TaxTMI 
TaxTMI 
Guidance Note on Cost Accounting Standard on Administrative Overheads (CAS-11)
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....efined under section 591 of the Companies Act, 1956 which is engaged in production, processing, manufacturing or mining activities have to maintain cost accounting records in accordance with the Generally Accepted Cost Accounting Principles (GACAP) and Cost Accounting Standards issued by the Institute, to the extent these are found to be relevant and applicable. The above Rules further provide that these will be applicable to companies wherein: (a) aggregate value of net worth as on the last date of the immediately preceding financial year exceeds five crores of rupees; or (b) the aggregate value of the turnover made by the company from sale or supply of all products or activities during the immediately preceding financial year exceeds twenty crores of rupees; or (c) the company's equity or debt securities are listed or are in the process of listing on any stock exchange whether in India or outside India. The Companies (Cost Audit Report) Rules 2011 cast a duty on a Cost Auditor appointed under Section 233B of the Companies Act, 1956 to certify inter-alia that books and records maintained by the company are in conformity with the Cost Accounting Standards issued by the Inst....
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....bership fee Computer maintenance expenses for administration Vehicle maintenance expenses and the like for administration. A detailed list of other administrative expenses is at Annexure 1 B. Corporate Office Expenses: Board of Directors: • Directors' sitting fees, remuneration and commission; • Directors' travelling expenses; • Meeting and other board expenses. Other Management Expenses: 1. Administration - Salaries and fringe benefits of general and administrative personnel. For example salaries of managers, and other employees in the administrative functions of the company. Rent, rates and taxes, travelling and other administrative expenses; 2. Cost information should be collected and analyzed systematically and consistently, whether for a routine information system, or for a specific application and/or purpose. In the preparation of cost statement and its attestation, if required, Administrative Overheads relating to a product/service should be determined with reference to CAS-11. CHAPTER 2 DEFINITIONS 4.1 Abnormal cost: An unusual or atypical cost whose occurrence is usually irregular and unexpected and/or due to some abnormal situation of ....
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....employee cost is to be measured in terms of CAS-7 (Employee cost). Employee cost relating to administrative staff should be the gross pay and allowances payable. It should take into account the employee's salary including all allowances and other benefits, such as Employer's contribution to EPF, FPS, ESIS, Holiday Pay, Gratuity Payable, Bonus and so on. Remuneration paid to Officers, Managers and Executive Directors of an entity - engaged in administrative function should cover fixed salary, PF contribution, leave, superannuation and severance payment, other benefits, and the like. It should also include any amount paid as commission based on percentage of profit. Other benefits include free furnished accommodation, house rent allowance, leave travel concession, reimbursement of medical expenses for self and family. Personal accident insurance, fully maintained company's car with driver, gardener, watchmen and the like. These should form part of employee cost. Remuneration paid to non-executive directors should be treated as Administrative Overheads. Utilities consumed by administrative cost centres are to be collected and measured in accordance with principles laid do....
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....or future economic benefits obtained will normally expire when the next payment is due and should not be capitalized and charged during the period. In house developed software, as soon as it is put to use, should be capitalized and amortized over its useful life. 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. Various types of services related to administration may be procured from outside, such as legal consultancy, management consultancy, internal audit, and so on. In such cases determination of cost of administrative services procured from outside should be as per agreed price/invoice. It should include duties and taxes and other expenditure. These are to be net of any discount, rebate, taxes and duties refundable, if any. 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....
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....ent consultancy services provided to other unit, the cost of the same should be adjusted against the 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. Resources consumed in the administrative overheads are indirect material, indirect employees cost, utilities and other similar items. These are represented in the form of shared services, infrastructure cost and general management cost. Principles applied for measurement of these resources are to be as per relevant cost accounting standard and are to be followed consistently. However, change in principle of measurement of Administrative Overheads should be applied 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. For example profit sharing bonus paid to employees was not ea....
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....ces consumed by a cost object, especially in case of administrative overhead, being an indirect cost. In case of indirect cost there is no relationship between the cost and cost object and tracing is not economically feasible. The following steps are to be followed when tracing the administrative cost: 1. Identify the activities that cause the administrative costs, 2. Measure the cost of those activities; and 3. Assign the cost of the activities to those products and customers. Various items of administration overheads are first collected according to nature of expenditure. These are arranged according to department or function. This is the method of primary distribution. The expenses which are capable of being identified with a specific department are directly assigned. The expenses which cannot be assigned directly to specific departments are assigned on suitable basis. Examples of direct identifying with department or functions are: General Office Secretariat Finance and Accounts Human Resources Legal Following are the bases used for assignment of administrative expenses: Expenses Bases Office rent, rates and taxes Floor area Depreciation of office building Floo....
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....es or goods by the activity represented by the cost objects to which the costs are being assigned. For example: A corporate wide advertising programme promotes the general image of corporation rather than an individual product. The costs of such programme may be allocated on the basis of division sales in the belief that divisions with higher sales levels are more likely to benefit than divisions with lower sales levels. CHAPTER 5 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. Administrative overheads are required to be presented as a separate head in the cost statement. Element wise details of administrative overheads are to be indicated in the cost statement if these are material. What is considered material or immaterial depends on the facts of each case. The materiality of a particular cost is important in classifying costs. The less significant a cost, the less likely will it need to be traced to a cost object. An example as to how administrative overheads can be reflected in a cost statement is given in Annexure I....
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.... any credit or recovery is considered while determining the administrative overheads the same shall be disclosed. For Example: certain administrative services were provided during the year to an Associate/Group entity unit, a sum of ₹ 15 lakh received has been credited to the Administrative Overheads. • Any abnormal portion of the administrative overheads. Abnormal portion of administrative overhead in the cost of cost object is to be excluded as the same has not contributed to the cost object. Disclosure is to be made. For example: During the year there was fire resulting in loss of office equipment, furniture and fixtures of ₹ 9 lakh. The same has been excluded from the administrative overheads. • Penalties and damages excluded from the administrative overheads. Penalties and damages paid are not an item of cost as these are levied for non compliance with regulatory/contractual requirements. These are to be excluded from cost and disclosure made. 8.2 Disclosures shall be made only where material, significant and quantifiable. Level of materiality and significance has not been stated in the standard. Materiality is to be judged in terms of quantity an....
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....for staff; xii. Water charges; xiii. Electricity charges; xiv. Subscription and membership fee; xv. Books and periodicals; xvi. Inspection fees; xvii. Computer maintenance expenses; xviii. Gas charges; xix. Cleaning and plant watering; xx. Advertisement (related to recruitment); xxi. Stipend and trainee expenses; xxii. Gifts and presents; xxiii. Depreciation and repair & maintenance of administrative fixed assets (machines and furniture located in HO; and xxiv. Other miscellaneous expenses, such as Reception; Company party to celebrate functions. ANNEXURE II COST STATEMENT OF PRODUCT ELEMENTS OF ADMINISTRATIVE OVERHEADS (as at serial no.9 of the Cost Statement) For the period/year ending - - - - - - S.No. Item Unit Quantity Rate Amount Cost per unit 1. Material cost 1(a) Indigenous - I. Purchases II. Self manufactured 1(b) Imported 2. Other materials 3. Total Material cost 4. Utilities - Power Steam Water etc. 5. Employee cost 6. Direct expenses: Royalty Others (specify) 7. Production Overhead 8. Adjustment for opening/closing WIP 9. Cost of Production 10 Increase/decrease in Finished Goods 11 Cost of production of goods sol....
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....er unit in relation to which costs are ascertained.5 4.5 Finance Costs: Costs incurred by an enterprise in connection with the borrowing of 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 costs6. The terms Finance costs and Borrowing costs are used interchangeably. 4.6 Imputed Costs: Hypothetical or notional costs, not involving cash outlay, computed for any purpose.7 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.8 4.8 Overheads: Overheads comprise of indirect materials, indirect employee costs and indirect expenses which are not directly identifiable or allocable to a cost obj....
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.... 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 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.10 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 det....