, utilities and other identifiable resources consumed in such activity.
Indirect cost includes the cost of resources common to various repairs and maintenance
activities such as manpower, equipment usage and other costs allocable to such activities.

5.2 Cost of in-house repairs and maintenance activity shall include cost of materials,
consumable stores, spares, manpower, equipment usage, utilities, and other
resources used in such activity.

5.3 Cost of repairs and maintenance activity carried out by outside contractors inside
the entity shall include charges payable to the contractor and cost of materials,
consumable stores, spares, manpower, equipment usage, utilities, and other costs
incurred by the entity for such jobs.

5.4 Cost of repairs and maintenance jobs carried out by contractor at its premises
shall be determined at invoice or agreed price including duties and taxes, and other
expenditure directly attributable thereto net of discounts (other than cash discount),
taxes and duties refundable or to be credited. This cost shall also include the cost of
other resources provided to the contractors.

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5.5 Cost of repairs and maintenance jobs carried out by outside contractors shall
include charges made by the contractor and cost of own materials, consumable
stores, spares, manpower, equipment usage, utilities and other costs used in such
jobs.

5.6.1 Each type of repairs and maintenance shall be treated as a distinct activity, if
material and identifiable.

For example, routine or preventive maintenance, planned (predictive or corrective)

maintenance and breakdown maintenance should be identified separately.

5.6.2 Cost of repairs and maintenance activity shall be measured for each major asset
category separately.

5.7 Cost of spares replaced which do not enhance the future economic benefits from
the existing asset beyond its previously assessed standard of performance shall be
included under repairs and maintenance cost.

5.8 High value spare, when replaced by a new spare and is reconditioned, shall be
recognised as property, plant and equipment when they meet the definition of
property, plant and equipment and depreciated accordingly. Otherwise, such items
are classified as inventory and recognised in cost as and when they are consumed.

Example: A company purchased equipment for Rs. 10 crore and insurance spare for Rs. 1
crore. If the company is covered under IndAS, such spare is capitalized as Property, Plant
& Equipment. After use for five years, the equipment broke down and a part was replaced
with the aforesaid insurance spare. After five years, the depreciated value of equipment is
Rs. 5 crore. As property, plant and equipment are depreciated when they are available for
use, accordingly the depreciated value of new spare is Rs. 50 lakhs. The old spare was
reconditioned and the cost of reconditioning is Rs. 10 lakh. As per estimated life of the old
spare for future economic benefits, the current market value of the reconditioned old
spare has been estimated at Rs. 25 lakhs. The amount to be treated in repairs and
maintenance is Rs. 35 lakhs as follows:

Rs. In Crore

A. Equipment Cost 10.00

B. Cost of New Spare 1.00

Total Cost (A+B) 11.00

Depreciation for 5 years 5.50

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Depreciated value of Equipment & Spare 5.50

Reconditioning cost of old Spare 0.10

Depreciated Value of old Spare 0.50

Book Value of Reconditioned spare 0.60

Current market value of reconditioned spare

to be restated in Book of Account 0.25

Amount to be treated in Repairs and Maintenance 0.35

5.9 The cost of major overhaul shall be amortized on a rational basis.5.10 Finance
costs incurred in connection with the repairs and maintenance activities shall not
form part of Repairs and maintenance costs.

5.11 Repairs and maintenance costs shall not include imputed costs.

5.12 Price variances related to repairs and maintenance, where standard costs are in
use, shall be treated as part of repairs and maintenance cost. The portion of usage
variances attributable to normal reasons shall be treated as part of repairs and
maintenance cost. Usage variances attributable to abnormal reasons shall be
excluded from repairs and maintenance cost.

5.13 Subsidy / Grant / Incentive or amount of similar nature received / receivable

with respect to repairs and maintenance activity, if any, shall be reduced for
ascertainment of the cost of the cost object to which such amounts are related.

5.14 Any repairs and maintenance cost resulting from some abnormal circumstances,
if material and quantifiable, shall not form part of the repairs and maintenance cost.

Example: Major fire, explosions, flood and similar events are abnormal circumstances
referred above.

5.15 Fines, penalties, damages and similar levies paid to statutory authorities or
other third parties shall not form part of the repairs and maintenance cost.

Example: A penalty imposed by a regulatory authority for wrongful construction or

damages paid to third party for the loss caused due to improper working of property,
plant & equipment, should not be included in repairs and maintenance cost.

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5.16 Credits/ recoveries relating to the repairs and maintenance activity, material
and quantifiable, shall be deducted to arrive at the net repairs and maintenance cost.

5.17 Any change in the cost accounting principles applied for the measurement of the
repairs and maintenance cost should be made only if, it is required by law or for
compliance with the requirements of a cost accounting standard, or a change would
result in a more appropriate preparation or presentation of cost statements of an
organisation.

6. Assignment of costs

6.1 Repairs and maintenance costs shall be traced to a cost object to the extent
economically feasible.

6.2 Where the repairs and maintenance cost is not directly traceable to cost object,
it shall be assigned based on either of the following two principles:

i) Cause and Effect - Cause is the process or operation or activity and effect is the
incurrence of cost.

ii) Benefits received – overheads are to be apportioned to the various cost objects in
proportion to the benefits received by them.

6.3 If the repairs and maintenance cost (including the share of the cost of reciprocal
exchange of services) is shared by several cost objects, the related cost shall be
measured as an aggregate and distributed among the cost objects as per principles
laid down in Cost Accounting Standard – 3.

7. Presentation

7.1 Repairs and maintenance cost, if material, shall be presented in the cost
statement as a separate item of cost.

7.2 Asset category wise details of repairs and maintenance cost, if material, shall be
presented separately.

7.3 Activity wise details of repairs and maintenance cost, if material, shall be
presented separately.

8. Disclosures

8.1 The cost statements shall disclose the following:

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1. The basis of distribution of repairs and maintenance cost to the cost objects/
cost units.
2. Where standard cost is applied in repairs and maintenance cost, the price and
usage variances.
3. Repairs and maintenance cost of Jobs done in-house and outsourced separately.
4. Cost of major overhauls, asset category wise and the basis of amortisation.
5. Repairs and maintenance cost paid/ payable to related parties 34.
6. Repairs and maintenance cost incurred in foreign exchange.
7. Any Subsidy / Grant / Incentive or any amount of similar nature received /
receivable reduced from repairs and maintenance cost.
8. Any credits / recoveries relating to the repairs and maintenance cost.
9. Any abnormal portion of the repairs and maintenance cost.
10. Penalties and damages excluded from the repairs and maintenance cost.

8.2 Disclosures shall be made only where material, significant and quantifiable.

8.3 Disclosures shall be made in the body of the Cost Statement or as a foot note or as
a separate schedule.

8.4 Any change in the cost accounting principles and methods applied for the
measurement and assignment of the repairs and maintenance cost during the period
covered by the cost statement which has a material effect on the repairs and
maintenance cost shall be disclosed. Where the effect of such change is not
ascertainable wholly or partly the fact shall be indicated.

34
Related party as per the applicable legal requirements relating to the cost statement as on the date of the statement
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CAS – 13
COST ACCOUNTING STANDARD ON COST OF SERVICE COST CENTRE

The following is the COST ACCOUNTING STANDARD – 13 (CAS - 13) issued by the Council of
The Institute of Cost Accountants of India on “Cost of Service Cost Centre”. In this Standard,
the standard portions have been set in bold italic type. These are to be read in the context of
the background material which has been set in normal type.

1. Introduction

1.1 This standard deals with the principles and methods of determining the cost of Service
Cost Centre.

1.2 This standard covers the Service Cost Centre as defined in paragraph 4.11 of this standard.
It excludes Utilities and Repairs & Maintenance Services dealt with in CAS-8 and CAS-12
respectively.

1.3 This standard deals with the principles and methods of classification, measurement
and assignment of Cost of Service Cost Centre, for determination of the Cost of product or
service, and the presentation and disclosure in cost statements.

2. Objective

The objective of this standard is to bring uniformity and consistency in the principles and
methods of determining the Cost of Service Cost Centre with reasonable accuracy.

3. Scope

This standard should be applied to the preparation and presentation of cost statements,
which require classification, measurement and assignment of Cost of Service Cost Centre,
including those requiring attestation.

4. Definitions

The following terms are being used in this standard with the meaning specified.

4.1 Abnormal cost: An unusual or atypical cost whose occurrence is usually irregular and
unexpected and / or due to some abnormal situation of the production or operation. 35

4.2 Administrative Overheads: Cost of all activities relating to general management and
administration of an entity.

35
Adapted from CAS 1 paragraph 6.5.19
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Administrative overheads shall exclude production overheads 36, marketing overheads 37 and
finance cost. Production overheads includes administration cost relating to production,
factory, works or manufacturing.

4.3 Cost Object: An activity, contract, cost centre, customer, process, product, project,
service or any other object for which costs are ascertained.

4.4 Distribution Overheads: Distribution overheads, also known as distribution costs, are
the costs incurred in handling a product or service from the time it is ready for despatch
or delivery until it reaches the ultimate consumer including the units receiving the
product or service in an inter-unit transfer.

The cost of any non manufacturing operations such as packing, repacking, labelling, etc. at an
intermediate storage location will be part of distribution cost.

4.5 Imputed Cost: Notional cost, not involving cash outlay, computed for any purpose.

4.6 Interest and Finance charges: Interest and Financing Charges are interest and other
costs incurred by an entity in connection with the financing arrangements.

Examples are:

13. Interest and commitment charges on bank borrowings, other short term and
long term borrowings:

14. Financing Charges in respect of finance leases and other similar arrangements:
and

15. Exchange differences arising from foreign currency borrowings to the extent
they are regarded as an adjustment to the interest costs.

The terms Interest and financing charges, finance costs, and borrowing costs are used
interchangeably.

4.7 Marketing overheads: Marketing overheads comprise of selling overheads and

distribution overheads.

4.8 Normal capacity: Normal Capacity is the production achieved or achievable on an

average over a number of periods or seasons under normal circumstances taking into
account the loss of capacity resulting from planned maintenance. 38

36 Paragraph reference 4.13 CAS -9

37 Paragraph reference 4.11 CAS -7
38
Adapted from CAS 2 paragraph 4.4
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4.9 Production Overheads: Indirect costs involved in the production of a product or in

rendering service.

The terms Production Overheads, Factory Overheads, Works Overheads and Manufacturing
Overheads denote the same meaning and are used interchangeably.

4.10 Selling Overheads: Selling overheads are the expenses related to sale of products or
services and include all indirect expenses incurred in selling the products or services.

4.11 Standard Cost: A predetermined cost of a product or service based on technical

specifications and efficient operating conditions.

Standard costs are used as scale of reference to compare the actual costs with the standard
cost with a view to determine the variances, if any, and analyse the causes of variances and
take proper measure to control them. Standard costs are also used for estimation.

4.12 Stand-by service: Any facility created as backup against any failure of the main
source of service.

4.13 Support-Service Cost Centre: The cost centre which primarily provides auxiliary
services across the entity.

The cost centre which provides services to Production, Operation or other Service Cost Centre
but not directly engaged in manufacturing process or operation is a service cost centre. A
service cost centre renders services to other cost centres / other units and in some cases to
outside parties.

Examples of service cost centres are engineering, workshop, research & development, quality
control, quality assurance, designing, laboratory, welfare services, safety, transport,
Component, Tool stores, Pollution Control, Computer Cell, dispensary, school, crèche,
township, Security etc.

Administrative Overheads include cost of administrative Service Cost Centre.

5. Principles of Measurement

5.1 Each identifiable service cost centre shall be treated as a distinct cost object for
measurement of the cost of services subject to the principle of materiality.

5.2.1 Cost of service cost centre shall be the aggregate of direct and indirect cost
attributable to services being rendered by such cost centre.

5.2.2 Cost of in-house services shall include cost of materials, consumable stores, spares,
manpower, equipment usage, utilities, and other resources used in such service.
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Cost of other resources includes related overheads.

5.2.3 Cost of services rendered by contractors within the facilities of the entity shall
include charges payable to the contractor and cost of materials, consumable stores,
spares, manpower, equipment usage, utilities, and other resources provided to the
contractors for such services.

5.2.4 Cost of services rendered by contractors at their premises shall be determined at

invoice or agreed price including duties and taxes, and other expenditure directly
attributable thereto net of discounts (other than cash discount), taxes and duties
refundable or to be credited. This cost shall also include the cost of resources provided to
the contractors.

5.2.5 Cost of services for the purpose of inter unit transfers shall also include distribution
costs incurred for such transfers.

5.2.6 Cost of services for the purpose of inter-company transfers shall also include
distribution cost incurred for such transfers and administrative overheads.

5.2.7 Cost of services rendered to outside parties shall also include distribution cost
incurred for such transfers, administrative overheads and marketing overheads.

5.3 Finance costs incurred in connection with the Service Cost Centre shall not form part
of the cost of Service Cost Centre.

5.4 The cost of service cost centre shall not include imputed costs.

5.5 Where the cost of service cost centre is accounted at standard cost, the price and
usage variances related to the services cost Centre shall be treated as part of cost of
services. Usage variances due to abnormal reasons shall be treated as part of abnormal
cost.

5.6 Any Subsidy / Grant / Incentive or any such payment received / receivable with
respect to any service cost centre shall be reduced for ascertainment of the cost to which
such amounts are related.

5.7 The cost of production and distribution of the service shall be determined based on
the normal capacity or actual capacity utilization whichever is higher and unabsorbed
cost, if any, shall be treated as abnormal cost 39. Cost of a Stand-by service shall include
the committed costs of maintaining such a facility for the service.

39
Adapted from Paragraph 5.7 of CAS 3
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5.8 Any abnormal cost where it is material and quantifiable shall not form part of the
cost of the service cost centre.

5.9 Penalties, damages paid to statutory authorities or other third parties shall not form
part of the cost of the service cost centre.

5.10 Credits/recoveries relating to the service cost centre including charges for services
rendered to outside parties, material and quantifiable, shall be reduced from the total
cost of that service cost centre.

5.11 Any change in the cost accounting principles applied for the measurement of the cost
of Service Cost Centre shall be made, only if it is required by law or for compliance with
the requirements of a cost accounting standard, or a change would result in a more
appropriate preparation or presentation of cost statements of an enterprise.

6. Assignment of Cost

6.1 While assigning cost of services, traceability to a cost object in an economically

feasible manner shall be the guiding principle.

6.2 Where the cost of services rendered by a service cost centre is not directly traceable to
a cost object, it shall be assigned on the most appropriate basis.

6.3 The most appropriate basis of distribution of cost of a service cost centre to the cost
centres consuming services is to be derived from logical parameters which could be
related to the usage of the service rendered. The parameter shall be equitable,
reasonable and consistent.

7. Presentation

7.1 Cost of service cost centre shall be presented as a separate cost head for each type of
service in the cost statement, if material.

8. Disclosures

8.1 The cost statements shall disclose the following:

1. The basis of distribution of cost of each service cost centre to the consuming
centres.
2. The cost of purchase, production, distribution, marketing and price of services with
reference to sales to outside parties
3. Where the cost of service cost centre is disclosed at standard cost, the price and
usage variances
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4. The cost of services received from / rendered to related parties 40.

5. Cost of service cost centre incurred in foreign exchange.
6. Any Subsidy/Grant/Incentive and any such payment reduced from cost of Service
Cost Centre.
7. Credits/ recoveries relating to the cost of Service Cost Centre
8. Any abnormal cost excluded from cost of Service Cost Centre
9. Penalties and damages paid excluded from cost of Service Cost Centre.

8.2 Any change in the cost accounting principles and methods applied for the
measurement and assignment of the cost of service cost centre during the period covered
by the cost statement which has a material effect on the cost of service cost centre shall be
disclosed. Where the effect of such change is not ascertainable wholly or partly the fact
shall be disclosed.

8.3 Disclosures shall be made only where material and significant.

8.4 Disclosures shall be made in the body of the Cost Statement or as a foot note or as a
separate schedule prominently.

40
Related party as per the applicable legal requirements relating to the cost statement as on the date of the statement
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 Cost Accounting Standards Board

CAS - 14
COST ACCOUNTING STANDARD ON POLLUTION CONTROL COST

The following is the Cost Accounting Standard - 14 (CAS - 14) issued by the Council of The
Institute of Cost Accountants of India on “POLLUTION CONTROL COST”. In this Standard, the
standard portions have been set in bold italic type. This standard should be read in the
context of the background material, which has been set in normal type.

1 Introduction

This standard deals with principles and methods of determining the Pollution control costs.

This standard deals with the principles and methods of classification, measurement and
assignment of pollution control costs, for determination of Cost of product or service, and
the presentation and disclosure in cost statements.

2 Objective

The objective of this standard is to bring uniformity and consistency in the principles and
methods of determining the Pollution Control Costs with reasonable accuracy.

3 Scope

This standard should to be applied to cost statements which require classification,

measurement, assignment, presentation and disclosure of Pollution Control Costs
including those requiring attestation.

4 Definitions

The following terms are being used in this standard with the meaning specified.

4.1 Air pollutant: Means any solid, liquid or gaseous substance (including noise) present
in the atmosphere in such concentration as may be or tend to be injurious to human
beings or other living creatures or plants or property or environment 41.

4.2 Air Pollution: Air pollution means the presence in the atmosphere of any air
pollutant. 42

4.3 Cost Object: An activity, contract, cost centre, customer, process, product, project,
service or any other object for which costs are ascertained.

4.4 Direct Expenses: Expenses relating to manufacture of a product or rendering a

41 Section 2 (a) of The Air (Prevention and Control of Pollution) Act, 1981
42
Section 2 (b) of The Air (Prevention and Control of Pollution) Act, 1981
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 Cost Accounting Standards Board

service, which can be identified or linked with the cost object other than direct
material cost and direct employee cost. 43

4.5 Environment: Environment includes water, air and land and the inter-relationship
which exists among and between water, air and land, and human beings, other
living creatures, plants, micro-organism and property. 44

4.6 Environmental Pollutant: Environmental Pollutant means any solid, liquid or

gaseous substance present in such concentration as may be, or tend to be, injurious
to environment. 45

4.7 Environment Pollution: Environmental pollution means the presence in the

environment of any environmental pollutant. 46

4.8 Imputed Costs: Notional cost, not involving cash outlay, computed for any purpose.

4.9 Interest and Finance charges: Interest, including any payment in the nature of
interest for use of non equity funds and incidental cost that an entity incurs in
arranging those funds.

This will include interest and commitment charges on bank borrowings, other short
term and long term borrowings, amortisation of discounts or premium related to
borrowings, amortisation of ancillary cost incurred in connection with the arrangements
of borrowings, finance charges in respect of finance leases, other similar arrangements
and exchange differences arising from foreign currency borrowings to the extent they
are regarded as an adjustment to the interest costs. 47 The terms Finance costs and
Borrowing costs are used interchangeably.

4.10 Normal capacity: Normal Capacity is the production achieved or achievable on an

average over a number of periods or seasons under normal circumstances taking
into account the loss of capacity resulting from planned maintenance 48.

4.11 Pollution Control: Pollution Control means the control of emissions and effluents
into environment. It constitutes the use of materials, processes, or practices to
reduce, minimize, or eliminate the creation of pollutants or wastes. It includes
practices that reduce the use of toxic or hazardous materials, energy, water, and /
or other resources.

43 Adapted from Paragraph 4.4 of CAS - 10

44 Section 2 (a) of The Environment (Protection) Act, 1986
45 Section 2 (b) of The Environment (Protection) Act, 1986
46 Section 2 (c) of The Environment (Protection) Act, 1986
47 Adapted from CIMA Terminology
48
Adapted from CAS 2 paragraph 4.4
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4.12 Production overheads: Indirect costs involved in the production of a product or in

rendering service.

The terms Production Overheads, Factory Overheads, Works Overheads and

Manufacturing Overheads denote the same meaning and are used interchangeably.

Production overheads shall include administration cost relating to production, factory,

works or manufacturing.

4.13 Soil Pollutant: Soil Pollutant is a substance which is the source of soil contamination.

4.14 Soil Pollution: Soil pollution means the presence of any soil pollutant(s) in the soil
which is harmful to the living beings when it crosses its threshold concentration
level.

4.15 Standard Cost: A predetermined cost of a product or service based on technical

specifications and efficient operating conditions.

Standard costs are used as scale of reference to compare the actual costs with the
standard cost with a view to determine the variances, if any, and analyse the causes of
variances and take proper measure to control them. Standard costs are also used for
estimation.

4.16 Water pollution: Water pollution means such contamination of water or such
alteration of the physical, chemical or biological properties of water or such
discharge of any sewage or trade effluent or of any other liquid, gaseous or solid
substance into water (whether directly or indirectly) as may, or is likely to, create a
nuisance or render such water harmful or injurious to public health or safety, or to
domestic, commercial, industrial, agricultural or other legitimate uses, or to the life
and health of animals or plants or of aquatic organisms.49

5 Principles of Measurement

5.1 Pollution Control costs shall be the aggregate of direct and indirect cost relating to
Pollution Control activity.

Direct cost includes the cost of materials, consumable stores, spares, manpower,
equipment usage, utilities, resources for testing & certification and other identifiable
resources consumed in activities such as waste processing, disposal, remediation and
others.

49
Section 2 (e) of The Water (Prevention and Control of Pollution) Act, 1974
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Indirect cost includes the cost of resources common to various Pollution Control
activities such as Pollution Control Registration and such like expenses.

5.2 Costs of Pollution Control which are internal to the entity should be accounted for
when incurred. They should be measured at the historical cost of resources
consumed.

5.3 Future remediation or disposal costs which are expected to be incurred with
reasonable certainty as part of Onerous Contract or Constructive Obligation, legally
enforceable shall be estimated and accounted based on the quantum of pollution
generated in each period and the associated cost of remediation or disposal in
future.

For example future disposal costs of solid waste generated during the current period
should be estimated on, say, a per tonne basis.

5.4 Contingent future remediation or disposal costs e.g. those likely to arise on account
of future legislative changes on pollution control shall not be treated as cost until
the incidence of such costs become reasonably certain and can be measured.

External costs of pollution which are generally the costs imposed on external parties
including social costs are difficult to estimate with reasonable accuracy and are excluded
from general purpose cost statements.

Social costs of pollution are measured by economic models of cost measurement. The
cost by way of compensation by the polluting entity either under future legislation or
under social pressure cannot be quantified by traditional models of cost measurement.
They are best kept out of general purpose cost statements.

5.5 Cost of in-house Pollution Control activity shall include cost of materials,
consumable stores, spares, manpower, equipment usage, utilities, and other
resources used in such activity.

5.6 Cost of Pollution Control activity carried out by outside contractors inside the entity
shall include charges payable to the contractor and cost of materials, consumable
stores, spares, manpower, equipment usage, utilities, and other costs incurred by
the entity for such jobs.

5.7 Cost of Pollution Control jobs carried out by contractor at its premises shall be
determined at invoice or agreed price including duties and taxes, and other
expenditure directly attributable thereto net of discounts (other than cash

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discount), taxes and duties refundable or to be credited. This cost shall also include
the cost of other resources provided to the contractors.

5.8 Cost of Pollution Control jobs carried out by outside contractors shall include
charges made by the contractor and cost of own materials, consumable stores,
spares, manpower, equipment usage, utilities and other costs used in such jobs.

5.9 Each type of Pollution Control e.g. water, air, soil pollution shall be treated as a
distinct activity, if material and identifiable.

5.10 Finance costs incurred in connection with the Pollution Control activities shall not
form part of Pollution Control costs.

5.11 Pollution Control costs shall not include imputed costs.

5.12 Price variances related to Pollution Control, where standard costs are in use, shall
be treated as part of Pollution Control cost. The portion of usage variances
attributable to normal reasons shall be treated as part of Pollution Control cost.
Usage variances attributable to abnormal reasons shall be excluded from Pollution
Control cost.

5.13 Subsidy / Grant / Incentive or amount of similar nature received / receivable with
respect to Pollution Control activity, if any, shall be reduced for ascertainment of the
cost of the cost object to which such amounts are related.

5.14 Any Pollution Control cost resulting from abnormal circumstances, if material and
quantifiable, shall not form part of the Pollution Control cost.

5.15 Fines, penalties, damages and similar levies paid to statutory authorities or other
third parties shall not form part of the Pollution Control cost.

5.16 Credits / recoveries relating to the Pollution Control activity, material and
quantifiable, shall be deducted to arrive at the net Pollution Control cost.

5.17 Research and development cost to develop new process, new products or use of new
materials to avoid or mitigate pollution shall be treated as research and
development costs and not included under pollution control costs. Development
costs incurred for commercial development of such product, process or material
shall be included in pollution control costs.

5.18 Any change in the cost accounting principles applied for the measurement of the
Pollution Control cost should be made only if, it is required by law or for compliance
with the requirements of a cost accounting standard, or a change would result in a
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more appropriate preparation or presentation of cost statements of an

organisation.

6 Assignment of costs

6.1 Pollution Control costs shall be traced to a cost object to the extent economically
feasible.

Direct costs of pollution control such as treatment and disposal of waste shall be
assigned directly to the product, where traceable economically.

Where these costs are not directly traceable to the product but are traceable to a process
which causes pollution, the costs shall be assigned to the products passing through the
process based on the quantity of the pollutant generated by the product.

6.2 Where the Pollution Control cost is not directly traceable to cost object, it shall be
treated as overhead and assigned based on either of the following two principles;

i) Cause and Effect - Cause is the process or operation or activity and effect is the
incurrence of cost.

ii) Benefits received – overheads are to be apportioned to the various cost objects in
proportion to the benefits received by them.

Typical of such costs are costs such as administration costs relating to pollution control
activities, costs of certification such as ISO 14000 and registration fees payable to
pollution control authorities

6.3 If the Pollution Control cost (including the share of the cost of reciprocal exchange of
services) is shared by several cost objects, the related cost shall be measured as an
aggregate and distributed among the cost objects as per principles laid down in Cost
Accounting Standard – 3.

7 Presentation

7.1 Pollution Control cost, if material, shall be presented in the cost statement as a
separate item of cost.

7.2 Pollution control costs shall be presented duly classified as follows:

a) Direct and Indirect cost

b) Internal and External costs
c) Current and future costs
d) Domain area e.g. water, air and soil.
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7.3 Activity wise details of Pollution Control cost, if material, shall be presented
separately.

8 Disclosures

8.1 The cost statements shall disclose the following:

1. The basis of distribution of Pollution Control cost to the cost objects/ cost units.
2. Where standard cost is applied in Pollution Control cost, the price and usage
variances.
3. Pollution Control cost of Jobs done in-house and outsourced separately.
4. Pollution Control cost paid/ payable to related parties 50.
5. Pollution Control cost incurred in foreign exchange.
6. Any Subsidy / Grant / Incentive or any amount of similar nature received /
receivable reduced from Pollution Control cost.
7. Any credits / recoveries relating to the Pollution Control cost.
8. Any abnormal portion of the Pollution Control cost.
9. Penalties and damages excluded from the Pollution Control cost.

8.2 Disclosures shall be made only where material, significant and quantifiable.

8.3 Cost incurred on pollution control relating to prior periods and taken to
reconciliation directly shall be disclosed separately.

8.4 Where estimates are made of future costs to be incurred on pollution control, the
basis of estimate shall be disclosed separately.

8.5 If a descriptive note dealing with the social cost of pollution caused by the entity and
the control of such pollution is contained in the same document as the cost
statement, the cost Statement shall carry a reference to such descriptive note.

8.6 Disclosures shall be made in the body of the Cost Statement or as a foot note or as a
separate schedule.

8.7 Any change in the cost accounting principles and methods applied for the
measurement and assignment of the Pollution Control cost during the period
covered by the cost statement which has a material effect on the Pollution Control
cost shall be disclosed. Where the effect of such change is not ascertainable wholly
or partly the fact shall be indicated.

50
Related party as per the applicable legal requirements relating to the cost statement as on the date of the statement
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CAS - 15
COST ACCOUNTING STANDARD ON SELLING AND DISTRIBUTION OVERHEADS

The following is the COST ACCOUNTING STANDARD -15 (CAS-15) issued by the Council of
The Institute of Cost Accountants of India on “SELLING AND DISTRIBUTION OVERHEADS”.
In this standard, the standard portions have been set in bold italic type. These are to be
read in the context of the background material which has been set in normal type.

1. Introduction

This standard deals with the principles and methods of determining the Selling and
Distribution Overheads.

This standard deals with the principles and methods of classification, measurement
and assignment of Selling and Distribution Overheads, for determination of the cost
of sales of product or service, and the presentation and disclosure in cost statements.

2. Objective

The objective of this standard is to bring uniformity and consistency in the principles
and methods of determining the Selling and Distribution Overheads with reasonable
accuracy.

3. Scope

This standard should be applied to cost statements, which require classification,

measurement, assignment, presentation and disclosure of Selling and Distribution
Overheads including those requiring attestation.

4. Definitions

The following terms are being used in this standard with the meaning specified.

a. Abnormal cost: An unusual or atypical cost whose occurrence is usually

irregular and unexpected and / or due to some abnormal situation of the
production or operation. 51

b. Absorption of overheads: Assigning of overheads to cost objects by means of

appropriate absorption rate.

Overhead Absorption Rate = Overheads of the Cost object / Quantum of base.

51 CAS 3 (Revised 2011) Para 4.1

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c. Cost Object: An activity, contract, cost centre, customer, process, product,

project, service or any other object for which costs are ascertained.

d. Distribution overheads: Distribution overheads, also known as distribution

costs, are the costs incurred in handling a product or service from the time it is
ready for despatch or delivery until it reaches the ultimate consumer including
the units receiving the product or service in an inter-unit transfer.

The cost of packing, repacking, labelling, etc. at an intermediate storage location will
be part of distribution cost.

For Example:

1. Packing, repacking / labelling at an intermediate storage location

2. Transportation cost
3. Cost of warehousing (cover depots, godowns, storage yards, stock yards etc.,)

Note: In case of machinery involving technical help in installation, such expenses

for installation are part of cost of production and not considered as cost of Selling
and Distribution Overheads.

e. Imputed Costs: Notional cost, not involving cash outlay, computed for any
purpose.

f. Indirect expenses: Expenses which cannot be directly attributed to a particular

cost object.

g. Marketing Overheads: Marketing overheads comprise of selling overheads and

distribution overheads.

h. Overheads: Overheads comprise costs of indirect materials, indirect employees

and indirect expenses.

i. Selling Overheads: Selling overheads are the expenses related to sale of products
or services and include all indirect expenses incurred in selling the products or
services.

For Example:
1. Salaries of sales personnel
2. Travelling expenses of sales personnel
3. Commission to sales agents
4. Sales and brand promotion expenses including advertisement, publicity,
sponsorships, endorsements and similar other expenses.
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5. Receivable Collection costs

6. After sales service costs
7. Warranty costs

5. Principles of Measurement

5.1 Selling and Distribution Overheads shall be the aggregate of the cost of resources
consumed in the selling and distribution activities of the entity. The cost of resources
procured from outside shall be determined at invoice or agreed price including duties
and taxes, and other expenditure directly attributable thereto net of discounts (other
than cash discounts), taxes and duties refundable or to be credited by the Tax
Authorities.

Post sales costs such as warranty cost, product liability cost, after sales service shall be
estimated on a reasonable basis.

5.2 Selling and Distribution Overheads, the benefits of which are expected to be
derived over a long period, shall be amortised on a rational basis.

5.3 Selling and distribution overheads shall not include imputed cost.

5.4 Cost of after Sales Service provided in terms of sale agreement for a class of
transactions, shall be determined on rational and scientific basis, net of any recovery
on the service.

5.5 Any Subsidy / Grant / Incentive or any such payment received / receivable with
respect to any Selling and Distribution Overheads shall be reduced from the cost of
the sales of the cost object.

5.6 Any abnormal cost relating to selling and distribution activity shall be excluded
from the Selling and Distribution Overheads.

5.7 Any demurrage or detention charges, or penalty levied by transportation or other

authorities in respect of distribution activity shall not form part of the Selling and
Distribution Overhead.

5.8 Penalties and damages paid to statutory authorities or other third parties shall
not form part of the Selling and Distribution Overheads.

5.9 Credits / recoveries relating to the Selling and Distribution Overheads including
those rendered without any consideration, material and quantifiable, shall be
deducted to arrive at the net Selling and Distribution Overheads.

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5.10 Any change in the cost accounting principles applied for the measurement of the
Selling and Distribution Overheads shall be made only if it is required by law or for
compliance with the requirements of a cost accounting standard or a change would
result in a more appropriate preparation or presentation of cost statements of an
entity.

6. Assignment of Costs

6.1 Selling and Distribution Overheads directly traceable shall be assigned to the
relevant product sold or services rendered.

6.2 Transportation cost relating to distribution shall be assigned as per CAS – 5,

where relevant and applicable.

6.3 Assignment of Selling and Distribution Overheads to the cost objects shall be
based on either of the following two principles;

i) Cause and Effect - Cause is the process or operation or activity and effect is
the incurrence of cost.

ii) Benefits received – overheads are to be apportioned to the various cost

objects in proportion to the benefits received by them.

7. Presentation

7.1 Selling and Distribution overheads shall be presented as a separate cost head in
the cost statement.

A reporting entity may use the term marketing Overheads in place of Selling and
Distribution overheads.

7.2 Element wise details of the Selling and Distribution overheads shall be presented,
if material.

8. Disclosures

8.1 The cost statements shall disclose the following:

• The basis of distribution of Selling and Distribution Overheads to the cost

objects.
• Selling and Distribution Overheads incurred in foreign exchange.
• Cost of Selling and Distribution services rendered to related parties 52.

52 Related party as per the applicable legal requirements relating to the cost statement as on the date of the statement
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• Any Subsidy / Grant / Incentive and any such payment reduced from Selling
and Distribution Overheads.
• Credits / recoveries relating to the Selling and Distribution Overheads.
• Penalties and damages excluded from the Selling and Distribution Overheads.

8.2 Disclosures shall be made only where material and significant.

8.3 Disclosures shall be made in the body of the Cost Statement or as a foot note or as
a separate schedule.

8.4 Any change in the cost accounting principles and methods applied for the
measurement and assignment of the Selling and Distribution Overheads during the
period covered by the cost statement which has a material effect on the Selling and
Distribution Overheads shall be disclosed. Where the effect of such change is not
ascertainable wholly or partly the fact shall be indicated.

9. Effective date:

This Cost Accounting Standard shall be effective from the period commencing on or after
1st April 2013 for being applied for the preparation and certification of General Purpose
Cost Accounting Statements.

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CAS -16 (REVISED 2017)

COST ACCOUNTING STANDARD ON DEPRECIATION AND AMORTISATION

The following is the COST ACCOUNTING STANDARD – 16 (CAS – 16) issued by the Council of
The Institute of Cost Accountants of India on “DEPRECIATION AND AMORTISATION”. In this
Standard, the standard portions have been set in bold italic type. This standard should be
read in the context of the background material which has been set in normal type.

1. Introduction

This standard deals with the principles and methods of measurement and
assignment of Depreciation and Amortisation for determination of the cost of
product or service, and the presentation and disclosure in cost statements.

2. Objective

The objective of this standard is to bring uniformity and consistency in the principles and
methods of determining the Depreciation and Amortisation with reasonable accuracy.

3. Scope

This standard shall be applied to cost statements which require measurement, assignment,
presentation and disclosure of Depreciation and Amortisation, including those requiring
attestation.

4. Definitions

The following terms are being used in this standard with the meaning specified:-

4.1. Amortisation: Amortisation is the systematic allocation of the depreciable amount

of an intangible asset over its useful life.

It refers to expensing the acquisition cost minus the residual value of intangible assets
such as Franchise, Patents and Trademarks or Copyrights in a systematic manner over
their estimated useful economic life so as to reflect their consumption in the
production of goods and services.

4.2. Asset: An Asset is a resource;

(a) controlled by an entity as a result of past events; and

(b) from which future economic benefits are expected to flow to the entity.

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An asset is a resource controlled by the enterprise as a result of past events from which
future economic benefits are expected to flow to the enterprise. In case of some assets
which are acquired for safety or environmental reasons, the acquisition of such assets
may not provide future economic benefits directly but may be necessary for an entity to
obtain the future economic benefits from other assets. Such items also qualify for
recognition as assets.

4.3. Cost Object: An activity, contract, cost centre, customer, process, product, project,
service or any other object for which costs are ascertained.

4.4. Current asset: An entity shall classify an asset as current when :

(a) it expects to realise the asset, or intends to sell or consume it, in its normal
operating cycle;

(b) it holds the asset primarily for the purpose of trading;

(c) it expects to realise the asset within twelve months after the reporting period;
or

(d) the asset is cash or a cash equivalent unless the asset is restricted from being
exchanged or used to settle a liability for at least twelve months after the
reporting period.

4.5. Depreciation: Depreciation is the systematic allocation of the depreciable amount

of an asset over its useful life.

4.6. Depreciable amount: The cost of an asset, or other amount substituted for cost in
the financial statement, less its residual value.

4.7. Depreciable property, plant and equipment are tangible assets that:

(a) are held for use in the production of goods or supply of services, for rental to
others, for administrative, selling or distribution purposes; and

(b) are expected to be used during more than one accounting period.

Land is not a depreciable asset as it does not have a defined useful life.

4.8. Impairment Loss: An impairment loss is the amount by which the carrying amount
of an asset exceeds its recoverable amount.

4.9. Intangible Asset: An intangible asset is an identifiable non-monetary asset without

physical substance.
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4.10. Residual (salvage) value: The estimated amount that an entity would currently
obtain from disposal of an asset, after deducting the estimated costs of disposal, if
the assets were already of the age and in the condition expected at the end of its
useful life.

4.11. Useful life of asset: Useful life of asset is either:

(a) the period over which a asset is expected to be available for use by an entity ;
or

(b) the number of production or similar units expected to be obtained from use of
the asset by the entity.

5. Principles of Measurement

5.1. Depreciation and Amortisation shall be measured based on the depreciable

amount and the useful life.

The residual value of an intangible asset shall be assumed to be zero unless:

(a) there is a commitment by a third party to purchase the asset at the end of its useful
life; or

(b) there is an active market for the asset and:

8. residual value can be determined by reference to that market; and

9. it is probable that such a market will exist at the end of the asset’s useful life.

10. The residual value of a property, plant and equipment shall be considered as
zero if the entity is unable to estimate the same with reasonable accuracy.

The minimum amount of depreciation to be provided shall not be less than the amount
calculated as per principles and methods as prescribed by any law or regulations
applicable to the entity and followed by it.

5.2. In case of regulated industry the amount of depreciation shall be the same as
prescribed by the concerned regulator.

5.3. While estimating the useful life of a depreciable asset, consideration shall be given
to the following factors:

(a) Expected physical wear and tear;

(b) Obsolescence; and

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(c) Legal or other limits on the use of the asset.

5.4. The useful life of an intangible asset that arises from contractual or other legal
rights shall not exceed the period of the contractual or other legal rights, but may
be shorter depending on the period over which the entity expects to use the asset.

If the contractual or other legal rights are conveyed for a limited term that can be
renewed, the useful life of the intangible asset shall include the renewal period(s) only
if there is evidence to support renewal by the entity without significant cost. The useful
life of a re-acquired right recognised as an intangible asset in a business combination is
the remaining contractual period of the contract in which the right was granted and
shall not include renewal periods.

The useful life of an intangible asset, in any situation, shall not exceed 10 years from
the date it is available for use.

5.5. Depreciation of an asset begins when it is available for use, i.e. when it is in the
location and condition necessary for it to be capable of operating in the manner
intended by management.

An asset which is used only when the need arises but is always held ready for use.

Example: fire extinguisher, stand by generator, safety equipment shall be considered

to be an asset available for use.

Depreciation of an asset ceases at the earlier of the date that the asset is classified as
held for sale (or included in a disposal group that is classified as held for sale) or the
date that the asset is de-recognized.

5.6. Depreciation of any addition or extension to an existing depreciable asset which

becomes an integral part of that asset shall be based on the remaining useful life of
that asset.

5.7. Depreciation of any addition or extension to an existing depreciable asset which

retains a separate identity and is capable of being used after the expiry of the
useful life of that asset shall be based on the estimated useful life of that addition
or extension.

5.8. The impact of higher depreciation due to revaluation of assets shall not be
assigned to cost object.

5.9. Impairment loss on assets shall be excluded from cost of production.

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5.10. The method of depreciation used shall reflect the pattern in which the asset’s
future economic benefits are expected to be consumed by the entity.

5.11. An entity can use any of the methods of depreciation to assign depreciable amount
of an asset on a systematic basis over its useful life.

For example:

a) Straight-line method;

b) Diminishing balance method; and

c) Units of production method.

5.12. The method of amortisation of intangible asset shall reflect the pattern in which
the economic benefits are expected to be consumed by the entity.

5.13. The methods and rates of depreciation applied shall be reviewed at least annually
and, if there has been a change in the expected pattern of consumption or loss of
future economic benefits, the method applied shall be changed to reflect the
changed pattern.

5.14. Items such as spare parts, stand-by equipment and servicing equipment are
recognised as Property, Plant and Equipment when they meet the definition of
Property, Plant and Equipment and depreciated accordingly. Otherwise, such items
are classified as inventory and recognised in cost as and when they are consumed.

5.15. Cost of small assets shall be written off in the period in which they were purchased
as per the accounting policy of the entity.

5.16. Depreciation of an asset shall not be considered in case cumulative depreciation

exceeds the original cost of the asset, net of residual value.

5.17. Where depreciation for an addition of an asset is measured on the basis of the
number of days for which the asset was used for the preparation and presentation
of financial statements, depreciation of the asset for assigning to cost of object
shall be measured in relation to the period, the asset actually utilized.

6. Assignment of Costs

6.1. Depreciation shall be traced to the cost object to the extent economically feasible.

6.2. Where the depreciation is not directly traceable to cost object, it shall be assigned
based on either of the following two principles:
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i. Cause and effect - cause is a process or operation or activity and effect is the
incurrence of cost.

ii. Benefits received– depreciation is to be apportioned to the various cost

objects in proportion to the benefits received by them.

6.3. Depreciation on an asset which if remains idle or temporarily retired from

production of goods and services or remains idle shall be considered as abnormal
cost for the period when the asset is not in use.

6.4. The depreciation charged for a period is usually recognised in cost of goods or
services.

6.5. Similarly, wherever the property plant and equipment are used for producing
another asset, the related depreciation shall form part of cost of such asset.

7. Presentation

Depreciation and Amortisation, if material, shall be presented in the cost statement as

a separate item of cost.

8. Disclosures

8.1. The cost statement shall disclose the following:-

1. The basis of distribution of Depreciation and Amortisation to the cost objects.

2. Any credits / recoveries relating to Depreciation and Amortisation.
3. Additional Depreciation on account of revaluation of asset, which is not
included in cost.
4. Amount of depreciation that is not included in cost because of temporary
retirement of assets from production of goods and services.

8.2. Disclosure shall be made only where material, significant and quantifiable.

8.3. Disclosures shall be made in the body of the cost statement or as a foot note or in a
separate schedule.

8.4. Any change in the cost accounting principles and methods applied for the
measurement and assignment of Depreciation and Amortisation during the period
covered by the cost statement which has a material effect on Depreciation and
Amortisation shall be disclosed. Where the effect of such change is not
ascertainable wholly or partly, the fact shall be indicated.

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CAS-17 (REVISED 2017)

COST ACCOUNTING STANDARD ON INTEREST AND FINANCING CHARGES

The following is the Cost Accounting Standard (CAS 17) (Revised 2017) issued by the Council
of The Institute of Cost Accountants of India for determination of “INTEREST AND
FINANCING CHARGES”. In this Standard, the standard portions have been set in bold italic
type. These are to be read in the context of the background material which has been set in
normal type.

1 Introduction

This standard deals with the principles and methods of classification,

measurement and assignment of Interest and Financing Charges.

2 Objective

The objective of this standard is to bring uniformity and consistency in the

principles, methods of determining and assigning the Interest and Financing
Charges with reasonable accuracy.

3 Scope

This standard should be applied to cost statements which require classification,

measurement, assignment, presentation and disclosure of Interest and Financing
Charges including those requiring attestation.

This standard does not deal with costs relating to risk management through
derivatives.

4 Definitions

The following terms are being used in this standard with the meaning specified.

4.1. Asset: An Asset is a resource;

(a) controlled by an entity as a result of past events; and

(b) from which future economic benefits are expected to flow to the entity.

4.2. Cost Object: An activity, contract, cost centre, customer, process, product,
project, service or any other object for which costs are ascertained.

4.3. Current asset: An entity shall classify an asset as current when :

(a) it expects to realise the asset, or intends to sell or consume it, in its normal
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operating cycle;

(b) it holds the asset primarily for the purpose of trading;

(c) it expects to realise the asset within twelve months after the reporting
period; or

(d) the asset is cash or a cash equivalent unless the asset is restricted from
being exchanged or used to settle a liability for at least twelve months after
the reporting period.

4.4. Current Liabilities: An entity shall classify a liability as current when :

(a) it expects to settle the liability in its normal operating cycle;

(b) it holds the liability primarily for the purpose of trading;

(c) the liability is due to be settled within twelve months after the reporting
period; or

(d) it does not have an unconditional right to defer settlement of the liability for
at least twelve months after the reporting period.

4.5. Imputed Costs: Notional cost, not involving cash outlay, computed for any
purpose.

4.6. Intangible Asset: An intangible asset is an identifiable non-monetary asset

without physical substance.

4.7. Interest and Finance charges: Interest and Financing Charges are interest and
other costs incurred by an entity in connection with the financing
arrangements.

Examples are:

1. Interest and commitment charges on bank borrowings, other short term and long
term borrowings:

2. Financing Charges in respect of finance leases and other similar arrangements:

and

3. Exchange differences arising from foreign currency borrowings to the extent they
are regarded as an adjustment to the interest costs.

The terms Interest and financing charges, finance costs, and borrowing costs are
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used interchangeably.

4.8. Net current asset: Net current asset is the excess of current assets over current
liabilities

Current Liabilities shall include short term borrowings and that part of long term
borrowings which are classified as current liabilities

Short term borrowing is the borrowing which is repayable within one year from the
date of disbursal as per Loan Agreement.

Long term borrowing is the borrowing which is repayable after one year from the
date of disbursal as per Loan Agreement.

5 Principles of Measurement:

5.1. Interest and Financing Charges shall be measured in accordance with the
Accounting Standards notified by the Central Government under the Companies
(Accounting Standards) Rules 2006 or with the Indian Accounting Standards
notified under the Companies (Indian Accounting Standards) Rules 2015, as
applicable.

5.2. Interest and Financing Charges incurred shall be identified for:

(a) acquisition / construction/ production of qualifying assets ; and

(b) Other finance costs for production of goods/ operations or services rendered
which cannot be classified as qualifying assets.

5.3. Interest and Financing Charges directly attributable to the acquisition /

construction/ production of a qualifying asset shall be included in the cost of the
asset.

5.4. Interest and Financing Charges shall not include imputed costs.

5.5. Subsidy / Grant / Incentive or amount of similar nature received / receivable with
respect to Interest and Financing Charges if any, shall be reduced to ascertain the
net interest and financing charges.

5.6. Penal Interest for delayed payment, Fines, penalties, damages and similar levies
paid to statutory authorities or other third parties shall not form part of the
Interest and Financing Charges.

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In case the company delays the payment of Statutory dues beyond the stipulated date,
interest paid for delayed payment shall not be treated as penal interest.

5.7. Interest paid for or received on investment shall not form part of the other
financing charges for production of goods / operations or services rendered;

6 Assignment of costs

6.1. Assignment of Interest and Financing Charges to the cost objects shall be based on
either of the following principles:

(a) Cause and effect- cause is the process or operation or activity and effect is
the incurrence of cost.

(b) Benefits received- Interest and Financing Charges are to be apportioned to

the various cost objects in proportion to the benefits received by them.

7 Presentation

Interest and Financing Charges shall be presented in the cost statement as a

separate item of cost of sales.

8 Disclosures

8.1 The cost statements shall disclose the following:

1. The basis of distribution of Interest and Financing Charges to the cost objects/
cost units.
2. Where predetermined cost is applied in Interest and Financing Charges, the
rate and usage variances.
3. Interest and Financing Charges paid/ payable to related parties.
4. Interest and Financing Charges incurred in foreign exchange.
5. Any Subsidy / Grant / Incentive or any amount of similar nature received /
receivable reduced Interest and Financing Charges.

8.2 Disclosures shall be made only where material, significant and quantifiable.

8.3 Interest and Financing Charges incurred relating to prior periods and taken to
reconciliation directly shall be disclosed separately.

8.4 Disclosures shall be made in the body of the Cost Statement or as a foot note or as a
separate schedule.

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8.5 Any change in the cost accounting principles and methods applied for the
measurement and assignment of the Interest and Financing Charges during the
period covered by the cost statement which has a material effect on the Interest and
Financing Charges shall be disclosed. Where the effect of such change is not
ascertainable wholly or partly the fact shall be indicated.

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CAS -18
COST ACCOUNTING STANDARD ON RESEARCH AND DEVELOPMENT COSTS

The following is the Cost Accounting Standard-18 (CAS-18) issued by the Council of The
Institute of Cost Accountants of India for determination of “RESEARCH AND DEVELOPMENT
COSTS”. In this Standard, the standard portions have been set in bold italic type. This
standard should be read in the context of the background material which has been set in
normal type.

1. Introduction

This standard deals with the principles and methods of determining the Research, and
Development Costs and their classification, measurement and assignment for
determination of the cost of product or service, and the presentation and disclosure in
cost statements.

2. Objective

The objective of this standard is to bring uniformity and consistency in the principles
and methods of determining the Research, and Development Costs with reasonable
accuracy and presentation of the same.

3. Scope

This standard should be applied to cost statements that require classification,

measurement, assignment, presentation and disclosure of Research, and Development
Costs including those requiring attestation.

4. Definitions

The following terms are being used in this standard with the meaning specified.

4.1 Abnormal cost: An unusual or atypical cost whose occurrence is usually irregular
and unexpected and/ or due to some abnormal situation of the production or
operation. 53

4.2 Cost Object: An activity, contract, cost centre, customer, process, product, project,
service or any other object for which costs are ascertained.

4.3 Direct Employee Cost: Employee cost, which can be attributed to a Cost Object in an
economically feasible way. 54

53
Adapted from CAS 1 paragraph 6.5.19
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4.4 Direct Expenses: Expenses relating to manufacture of a product or rendering a

service, which can be identified or linked with the cost object other than direct material
or direct employee cost 55.

Examples of Direct Expenses are royalties charged on production, hire charges for use of
specific equipment for a specific job, cost of special designs or drawings for a job, software
services specifically required for a job, travelling Expenses for a specific job.

4.5 Direct Materials: Materials, the cost of which can be attributed to a cost object in an
economically feasible way. 56

4.6 Imputed Costs: Notional cost, not involving cash outlay, computed for any purpose

4.7 Indirect Employee Cost: Employee cost, which cannot be directly attributed to a
particular cost object.

4.8 Indirect Material Cost: Material cost that cannot be directly attributed to a
particular cost object.

4.9 Indirect expenses: Expenses which cannot be directly attributed to a particular cost
object.

4.10 Overheads: Overheads comprise costs of indirect materials, indirect employees

and indirect expenses.

4.11 Research and Development:

4.11.1 Research: Research is original and planned investigation undertaken with

the prospect of gaining new scientific or technical knowledge and understanding 57.

4.11.2 Development cost: Development cost is the cost for application of research
finding or other knowledge to a plan or design for the production of new or
substantially improved materials, devices, products, processes, systems, or services
before the start of commercial production or use.

4.11.3 Research Cost: Research cost is the cost of original and planned
investigation undertaken with the prospect of gaining new scientific or technical
knowledge and understanding.

54
Adapted from CAS 1 Para 6.2.4 (Direct labour cost)
55
Adapted from CAS 1 Para 6.2.6
56
Adapted from CAS 1-6.2.3
57
Adapted AS 26
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5. Principles of Measurement

5.1 Research, and Development Costs shall include all the costs that are directly
traceable to research and/or development activities or that can be assigned to
research and development activities strictly on the basis of a) cause and effect or b)
benefits received. Such costs shall include the following elements:

1. The cost of materials and services consumed in Research, and Development activities.

2. Cost of bought out materials and hired services as per invoice or agreed price including
duties and taxes directly attributable thereto net of trade discounts, rebates, taxes and
duties refundable or to be credited.

3. The salaries, wages and other related costs of personnel engaged in Research, and
Development activities;

4. The depreciation of equipment and facilities, and other tangible assets, and
amortisation of intangible assets to the extent that they are used for Research, and
Development activities;

5. Overhead costs, other than general administrative costs, related to Research, and
Development activities.

6. Costs incurred for carrying out Research, and Development activities by other entities
and charged to the entity; and

7. Expenditure incurred in securing copyrights or licences

8. Expenditure incurred for developing computer software

9. Costs incurred for the design of tools, jigs, moulds and dies

10. Other costs that can be directly attributed to Research, and Development activities and
can be identified with specific projects.

5.2 Subsidy / Grant / Incentive or amount of similar nature received / receivable with
respect to Research, and Development Activity, if any, shall be reduced from the cost of
such Research, and Development Activity.

5.3 Any abnormal cost where it is material and quantifiable shall not form part of the
Research, and Development Cost.

5.4 Fines, penalties, damages and similar levies paid to statutory authorities or other
third parties shall not form part of the Research, and Development Cost.
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5.5 The amortisation of an intangible asset arising from the development activity shall
be treated as set out in the CAS 16 relating to Depreciation and Amortisation.

5.6 Research and Development costs shall not include imputed costs.

5.7 Credits/recoveries relating to Research, and Development cost, if material and

quantifiable, including from the sale of output produced from the Research and
Development activity shall be deducted from the Research and Development cost.

6. Assignment of costs

6.1 Research and Development costs attributable to a specific cost object shall be
assigned to that cost object directly.

Research, development costs that are not attributable to a specific product or process shall
not form part of the product cost.

6.2 Development cost which results in the creation of an intangible asset shall be
amortised over its useful life

6.3 Assignment of Development Costs shall be based on the principle of “benefits

received”.

6.4 Research and Development Costs incurred for the development and improvement of
an existing process or product shall be included in the cost of production.

In case the Research and Development activity related to the improvement of an existing
process or product continues for more than one accounting period, the cost of the same
shall be accumulated and amortised over the estimated period of use of the improved
process or estimated period over which the improved product will be produced by the
entity after the commencement of commercial production, as the case may be, if the
improved process or product is distinctly different from the existing process or product
and the product is marketed as a new product. The amount allocated to a particular period
shall be included in the cost of production of that period. If the expenditure is only to
improve the quality of the existing product or minor modifications in attributes, the
principle shall not be applied.

6.5 Development costs attributable to a saleable service e.g providing technical know-
how to outside parties shall be accumulated separately and treated as cost of
providing the service.

7. Presentation

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7.1 Research and Development costs relating to improvement of the process or

products or services shall be presented as a separate item of cost in the cost statement
under cost of production.

7.2 Research, and Development costs which are not related to improvement of the
process, materials, devices, processes, systems, product or services shall be presented
as a part of the reconciliation statement.

8. Disclosures

8.1 The cost statements shall disclose the following:

1. The basis of accumulation and assignment of Research and Development

costs.
2. The Research and Development costs paid to related parties 58.
3. Credit/recoveries from related parties
4. Research and Development cost incurred in foreign exchange.
5. Any Subsidy/Grant/Incentive and any such payment reduced from Research,
and Development cost.
6. Credits/recoveries deducted from the Research, and Development cost.
7. Any abnormal cost excluded from Research, and Development cost including
cost of abandoned projects and research activities considered abnormal.
8. Penalties and damages paid etc. excluded from Research, and Development
cost.

8.2 Any change in the cost accounting principles and methods applied for the
measurement and assignment of the Research, and Development cost during the
period covered by the cost statement that has a material effect on the Research,
and Development cost shall be disclosed. Where the effect of such change is not
ascertainable wholly or partly the fact shall be indicated.

8.3 Disclosures shall be made only where material, significant and quantifiable.

8.4 Disclosures shall be made in the body of the Cost Statement or as a foot note or as a
separate schedule.

58
Related party as per the applicable legal requirements relating to the cost statement as on the date of the statement

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CAS-19
COST ACCOUNTING STANDARD ON JOINT COSTS

The following is the Cost Accounting Standard – 19 (CAS - 19) issued by the Council of The
Institute of Cost Accountants of India for determination of “JOINT COSTS”. In this standard,
the standard portions have been set in bold Italic type. This standard should be read in the
context of the background material which has been set in normal type.

1. Introduction

The standard deals with the principles and methods of measurement and
assignment of Joint Costs and the presentation and disclosure in cost statement.

2. Objective

The objective of this standard is to bring uniformity, consistency in the principles,

methods of determining and assigning Joint Costs with reasonable accuracy.

3. Scope

The standard shall be applied to cost statements which require classification,

measurement, assignment, presentation and disclosure of Joint Costs including
those requiring attestation.

4. Definitions

The following terms are being used in this standard within the meaning specified.

4.1 By-Product: Product with relatively low value produced incidentally in the
manufacturing of the product or service.

4.2. Cost Object: An activity, contract, cost centre, customer, process, product, project,
service or any other object for which costs are ascertained.

4.3 Imputed Cost: Notional cost, not involving cash outlay, computed for any purpose

4.4 Joint Costs: Joint costs are the cost of common resources used to produce two or
more products or services simultaneously.

4.5 Joint product: Products or services that are produced simultaneously, by the
same process, identifiable at the end of the process and recognised as main products
or services having sufficient value.

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4.6 Scrap: Discarded material having no or insignificant value and which is usually
either disposed of without further treatment (other than reclamation and handling)
or reintroduced into the process in place of raw material.

4.7 Split off point: The point in the production process at which joint products become
separately identifiable.

The terms split off point and separation point are used interchangeably.

4.8 Waste: Material lost during production or storage and discarded material which
may or may not have any value.

5. Principles of Measurement

5.1 The principles and methods for measuring Joint costs upto the split off point
will be the same as stipulated in other cost accounting standards.

5.2 Cost incurred after split-off point on product separately identifiable shall be
measured for the resources consumed for each Joint/By-Product.

5.3 Cost incurred after split- off point for further processing of joint product/By-
Product shall be the aggregate of direct and indirect costs.

5.4 Cost of further processing of joint product/By-Product carried out by outside

parties shall be determined at invoice or agreed price including duties and taxes,
net of discounts (other than cash discount) taxes and duties refundable or to be
credited and other expenditure directly attributable to such processing . This cost
shall also include the cost of resources provided to outside parties.

5.5 In case the production process generates scrap or waste, realized or realizable
value, net of disposal cost of scrap and waste shall be deducted from the cost of
Joint Product.

5.6 Any Subsidy / Grant / Incentive or any such payment received / receivable with
respect to any joint product /By-Product shall be reduced for ascertainment of
the cost to which such amounts are related.

5.7 Penalties, damages paid to statutory authorities or other third parties shall not
form part of the cost of the joint product /By-Product.

6. Assignment of costs

6.1 Joint cost incurred shall be assigned to joint products based on benefits received,
which is measured using any of the following methods:
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1 Physical Units Method.

2 Net Realisable Value at split-off point.
Net realisable value for this purpose means the net selling price per unit
multiplied by quantity (Quantity sold). Net realizable value is to be adjusted
for the post- split off costs.
3 Technical estimates

6.2 The value of By-Product shall be estimated using any of the following methods for
adjusting joint costs :

(a) Net realizable value

Net realizable value for this purpose means the net selling price per unit
multiplied by quantity (Quantity sold). Net realizable value is to be adjusted for
the post- split off costs.

(b) Technical Estimates

This method may be adopted where the By-Product is not saleable in the condition
in which it emerges or comparative prices of similar products are not available.

7. Presentation

The Cost Statement shall present the element wise cost of individual products
produced jointly and the value assigned to By-Products.

8. Disclosures

8.1 The Cost statement shall disclose the basis of allocation of Joint costs to individual
products and the value assigned to the By-Products

8.2 The Cost statement shall also disclose:

8.3 The disclosure should be made only where material, significant & quantifiable.

8.4 Disclosures shall be made in the body of Cost Statements or as a foot note or as a
separate schedule.

8.5 Any change in the cost accounting principles and methods applied for the
measurement and assignment of the Joint costs and the value assigned to by-product
during the period covered by the cost statement which has a material effect on the
Joint/ By-Products shall be disclosed. Where the effect of such change is not
ascertainable wholly or partly the fact shall be indicated.

9. Effective date
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This Cost Accounting Standard shall be effective from the period commencing on or after
1st April, 2014 for being applied for the preparation and certification of General Purpose
Cost Accounting Statements.

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CAS-20
COST ACCOUNTING STANDARD ON ROYALTY AND TECHNICAL KNOW-HOW FEE

The following is Cost Accounting Standard- (CAS-20) issued by the council of The Institute of
Cost Accountants of India for determination of “ROYALTY AND TECHNICAL KNOW-HOW
FEE”. In this Standard, the standard portions have been set in bold italic type. This standard
should be read in the context of the background material which has been set in normal type.

1. Introduction

1.1 This standard deals with the principles and methods of determining the amount of
Royalty and Technical Know-how Fee.

1.2 This standard deals with the principles and methods of classification, measurement
and assignment of the amount of Royalty and Technical Know-how Fee, for
determination of the cost of product or service, and their presentation and disclosure in
cost statements.

2. Objective

The objective of this standard is to bring uniformity and consistency in the principles
and methods of determining the amount of Royalty and Technical Know-how Fee with
reasonable accuracy.

3. Scope

This standard should be applied to cost statements, which require classification,

measurement, assignment, presentation and disclosure of the amount of Royalty and
Technical Know-how Fee including those requiring attestation.

4. Definitions

The following terms are being used in this standard with the meaning specified.

4.1 Cost Object: An activity, contract, cost centre, customer, process, product, project,
service or any other object for which costs are ascertained.

4.2 Imputed Costs: Notional cost, not involving cash outlay, computed for any purpose.

4.3 Interest and Finance charges: Interest and Financing Charges are interest and other
costs incurred by an entity in connection with the financing arrangements.

Examples are:

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1. Interest and commitment charges on bank borrowings, other short term and long
term borrowings:

2. Financing Charges in respect of finance leases and other similar arrangements: and

3. Exchange differences arising from foreign currency borrowings to the extent they
are regarded as an adjustment to the interest costs.

The terms Interest and financing charges, finance costs, and borrowing costs are used
interchangeably.

4.4 Royalty: Royalty is any consideration for the use of asset (tangible and/or
intangible) to the owner.

Royalty is often expressed as a percentage of the revenues obtained by use of the owners’
asset (tangible and/or intangible); per unit of production or sales value. It may relate to use
of Non-renewable resource (petroleum and mineral resources); Patents; Trademarks;
Franchise rights; Copy rights; art-work, software and the like.

The terms Assets, tangible assets and intangible assets will have the same meaning as in the
Accounting Standards notified by the Central Government under the Companies (Accounting
Standards) Rules, 2006.

4.5 Technical service fee: Technical service fee is any consideration payable to provider
of technical or managerial services.

5. Principles of Measurement:

5.1 Royalty and Technical Know-how Fee paid or incurred in lump-sum or which are in
the nature of ‘one – time’ payment, shall be amortised on the basis of the estimated
output or benefit to be derived from the related asset.

Examples: Amortisation of the amount of Royalty or Technical Know-how fee paid for which
the benefit is ensued in the current or future periods shall be determined based on the
production / service volumes estimated for the period over which the asset is expected to
benefit the entity .

5.2 Amount of the Royalty and Technical Know-how Fee shall not include finance costs
and imputed costs.

5.3 Any Subsidy/Grant/Incentive or any such payment received/receivable with respect

to amount of Royalty and Technical Know-how fee shall be reduced to measure the
amount of royalty and technical know- how fee.
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5.4 Penalties, damages paid to statutory authorities or other third parties shall not
form part of the amount of Royalty and Technical Know-how fee.

5.5 Credits/ recoveries relating to the amount Royalty and Technical Know-how fee,
material and quantifiable, shall be deducted to arrive at the net amount of Royalty and
Technical Know-how fee.

5.6 Any change in the cost accounting principles applied for the measurement of the
amount of Royalty and Technical Know-how Fee should be made only if, it is required by
law or for compliance with the requirements of a cost accounting standard, or a change
would result in a more appropriate preparation or presentation of cost statements of
an organisation.

6. Assignment of costs

6.1 Royalty and Technical Know-how fee that is directly traceable to a cost object
shall be assigned to that cost object. In case such fee is not directly traceable to a cost
object then it shall be assigned on any of the following basis:

a. Units produced
b. Units sold
c. Sales value

6.2 The amount of Royalty fee paid for mining rights shall form part of the cost of
material.

6.3 The amount of Royalty and Technical Know-how fee shall be assigned on the nature/
purpose of such fee.

The amount of royalty and technical know-how fee related to product or process know how
shall be treated as cost of production; if it is related to trademarks or brands shall be treated
as cost of sales.

7. Presentation

7.1 The amount Royalty and Technical Know-how fee shall be presented as a separate
cost head with suitable classification.

8. Disclosures

8.1 The cost statements shall disclose the following:

1. The basis of distribution of the amount Royalty and Technical Know-how fee to
the cost objects/ cost units.
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2. Quantity and the related rate of items of the amount of Royalty and Technical
Know-how fee, as applicable.
3. Royalty and Technical Know-how fee paid/ payable to related parties 59.
4. Royalty and Technical Know-how fee incurred in foreign exchange.
5. Any Subsidy/Grant/Incentive and any such payment reduced from the amount of
Royalty and Technical Know-how fee.
6. Credits/recoveries relating to the amount of Royalty and Technical Know-how
fee.
7. Penalties and damages excluded from the amount of Royalty and Technical
Know-how fee

8.2 Disclosures shall be made in the body of the Cost Statement or as a foot note or as a
separate schedule.

8.3 Any change in the cost accounting principles and methods applied for the
measurement and assignment of the amount Royalty and Technical Know-how fee
during the period covered by the cost statement which has a material effect on the
amount Royalty and Technical Know-how fee. Where the effect of such change is not
ascertainable wholly or partly the fact shall be indicated.

59
Related party as per the applicable legal requirements relating to the cost statement as on the date of the statement
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CAS-21
COST ACCOUNTING STANDARD ON QUALITY CONTROL

The following is the Cost Accounting Standard (CAS - 21) issued by the Council of The
Institute of Cost Accountants of India for determination of “QUALITY CONTROL”. In this
standard, the standard portions have been set in bold Italic type. These are to be read in
context of the background material which has been set in normal type.

1. Introduction

The standard deals with the principles and methods of measurement and
assignment of Quality Control cost and the presentation and disclosure in cost
statement.

2. Objective

The objective of this standard is to bring uniformity, consistency in the principles,

methods of determining and assigning Quality Control cost with reasonable
accuracy.

3. Scope

The standards shall be applied to cost statements which require classification,

measurement, assignment, presentation and disclosure of Quality Control cost
including those requiring attestation.

4. Definitions

The following terms are being used in this standard with the meaning specified.

4.1 Abnormal cost: An unusual or atypical cost whose occurrence is usually irregular
and unexpected and/ or due to some abnormal situation of the production or
operation. 60

4.2 Cost Object: An activity, contract, cost centre, customer, process, product, project,
service or any other object for which costs are ascertained.

4.3 Defectives: Materials, products or intermediate products that do not meet quality
standards. This may include reworks or rejects.

4.3.1 Rework: Defectives which can be brought up to the standards by putting in

additional resources.

60
Adopted from CAS 1 paragraph 6.5.19
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Rework includes repairs, reconditioning and refurbishing.

4.3.2 Rejects: Defectives which cannot meet the quality standards even after
putting in additional resources.

Rejects may be disposed off as waste or sold for salvage value or recycled in the
production process.

4.4 Imputed Costs: Notional cost, not involving cash outlay, computed for any purpose

4.5 Interest and Finance charges: Interest and Financing Charges are interest and
other costs incurred by an entity in connection with the financing arrangements.

Examples are:

1. Interest and commitment charges on bank borrowings, other short term and long
term borrowings:

2. Financing Charges in respect of finance leases and other similar arrangements: and

3. Exchange differences arising from foreign currency borrowings to the extent they
are regarded as an adjustment to the interest costs.

The terms Interest and financing charges, finance costs, and borrowing costs are used
interchangeably.

4.6 Overheads: Overheads comprise costs of indirect materials, indirect employees

and indirect expenses.

4.7 Quality: Quality is the conformance to requirements or specifications.

The quality of a product or service is fitness of that product or service for meeting its
intended use as required by customer.

4.8 Quality control: A procedure or a set of procedures exclusively designed to ensure

that the manufactured products or performed service adhere to a defined set of
quality criterion or meets requirement of the client or the customer.

4.9 Quality Control cost: Cost of resources consumed towards quality control
procedures

4.10 Scrap: Discarded material having no or insignificant value and which is usually
either disposed off without further treatment (other than reclamation and handling)
or reintroduced into the process in place of raw material.

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4.11 Waste and spoilage:

4.11.1 Waste: Material lost during production or storage and discarded

material which may or may not have any value.

4.11.2 Spoilage: Production that does not meet the quality requirements or
specifications and cannot be rectified economically.

5. Principles of Measurement:

5.1 Quality Control cost incurred in-house shall be the aggregate of the cost of
resources consumed in the Quality Control activities of the entity. The cost of
resources procured from outside shall be determined at invoice or agreed price
including duties and taxes, and other expenditure directly attributable thereto net of
discounts (other than cash discounts), taxes and duties refundable or to be credited
by the Tax Authorities.

Such cost shall include Cost of conformance to quality: (a) prevention cost; and (b)
appraisal cost.

5.2 Identification of Quality Control costs shall be based on traceability in an

economically feasible manner.

5.3 Quality Control costs other than those referred to in paragraph 5.2 shall be
determined on the basis of amount incurred in connection therewith.

5.4 Finance costs incurred in connection with the self generated or procured
resources shall not form part of Quality Control cost.

5.5 Quality Control costs shall not include imputed costs.

5.6 Any Subsidy/Grant/Incentive or any such payment received/receivable with

respect to any Quality Control cost shall be reduced for ascertainment of the cost of
the cost object to which such amounts are related.

5.7 Any abnormal portion of the Quality Control cost where it is material and
quantifiable shall not form part of the Cost of Quality Control.

5.8 Penalties, damages paid to statutory authorities or other third parties shall not
form part of the Quality Control cost.

5.9 Any change in the cost accounting principles applied for the measurement of the
Quality Control cost shall be made only if, it is required by law or for compliance with

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the requirements of a cost accounting standard, or a change would result in a more

appropriate preparation or presentation of cost statements of an organisation.

6. Assignment of costs

6.1 Quality Control cost that is directly traceable to the cost object shall be assigned
to that cost object.

6.2 Assignment of Quality Control cost to the cost objects shall be based on benefits
received by them.

i) Benefits received – Quality Control cost is to be apportioned to the various cost

objects in proportion to the benefits received by them.

For example: On the basis of number of tests performed for a product.

7. Presentation

7.1 Quality Control cost, if material, shall be presented as a separate cost head with
suitable classification.

8. Disclosures

8.1 The cost statements shall disclose the following:

8.1.1 The basis of distribution of Quality Control cost to the cost objects/ cost
units.
8.1.2 Quantity and Cost of resources used for Quality Control cost as applicable.
8.1.3 Quality Control cost paid/ payable to related parties 61.
8.1.4 Quality Control cost incurred in foreign exchange.
8.1.5 Any abnormal portion of the Quality Control cost.
8.1.6 Penalties and damages excluded from the Quality Control cost

8.2 Disclosures shall be made only where material, significant and quantifiable.

8.3 Disclosures shall be made in the body of the Cost Statement or as a foot note or as
a separate schedule.

8.4 Any change in the cost accounting principles and methods applied for the
measurement and assignment of the Quality Control cost during the period covered
by the cost statement which has a material effect on the Quality Control cost shall be

61
Related party as per the applicable legal requirements relating to the cost statement as on the date of the statement
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disclosed. Where the effect of such change is not ascertainable wholly or partly the
fact shall be indicated.

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(CAS – 22)
COST ACCOUNTING STANDARD ON MANUFACTURING COST

The following is the COST ACCOUNTING STANDARD – 22 (CAS - 22) issued by the Council of
The Institute of Cost Accountants of India for determination of “MANUFACTURING COST”. In
this Standard, the standard portions have been set in bold italic type. This standard should be
read in the context of the background material which has been set in normal type.

1. Introduction

1.1 This standard deals with the principles and methods of determining the
Manufacturing Cost of excisable goods.

1.2 This standard deals with the principles and methods of classification,
measurement and assignment for determination of the Manufacturing Cost of
excisable goods and the presentation and disclosure in cost statements.

2. Objective

The objective of this standard is to bring uniformity and consistency in the principles
and methods of determining the Manufacturing Cost of excisable goods.

3. Scope

This standard should be applied to cost statements which require classification,

measurement, assignment, presentation and disclosure of Manufacturing Cost of
excisable goods.

4. Definitions

The following terms are being used in this standard with the meaning specified.

4.1 Abnormal and non-recurring cost: An unusual or atypical cost whose

occurrence is usually irregular and unexpected and/or due to some abnormal
situation of the production or operation.

4.2 Administrative Overheads: Cost of all activities relating to general

management and administration of an organisation.

Administrative overheads need to be analysed in relation to

production/manufacturing activities and other activities. Administrative overheads
in relation to production/manufacturing activities shall be included in the
manufacturing cost.

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Administrative overheads in relation to marketing, projects management,

corporate office or any other expense not related to the manufacturing activity
shall be excluded from manufacturing cost.

4.3 Captive Consumption: Captive Consumption means the consumption of goods

manufactured by one division or unit and consumed by another division or unit
of the same organization or related undertaking for manufacturing another
product(s), as defined in section4(3) of the Central Excise Act, 1944.

4.4 Defectives: End Product and/or intermediate product units that do not meet
quality standards. This may include reworks or rejects.

An intermediate product is a product that might require further processing before

it is saleable to the ultimate consumer.

4.4.1 Reworks: Defectives which can be brought up to the standards by putting

in additional resources.

Rework includes repairs, reconditioning, retro-fitment and refurbishing.

4.4.2 Rejects: Defectives which cannot meet the quality standards even after
putting in additional resources.

Rejects may be disposed off as waste or sold for salvage value or recycled in
the production process.

4.5 Depreciation: Depreciation is a measure of the wearing out, consumption or

other loss of value of a depreciable asset arising from use, efflux of time or
obsolescence through technology and market changes. Depreciation does not
include impairment loss.

Depreciation is allocated so as to charge a fair proportion of the depreciable

amount in each accounting period during the estimated useful life of the asset.

Depreciable amount of a depreciable asset is its historical cost, or other

amount substituted for historical cost in the financial statements, less the
estimated residual value.

Useful life of asset is either

(i) the period over which a depreciable asset is expected to be used by the
enterprise; or

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(ii) the number of production or similar units expected to be obtained from the
use of the asset by the entity.

Depreciation that is charged in audited financial statement should be

considered.

4.6 Direct Expenses: Expenses relating to manufacture of an excisable good, which

can be identified to such excisable good other than direct material cost and
direct employee cost.

4.7 Employee Cost: The aggregate of all kinds of consideration paid, payable and
provisions made for future payments for the services rendered by employees of
an enterprise (including temporary, part time and contract employees).
Consideration includes wages, salary, contractual payments and benefits, as
applicable or any amount paid or payable on behalf of employee. This is also
known as Labour Cost.

4.7.1 Direct Employee Cost: The cost of employees which can be attributed to an
excisable good in an economically feasible way.

4.7.2 Indirect Employee Cost: The cost of employees which cannot be directly
attributed to a particular excisable good.

4.8 Interest and Finance Costs: Costs incurred by an enterprise in connection with
the borrowing of funds.

4.9 Manufacturing Cost: Manufacturing cost of an excisable good is the aggregate

of costs of all resources used in the process of its manufacturing.

Manufacturing cost includes cost of Materials (including process materials),

Employee Cost, Cost of Utilities, Packing Cost, Direct Expenses, Repairs
&Maintenance Cost, Pollution Control Cost, Quality Control Cost, Research &
Development Cost, Cost of Inputs received free of cost or received at concessional
value from the buyer of the excisable good, Depreciation and Amortisation
(including amortisation cost of free tools, patterns ,dies, drawings, blue prints,
technical maps, charts, engineering, development, art work, design work, plans,
sketches, packaging material and the like necessary for production of excisable
goods), Cost of Rework, reconditioning, retro-fitment, Manufacturing Overheads,
other costs allocable to such activity, adjustment for stock of work-in-process and
recoveries for sales of scrap and wastages and the like but does not include
expenses of the above nature incurred for post manufacturing purposes.

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Manufacturing Cost and Cost of Production are used interchangeably.

4.10 Manufacturing Overheads: Indirect costs involved in the manufacturing

process

The terms Manufacturing Overheads, Factory Overheads, Works Overheads and

Production Overheads have the same meaning and are used interchangeably.
Manufacturing overheads shall include administration cost relating to production,
factory, works or manufacturing and depot.

Manufacturing Overheads shall be classified on the basis of behaviour as Variable

Manufacturing Overheads and Fixed Manufacturing Overheads.

Variable Manufacturing Overheads comprise of expenses which vary in proportion

to the change in volume of production. For example, cost of utilities etc.

Fixed Manufacturing overheads comprise of expenses which does not change with
the change in volume of production. For example, salaries, rent, repairs &
maintenance, etc.

4.11 Material Consumed: Material Consumed includes materials directly identified

for production of excisable goods such as:

(a) Indigenous materials

(b) Imported materials

(c) Bought out items

(d) Self-manufactured items

(e) Process materials and other items

(f) Materials received free of cost or at concessional value from the buyer

(g) Accessories, on which cenvat credit is admissible, and which are cleared
along with the final product

(h) goods used for providing free warranty for excisable goods

Cost of material consumed consists of cost of material, duties and taxes, freight
inwards, insurance and other expenditure directly attributable to
procurement. Trade discount, rebates and other similar items are deducted for
determining the cost of materials. Cenvat credit, credit for Countervailing

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Customs Duty, Sales Tax set off, VAT, duty draw back and other similar duties
subsequently recovered/recoverable by the entity are also deducted.

4.12 Normal Capacity is the production achieved or achievable on an average over a

period or season under normal circumstances taking into account the loss of
capacity resulting from planned maintenance.

Capacity may be determined in terms of units of production or equivalent machine

or man hours.

4.13 Packing Material Cost: The cost of material of any nature used for the purpose
of packing of excisable good.

4.14 Quality Control Cost: The quality control cost is the expenses incurred relating
to quality control activities for adhering to quality standard. These expenses
include salaries & wages relating to employees engaged in quality control
activity and other related expenses.

4.15 Repairs & Maintenance Cost: Cost of all activities which have the objective of
maintaining or restoring an asset in or to a state in which it can perform its
required function at intended capacity and efficiency.

4.16 Research and Development Cost: The research and development cost incurred
for development and improvement of the process or the excisable good.

4.17 Royalty: Royalty is compensation/periodic payments for the use of asset

(tangible and/or intangible) to the owner for use of his asset in the
production/manufacture, selling and distribution by an entity.

4.18 Scrap: Discarded material having some value in few cases and which is usually
either disposed of without further treatment (other than reclamation and
handling) or reintroduced into the production process.

4.19 Technical Know-how Fee: Technical Know-how Fee is a lump sum or periodical
amount payable to provider of Technical Know-how in the form of design,
drawings, training of personnel, or practical knowledge, skills or experience.

4.20 Waste and Spoilage:

4.20.1 Waste: Material lost during production or storage due to various factors
such as evaporation, chemical reaction, contamination, unrecoverable
residue, shrinkage, etc., and discarded material which may or may not
have any value.
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4.20.2 Spoilage: Production that does not meet with dimensional or quality
standards in such a way that it cannot be rectified economically and is
sold for a disposal value. Net Spoilage is the difference between costs
accumulated up to the point of rejection and the salvage value.

5. Principles of Measurement

5.1 Manufacturing cost for each excisable good shall be measured separately.

5.2 Manufacturing cost of each excisable good shall be the aggregate of direct and
indirect cost relating to manufacturing activity.

5.3 Material cost shall be measured separately for each type of material, that is, for
indigenous material, imported material, bought out components and process
materials, self-manufactured items, accessories for each type of excisable good.

Cost of Inputs received free of cost or at concessional value from the buyer of the
excisable good shall be considered for determination of manufacturing cost.

5.4 The material cost of normal scrap/defectives which are rejects shall be
included in the material cost of excisable goods manufactured. The material
cost of actual scrap/ defectives, not exceeding the normal quantity shall be
adjusted in the material cost of good production. Realized or realizable value of
scrap or waste shall be deducted for determination of manufacturing cost.
Material Cost of abnormal scrap /defectives should not be included in material
cost but treated as loss after deducting the realisable value of such scrap /
defectives.

5.5 Employee Cost for each excisable good shall be measured separately.

5.6. The cost of utilities consumed for manufacturing of excisable good shall be
measured for each type of utility.

5.7 Packing material cost used for each type of excisable good shall be measured
separately.

If excisable goods are transferred/dispatched duly packed, the cost of such packing
shall include cost of all types of packing in which the excisable goods are removed
from the place of removal.

5.8 The Direct Expenses for manufacturing of excisable goods shall be measured
for each excisable good separately.

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5.9 Repairs and maintenance cost for manufacturing of excisable goods shall be
measured for each excisable good separately.

5.10 Depreciation and Amortisation cost for manufacturing of excisable goods shall
be measured for each excisable good separately.

5.11 Research & Development cost for manufacturing of excisable goods shall be
measured for each excisable good separately.

5.12 Cost incurred for manufacturing of excisable goods after split-off point shall be
measured for each Joint/By-Product.

In case the manufacturing process generates scrap or waste, realized or realizable

value net of cost of disposal, of such scrap and waste shall be deducted from the
cost of Joint Product.

5.13 Royalty and Technical Know-how Fee for manufacturing of excisable goods
paid or incurred in lump-sum or which are in the nature of ‘one-time’ payment,
shall be amortised on the basis of the estimated output or benefit to be derived
from the related Technical Know how.

Royalty paid on sales shall not form part of manufacturing cost of excisable good.

5.14 Quality Control cost incurred in-house for manufacturing of excisable goods
shall be the aggregate of the cost of resources used in the Quality Control
activities in relation to each excisable good. The cost of resources procured
from outside shall be determined at invoice or agreed price including duties
and taxes, and other expenditure directly attributable thereto net of discounts,
taxes and duties refundable or to be credited as input credit.

5.15 Manufacturing Overheads for excisable goods representing procurement of

resources shall be determined at invoice or agreed price including duties and
taxes, and other expenditure directly attributable thereto net of discounts;
taxes and duties refundable or to be credited as input credit.

Manufacturing Overheads other than those referred to above shall be determined

on the basis of cost incurred in connection therewith.

5.16 Any abnormal cost, where it is material and quantifiable, shall not form part of
the manufacturing cost of excisable good.

5.17 Interest and other Finance costs are not part of manufacturing cost of excisable
good.
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5.18 Manufacturing cost of excisable good shall include cost of inputs received free
of cost or at concessional value from the buyer of excisable good and
amortisation cost of free tools, pattern, dies, drawings, blue prints, technical
maps, charts, engineering, development, art work, design work, plans, sketches,
and the like necessary for production of excisable good. It shall also include
cost of rework, reconditioning, retro-fitment, Manufacturing Overheads and
other costs allocable to such activity, adjustment for stock of work-in-process
and recoveries from sales of scrap and wastages and the like necessary for
production of excisable good.

In case any input material, whether of direct or indirect nature, including packing
material, is supplied free of cost or at concessional value by the buyer of the
excisable good, the cost of such material shall be included in the manufacturing
cost.

For example: Amortisation Cost of Moulds, Tools, Dies & Patterns and Cost of
Packing Material etc. received free of cost or at concessional value from the buyer
of excisable good shall be included in manufacturing cost.

5.19 Any Subsidy/Grant/Incentive or any such payment received/receivable, from

other entity, other than the buyer with respect to any manufacturing cost of
excisable good shall be deducted for ascertainment of the manufacturing cost
of excisable good to which such amounts are related.

5.20 The manufacturing cost of excisable good shall be determined based on the
normal capacity or actual capacity utilization whichever is higher and
unabsorbed cost, if any, shall be treated as abnormal cost.

5.21 Fines, penalties, damages, demurrage and similar levies paid to statutory
authorities or other third parties shall not form part of the manufacturing cost
of excisable good.

5.22 The forex component of imported material or other element of cost shall be
converted at the rate on the date of the transaction. Any subsequent change in
the exchange rate till payment or otherwise shall not form part of
manufacturing cost of excisable good.

5.23 Credits/recoveries relating to the manufacturing cost, which are material and
quantifiable, shall be deducted from the total manufacturing cost to arrive at
the net manufacturing cost of excisable good.

5.24 Work in process/progress stock shall be measured at cost computed for

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different stages of completion.

Stock of work-in-process/progress shall be valued at cost on the basis of stages of

completion as per cost accounting principles. Opening and closing stock of work-in-
process/progress shall be adjusted for computation of manufacturing cost of an
excisable good.

6. Assignment of Cost

6.1 While assigning various elements of manufacturing cost of excisable goods,

traceability to an excisable good in an economically feasible manner shall be
the guiding principle. The cost which can be traced directly to each excisable
good shall be directly assigned.

6.2 Assignment of manufacturing cost of excisable goods, which are not directly
traceable to the excisable good shall be based on either of the following two
principles;

6.2.1 Cause and Effect – Cause is the process or operation or activity and effect
is the incurrence of cost.

6.2.2 Benefits received – to be apportioned to various cost objects in

proportion to the benefits received by them.

6.3 The variable manufacturing/production overheads shall be absorbed based on

actual production.

6.4 The fixed manufacturing/production overheads and other similar item of fixed
costs such as quality control cost, research and development costs and
administrative overheads relating to manufacturing shall be absorbed in the
manufacturing cost on the basis of the normal capacity or actual capacity
utilization of the plant, whichever is higher.

6.5 In case a production process results in more than one product being produced
simultaneously, treatment of joint products and by-products shall be as under:

6.5.1 In case joint products are produced, joint costs are allocated between the
products on a rational and consistent basis.

6.5.2 In case by-products are produced, the net realisable value of by-products
is credited to the manufacturing cost of the main product.

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6.6 Miscellaneous Income relating to production/manufacture shall be adjusted in

the determination of manufacturing cost.

For example, income from sale of empty containers used for procurement of raw
material shall be deducted in determination of manufacturing cost.

(c) Presentation

7.1 Cost statement as per Appendix 1 to this standard or as near thereto shall
present following information:

7.1.1 Actual capacity utilization in absolute terms and as a percentage of

normal capacity.

7.1.2 Cost information relating to various elements of Cost shall be presented

separately.

8. Disclosures

8.1 Disclosure shall be made only where material, significant and quantifiable.

8.2 If there is any change in cost accounting principles and practices during the
period under review which may materially affect the manufacturing cost of
excisable good in terms of comparability with previous period(s), the same
shall be disclosed.

9. Effective date

This Cost Accounting Standard shall be effective from the period commencing on or after
1st April 2015 for being applied for the preparation and certification of Cost Accounting
Statements for excisable goods.

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Appendix 1

Cost Statement showing Manufacturing Cost of (Name of excisable good) for the period:
__________________

Name of the Manufacturer

Address of the Manufacturer
Excise Registration Number
Name of the unit
Address of the unit
Central Excise Tariff Heading
A Quantitative Information Unit Quantity
1 Normal/Installed Capacity

2 Production
3 Captive Consumption
4 Production as %age of Normal/Installed Capacity

B Cost Information Unit Quantity Rate Amount Cost per

Unit
Materials (specify)
1 A.
B.
C.
D …..
Total Materials Consumed
2 Process Materials
3 Utilities
4 Direct Employee Cost
5 Direct Expenses
6 Consumable Stores and Spares
7 Repairs and Maintenance Cost
8 Quality Control Cost
9 Research & Development Cost
10 Technical Know-how Fee/Royalty, if
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B Cost Information Unit Quantity Rate Amount Cost per

Unit
any
11 Depreciation/Amortization
12 Other Manufacturing Overheads
13 Total(1 to 12)
14 Add/Less Work-in-Progress
Adjustments
15 Less Credit for Recoveries , if any
16 Packing Cost
17 Cost of Inputs Received Free or at
concessional value from the buyer of
the excisable good
18 Manufacturing Cost (13 to 17)

Date: Seal & Signature of the Company’s Authorised Representative

I/We have verified above data on test check basis with reference to the books of account, cost accounting
records and other records. Based on the information and explanations given to me/us, and on the basis of
generally accepted cost accounting principles and practices and Cost Accounting Standards followed by
the entity, I/we certify that the above cost data reflects true and fair view of the manufacturing cost of the
above excisable good.

Date: Seal & Signature of Cost Accountant

Place: Membership No.: Firm Regn. No.:

Note: Separate Cost Statement(s) shall be prepared for each excisable good

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CAS-23
COST ACCOUNTING STANDARD ON OVERBURDEN REMOVAL COST

The following is the Cost Accounting Standard (CAS-23) on “OVERBURDEN REMOVAL COST”
issued by the Council of the Institute of Cost Accountants of India. In this standard, the
standard portions have been set in bold Italic type. These are to be read in context of the
background material which has been set in normal type.

1. Introduction

The standard deals with the principles and methods of measurement and assignment of
Overburden Removal Cost and the presentation and disclosure in cost statements.

2. Objective

The objective of this standard is to bring uniformity, consistency in the principles,

methods of determining and assigning Overburden Removal Cost with reasonable
accuracy.

3. Scope

The standard shall be applied to cost statements which require classification,

measurement, assignment, presentation and disclosure of Overburden Removal Cost
including those requiring attestation.

4. Definitions

The following terms are being used in this standard with the meaning specified. Any term
not defined in this Standard shall have the same meaning and expression as set out in the
Glossary of Terms issued by the Council.

4.1 Abnormal cost: An unusual or atypical cost whose occurrence is usually irregular and
unexpected and/ or due to some abnormal situation of the production or operations.

4.2 Administrative overheads: Cost of all activities relating to general management and
administration of an entity.

4.3 Amortization: Amortization is the systematic allocation of the depreciable amount of

an intangible asset over its useful life.

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4.4 Cost Object: An activity, contract, cost centre, customer, process, product, project,
service or any other object for which costs are ascertained. 62

Activity includes mining operations also.

4.5 Current Ratio: the ratio of overburden removed to mineral produced in a particular
patch of mine during the year.

Quantity of mineral includes production and mineable mineral lying exposed.

Quantity of overburden removed is the net quantity after adjustment of opening and
closing advance stripping quantities.

4.6 Depreciation: Depreciation is the systematic allocation of the depreciable amount of

an asset over its useful life.

4.7 Imputed Costs: Notional cost, not involving cash outlay, computed for any purpose.

4.8 Interest and Finance charges: Interest and Financing Charges are interest and other
costs incurred by an entity in connection with the financing arrangements.

Examples are:

1. Interest and commitment charges on bank borrowings, other short term and long
term borrowings:

2. Financing Charges in respect of finance leases and other similar arrangements: and

3. Exchange differences arising from foreign currency borrowings to the extent they
are regarded as an adjustment to the interest costs.

The terms Interest and financing charges, finance costs, and borrowing costs are used
interchangeably.

4.9 Mines overheads: indirect costs involved in the mining process for rendering
services.

This relates to the activities of both Mineral extraction and Overburden Removal.

4.10 Mining Plan: It is the plan expected to provide information required to measure the
stripping activity with reasonable consistency.

1
.Adapted from CIMA Terminology

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4.11 Overheads: Overheads comprise costs of indirect materials, indirect employees and
indirect expenses.

4.12 Overburden: It is the overlying materials generally having no commercial value.

4.13 Overburden Removal cost: is the cost incurred to remove the overlying material
from the mine site.

4.14 Ratio Variance: It is the variance between current ratio and standard /average
stripping ratio in terms of quantity of mineral produced during the period.

4.15 Repair and Maintenance Cost: Cost of all activities which have the objective of
maintaining or restoring an asset in or to a state in which it can perform its
required function at intended capacity and efficiency.

4.16 Stripping Activity: It is the activity of overburden removal that benefits the identified
component of an ore to be mined by the entity.

4.17 Stripping Ratio: Stripping ratio is ratio of excavation of overburden to ore.

Generally overburden is measured in cubic metres and ore in tonnes. Therefore, the
Stripping ratio is equal to Volume of overburden (m3)/ Weight of ore (in tonnes).

4.18 Standard stripping ratio: this is the ratio between the total quantity of overburden
to be removed (in cubic meters) and the total mineral to be extracted (in tonnes)
during the Projected life of the project.

The term Standard stripping ratio and Average stripping ratio denote the same meaning
and are used interchangeably.

The Ratio shall be reviewed periodically, at least every five years, to take into account
changes in geological factors such as actual behavior of the soil and the Ore body. The
ratio shall be reviewed immediately if the geological factors alter radically, for example
due to earthquake.

The reported quantity of Overburden is considered in cost statement where the variance
between the reported quantity and the measured quantity is within the permissible
limits. Reported quantity is the quantity of overburden that is necessary corresponding
to actual quantity of mineral raised.

For example, 3:1 stripping ratio means that mining one Ton of ore will require mining
three cubic meters of waste rock (overburden).

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4.19 Advance Stripping: Advance Stripping is the excess overburden removed in between
the overburden bench and assumed angle of repose drawn from the starting of
Mineral bench from the surface of Mineral than what is needed for extraction of
Mineral.

5. Principles of Measurement

5.1. Overburden Removal Cost shall be the aggregate of direct and indirect cost relating
to overburden removal activity.

5.2. Direct cost includes the cost of consumable stores, spares like machinery spares,
explosives and detonators, manpower, equipment usage, utilities, payment made
directly to contractors and other identifiable resources consumed in such activity.

5.3. Indirect cost includes the cost of resources common to various mining operation
including overburden removal activity such as manpower, administrative
overheads, loading and unloading equipment usage and other costs allocable to
such activities.

5.4. The overburden removal cost attributable to a development phase of a mine area
shall be capitalised as non-current asset when it is probable that future economic
benefits to the area will flow to the entity and such cost can be identified and
measured separately.

5.5. The overburden removal cost attributable to developed area of mine shall be
charged to production of ore at the Standard stripping ratio.

The cost of advance stripping activity, whose economic benefit is likely to flow to the
entity during the subsequent period, shall be capitalised and amortised.

If the removal of ore is more than the Standard stripping ratio, then the cost of short
removal overburden shall be charged to the cost of production either by creating the
reserve or by adjusting the earlier capitalized overburden removal cost.

5.6. Overburden shall be measured by multiplying the number of trips undertaken by

equipment for Overburden removal or by any electronic mode. Measurement at
regular intervals may be carried out by volume/ physical verification to arrive at
fair quantity of overburden removed. Final assessment will be made based on
scientific methodology.

5.7. Current ratio is determined by dividing the actual overburden removed (net
quantity after due adjustment for opening & closing advance stripping quantity)

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with the actual production of mineral including adjustment for mineable quantity of
mineral lying exposed during the period.

5.8. Cost of overburden removal activity carried out by outsourcing shall be determined
at agreed price as per contract price including duties and taxes and other
expenditure directly attributable thereto. The cost shall also include the cost of
resources provided to the contractor by the company.

5.9. Cost of overburden removal activity of each mine shall be computed and considered
separately.

5.10. Subsidy/ grant/ incentive or amount of similar nature received/ receivable with
respect to overburden removal activity if any shall be reduced for ascertainment of
the cost of the overburden removal for a patch/ plot to which the amounts are
related.

5.11. Any overburden removal cost resulting from some abnormal circumstances if
material and quantifiable shall not form part of the overburden removal cost.

Examples are fire, cave-in, flooding and other similar events of abnormal circumstances.

5.12. Fine, penalties, damages and similar levies paid to statutory authorities or other
third parties shall not form part of the overburden removal cost.

5.13. Interest & Finance charges incurred in connection with the overburden removal
shall not form part of the overburden removal cost.

5.14. Any change in the cost accounting principles applied for the determination of the
overburden removal cost should be made only if it is required by law or for
compliance with the requirements of a cost accounting standard or a change would
result in a more appropriate preparation or presentation of cost statements of an
enterprise.

6. Assignment of costs

6.1 Direct cost of overburden removal shall be assigned to the overburden removal
activity.

6.2 The cost for equipment shall be assigned in the ratio of machine hours actually
engaged for mineral and overburden removal or any other appropriate method that
apportions the cost in an equitable manner.

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6.3 Administrative overheads and other indirect expenses shall be apportioned to

mineral and overburden on the basis of ratio of actual mineral produced and
overburden removed during the period or on the basis of actual machine hours
engaged for mineral extraction, and overburden removal or any other appropriate
basis.

7. Presentation

7.1. Overburden removal, absorption and cost details shall be presented separately for
each mine.

8. Disclosures

8.1 The cost statements shall disclose the following:

1. The basis of determining the overburden removal cost.

2. Where cost of removal is considered on the basis of standard ratio, any
variation positive or negative from the current ratio.
3. Any subsidy grant/ incentive and any such payment reduced from the cost of
overburden removal.
4. Credit/ recoveries relating to overburden removal.
5. Any abnormal cost excluded from overburden removal cost.
6. Penalties and damages excluded from the overburden removal cost.

8.2 Disclosures shall be made only where material, significant and quantifiable.

8.3 Disclosures shall be made in the body of the Cost Statement or as a foot note or as a
separate schedule.

8.4 Any change in the cost accounting principles and methods applied for the
measurement and assignment of the overburden removal cost during the period
covered by the cost statement which has a material effect on the overburden
removal cost shall be disclosed. Where the effect of such change is not
ascertainable wholly or partly the fact shall be indicated.

9. Effective date:

This Cost Accounting Standard shall be effective from the period commencing on or after
1st April, 2017 for being applied for the preparation and certification of the General
Purpose Cost Statements.

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CAS - 24
COST ACCOUNTING STANDARD ON TREATMENT OF REVENUE IN COST STATEMENTS

The following is the COST ACCOUNTING STANDARD on “TREATMENT OF REVENUE IN COST

STATEMENTS” (CAS-24) issued by the Council of the Institute of Cost Accountants of India. In
this Standard, the standard portions have been set in bold italic type. These are to be read in
the context of the background material which has been set in normal type.

1. Introduction

This standard deals with the principles and methods of classification, measurement,
treatment and assignment of revenue and its presentation and disclosure in cost
statements.

2. Objective

The objective of this standard is to bring uniformity and consistency in the

principles and methods for treatment of revenue in cost statements with reasonable
accuracy.

3. Scope

This standard shall be applied to cost statements which require classification,

measurement, treatment, assignment, presentation and disclosure of revenue
including those requiring attestation.

4. Definitions

The following terms are being used in this standard with the meaning specified. Any
term not defined in this Standard shall have the same meaning and expression as set out
in the Glossary of Terms issued by the Council.

4.1 By-product: Product with relatively low value produced incidentally in the
manufacturing of the product or service.

4.2 Defectives: Materials, products or intermediate products that do not meet quality
standards. This may include reworks or rejects.

4.3 Intermediate product: An intermediate product is a product that requires further

processing before it is saleable.

4.4 Joint product: Products or services that are produced simultaneously, by the same
process, identifiable at the end of the process and recognised as main products or
services having sufficient value.
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4.5 Net Sales Realization: is the revenue from operations net of discounts and indirect
taxes.

4.6 Other Income: is the income that cannot be classified as revenue from operations.

Examples:
• Profit on sale of fixed assets and investments;
• Interest from investments or deposits outside the business;
• Insurance claims received, not adjusted against an item of cost;
• Penalties or liquidated damages received, not adjusted against an item of cost;
• Fees received, not adjusted against an item of cost;
• Rent or lease from properties leased (unless the primary activity itself is leasing);
• Grants received;
• Royalties received(unless it is a part of major activity of the entity);
• Credits for previous years’ adjustments;
• Dividend income on investments(other than in a financial enterprise );
• Gain on foreign currency transaction and translation (other than considered as
finance cost);
• Excess provisions written back;
• Credits on account of revaluation of capital assets;
• All items of abnormal revenue such as recoveries from book debts written off in
the previous period; and
• Prior period income.

4.7 Reporting Period: is the period for which the cost statements are prepared.

4.8 Revenue: The term Revenue will have the same meaning as assigned in the
Accounting Standards notified by the Central Government under the Companies
(Accounting Standards) Rules 2006 or in the Indian Accounting Standards notified
under the Companies (Indian Accounting Standards) Rules 2015, as applicable.

The terms Revenue and Sales Realisation denote the same meaning and are used
interchangeably.

4.9 Revenue from operations: is the income arising in the course of the ordinary
activities of an entity from the sale of goods or rendering of services.

Revenue from operations represents income arising from the sale of goods or rendering
of services and includes other operating revenue, such as sale of scrap, government
subsidies, or incentives received. Revenue from operations is generally recognised at the
net value excluding indirect taxes. Sometime, revenue is presented at the gross value
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including excise duty and the excise duty is presented as deduction from such gross
value of the revenue.

Other Operating Revenue is the incidental income arising in the course of ordinary
activities of an entity but not arising from the sale of main goods or services, and it does
not include Other Income.

Examples:
• Sale of By-products;
• Sale of manufacturing scrap;
• Export incentives received from Government; and
• Product related subsidies or grants received from Government.

4.10 Rejects: Defectives which cannot meet the quality standards even after putting in
additional resources.

4.11 Scrap: Discarded material having no or insignificant value and which is usually
either disposed off without further treatment (other than reclamation and
handling) or reintroduced into the process in place of raw material.

4.12 Spoilage: Production that does not meet the quality requirements or specifications
and cannot be rectified economically.

4.13 Waste: Material lost during production or storage and discarded material which
may or may not have any value.

Example of waste is hard waste and soft waste in textile industry.

5. Principles of Measurement

5.1 Revenue from sale of goods or services provided during a reporting period shall be
measured based on the net sales realization.

5.2 Revenue from sale of joint products shall be measured separately for each main
product or service sold.

5.3 Revenue from sale of goods or services shall be measured separately for each unit or
location of an entity for each type of goods sold or service provided. It shall be sub-
classified into revenue from exports, domestic sales, manufactured goods,
operations, and trading activities.

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5.4 Revenue from sale of goods or services shall be measured separately for sale of each
type of by-products, defectives, second grade products, rejects, scrap, spoilage, or
wastes.

5.5 If a by-product is further processed before sale, sales realisation of such by-product
shall be net of further processing cost. Its net sales realisation shall be adjusted
against the joint cost of production of relevant main products.

5.6 Net Sales realization of defectives, second-grade products, rejects, scrap, spoilage,
and waste products shall be adjusted against the cost of production of related goods
sold.

5.7 Revenue from sale of inputs, utilities, intermediate products, and shared or support
services shall be adjusted against the cost of purchase or cost of production of the
related input, utility, intermediate product and shared or support service.

5.8 Other income shall not be considered in determining profit or loss as per cost
accounts.

5.9 Revenue generated from utilization of assets created under the CSR program shall
not be considered in determining profit or loss as per cost accounts.

5.10 Product or service related subsidies, grants, or incentives, received or receivable on

sale of goods or rendering of services shall be part of revenue from operations and
shall be identified with each product sold or service rendered.

5.11 Any subsidy, grant, incentive or any such payment received or receivable to support
the current operations of the entity other than those in the nature of capital grant
and other than items referred in paragraph 5.10 above shall be treated as reduction
in the related cost.

Reference:

• para 5.6 of CAS-3, Cost Accounting Standard on Production and Operation Overheads;
• para 5.1.9 of CAS-6, Cost Accounting Standard on Material Cost;
• para 5.8 of CAS-7, Cost Accounting Standard on Employee Cost;
• para 5.8 of CAS-8, Cost Accounting Standard on Cost of Utilities;
• para 5.1.8 of CAS-9, Cost Accounting Standard on Packing Material Cost;
• para 5.7 of CAS-10, Cost Accounting Standard on Direct Expenses;
• para 5.5 of CAS-11, Cost Accounting Standard on Administrative Overheads;
• para 5.13 of CAS-12, Cost Accounting Standard on Repair and Maintenance Cost;
• para 5.6 of CAS-13, Cost Accounting Standard on Cost of Service Cost Centre;
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• para 5.13 of CAS-14, Cost Accounting Standard on Pollution Control Cost;

• para 5.5 of CAS-15, Cost Accounting Standard on Selling and Distribution Overheads;
• para 5.4 of CAS-17, Cost Accounting Standard on Interest and Financing Charges;
• para 5.2 of CAS-18, Cost Accounting Standard on Research and Development Costs;
• para 5.6 of CAS-19, Cost Accounting Standard on Joint Costs;
• para 5.3 of CAS-20, Cost Accounting Standard on Royalty and Technical Know-how
Fee;
• para 5.6 of CAS-21, Cost Accounting Standard on Quality Control; and
• para 5.19 of CAS-22, Cost Accounting Standard on Manufacturing Cost.

5.12 Any change in the cost accounting principles applied for the determination of
revenue shall be made only if it is required by law or regulations or for compliance
with the requirements of a cost accounting standard or the change would result in
more appropriate preparation or presentation of cost statements of an entity.

6. Assignment of Revenue

Revenue for each type of product or service shall be assigned directly to that product
or service to the extent it is economically feasible.

Economic feasibility implies that it is practically feasible to assign the revenue to a

particular product or service with reasonable cost and efforts. Reasonable cost and
efforts are matters of judgement.

7. Presentation

7.1 Net sales realization for each product or service shall be indicated separately for
exports, domestic sales, manufactured goods, operations, and trading activities and
matched against the cost of sales (net of duties) and margin of respective product or
service.

7.2 The quantity of goods sold or services provided, where applicable, and selling price
per unit shall be presented under each product or service.

8. Disclosures

8.1 The cost statements shall disclose the following:

1. Revenue from sale of goods or services made to each related party with basis of
determining the selling price;

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2. Revenue from by-products and costs of further processing after split-off point,
reduced from cost of relevant product;

3. Amount and nature of any subsidy, grant or incentive received or receivable and
included in the revenue.

8.2 Any change in the cost accounting principles and methods applied for the
measurement and assignment of revenue during the period covered by the cost
statement which has a material effect on the revenue shall be disclosed. Where the
effect of such change is not ascertainable, wholly or partly, the fact shall be
indicated.

8.3 Disclosures shall be made only where material, significant and quantifiable.

8.4 Disclosures shall be made in the body of the cost statements or as a foot note or as a
separate schedule.

9. Effective date:

This Cost Accounting Standard shall be effective from the period commencing on or after
1st April, 2017 for being applied for the preparation and certification of Cost Accounting
Statement for goods sold and services provided.

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 ICMAI
THE INSTITUTE OF
COST ACCOUNTANTS OF INDIA
(Statutory Body under an Act of Parliament)
www.icmai.in
Headquarters:
CMA Bhawan, 12, Sudder Street, Kolkata-700 016

Delhi Ofce:
CMA Bhawan
3, Institutional Area, Lodhi Road, New Delhi-110 003

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