Costing – Cost Accounting Standards Cma Ca Zitendra Rao Member – SIRC of the ICAI Hyderabad – India 10087rao@icmaim.in

Costing – Cost Sheet – Practical Issues Our Journey …. What is COSTING Overview of Cost Accounting Standards CAS 1 / CAS 3 / CAS 4 / CAS 5 / CAS 24 Introduction of Cost Sheets

COST COST is defined as the resources consumed to accomplish a specified objective. COST = what you give up …. Professor Allen What next….. Costs must be measured to ascertain Profit Process of measuring the costs is Cost Accounting or Costing What do you do… Record, Summarize and Report Cost Information from transactions. Drawing Segment wise or product wise data Conclude whether the product is profitable

Costing – CAS 1 Scope Classifies the costs given in a statement For proper presentation Arrangement of costs in logical groups depending on Nature and Purpose Terms Cost Object Cost elements. Cost Centre Cost Unit Cost Classification takes into consideration the Managerial Objective Classification Nature of Expenses Traceability to Cost Object By Function By nature of Behavior By nature of Production or operation process Presentation Principle of Consistency Test of Relevancy Disclose the material changes

Costing – CAS 3 Scope Classifies and measures the Production or Operational Overheads For proper presentation Indirect Costs involved in the production of a product or service Recognition Based on Invoice Cost Incurred Not to include abnormal costs / Notional costs / Fines / Penalties. Subsidies or recoveries to be set off Assignment is on Traceability Cause and Effect Principle Benefits received If Variable on actual production If Fixed on Normal capacity Presentation Separate Line Item in a cost sheet Material aspects to be disclosed separately Disclosure as Foot note Basis of assignment Credit for recoveries Abnormalities

Costing – CAS 4 Scope Arriving at Assessable value for captive Consumption Arriving at Cost of production is the Objective Normal capacity - adjusted installed capacity with time lost on maintenance, normal shut down and time lost in batch changeover Recognition Direct Costs net of recoveries Production Overheads R&D and QC Costs and packing Costs Inputs received free of cost Assignment issues Traceability Abnormal and Non recurring costs taken out Used for tax Compliance If Variable on actual production If Fixed on Normal capacity Presentation Separate Line Item driven cost sheet Avoids under pricing GST aspects Basis of assignment Credit for recoveries Abnormalities

Costing – CAS 5 Scope Recognition Assignment issues Presentation Methodology to collect the transportation costs Arriving at Average Transportation costs Freight subsidies / Insurance claims / valuation of Inventories Recognition Differentiation of Freight/Cartage/Insurance. Vehicle Log Sheets – tasks accomplished Consumables and spares Purpose – Inward/Outward/Job worker Penalties/ damages are no costs. Assignment issues Inward Costs to get added to Inputs Outward Costs are Cost of sales Traceability to varied goods/products on weight or volume basis Presentation Operating Cost Sheet in case of own Fleet Amortization of battery – Tyres Consignment specific costs in case of hired facility A Combination of own and hired may also happen at times Let us look at a Cost Sheet

Costing – CAS 24 Scope Recognition Assignment issues Presentation Consistency in treatment of revenue in Cost statements Covers those Revenue transactions that require presentation in the cost statement Recognition Net sales realization mean net of Discounts and IDT ( GST) Other Income not to form part of Revenue Revenue implies – sales Value Other operating income is Revenue Classify into Domestic/ Exports/Manufactured Goods/ Traded Goods /Services Assignment issues Realization from Scrap/waste/spoiled goods to be set off against COP Revenue of shared services or utilities to be set off against the costs By-Product sale should be recognized net of further processing costs Product related Subsidies/incentives form part of revenue. Expenditure related subsidy or grant not to form part of revenue – but to set off against the cost Traceability to the product in specific Presentation Quantitative Data/grants Related Party Sales

THANKS Cma Ca Zitendra Rao Member – SIRC of ICAI Hyderabad – India 10087rao@icmaim.in