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Guidance Note on Cost Accounting Standard on Cost of Utilities (CAS-8), DATED 11-4-2013
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....ce with the generally accepted cost accounting principles and cost accounting standards issued by the ICAI, to the extent these are found to be relevant and applicable. The above Rules further provides 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. Chapter 1 Introduction Production processes need several inputs other than raw material in the form of water, steam, electricity, and the like. These inputs are known as utilities. Utilities are classified according to the nature of utility, such as power, steam, water, compressed air and so on. A distinction is to be made whether an input is a utility or production input. For example in case of manufacture of Caustic Soda, elect....
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....l or for more complicated tasks such as the operation of pneumatic control. Compressed Air Utility may be centralized services or it may be that individual air compression units are provided for each department depending upon the requirement. In case individual air compression units are provided it may be possible to merge the cost of operating the air compressor with the respective departmental expenses. But where centralized air compression and supply is made, a separate air compressed utility is to be accounted. Classification of utility: "Various types of utilities are used in manufacturing process as indicated in Annexure-1. These are classified according to the nature of utility, such as power, steam water, compressed air and the like". Examples of cost measurement are: • Use of historical cost; • Use of actual or standard cost; • Designation of items of cost which must be included or excluded from the utility cost. Unit of Measurement of Utility: Each utility has a different measurement unit considering its nature and cost is expressed in per unit of the related utility. Details of measurement of unit of different utility....
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.... of capacity resulting from planned maintenance. Standard Cost: A predetermined cost of resource inputs for the cost object computed with reference to set of technical specifications and efficient operating conditions. 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. Stand-by utilities: Any utility created to safeguard against the failure of the main source of inputs. Chapter 3 Principles of measurement 5.1 Each type of utility shall be treated as a distinct cost object. As each utility is a distinct cost object, cost of each utility is to be collected and measured separately. For example power, steam, water, compressed air, oxygen, nitrogen, coke oven gas and the like are distinct utilities, and the cost is collected and measured for each utility separately. The costs are booked to each utility through initial documents such as supplier 's bill, if directly identifiable with utility, payroll analysis sheet, stores requisition, etc. A separate cost statement is to be prepared for each utility. 5.2 Cost of utilities purchased shall be ....
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.... steam is prepared indicating the quantity of steam generated, cost of fuel, soft water, power, employee cost for operating staff, sundry supplies, chemical additives, deprecation and other works overhead. Unit cost of steam is arrived at on the basis of units consumed in different departments after adjusting distribution loss. Steam may be of high pressure, low pressure and medium pressure with multiple paths by which the steam pressure is reduced according to the purpose of use. Steam costs are highly dependent on the path that steam follows in the generation and distribution system. Raw water: Raw water is either purchased or obtained from ground wells/canal. The cost of water mainly consists of share of cost of power allocated through inter-utility transfer. The total cost of water should include employee cost, fuel, power, repair and maintenance of tube wells, depreciation, overhead. The total monthly cost of operating this department is divided by the quantity of K Ltr of water pumped during the month to determine the unit cost of water pumped. Cost of Soft Water: Water, if hard, requires treatment. The cost of soft water will include the cost of raw water, chemicals....
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....for transfer of utility will be added to the cost of utility. 5.3.3 Cost of Utilities generated for the inter company transfers shall comprise direct material cost, direct employee cost, direct expenses, factory overheads, distribution cost and share of administrative overheads. In case of inter company transfer, cost of utility so transferred should comprise as para 5.3.2 viz. direct material (fuel and the like), direct labour, direct expenses, chemicals, share of factory overheads, distribution cost and share of administrative overhead. Cost of a utility determined as above plus share of administrative overhead is to be charged for inter company transfer. Transmission loss should be treated as per agreement between the parties. 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 price of utilities sold to out side parties should include cost of utilities as computed under para 5.3.3. plus marketing overhead and margin, as illustrated in Annexure 3. 5.4 Finance costs incurr....
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....f the utility cost. There can be other variances relating to employee cost, overhead between actual and budgeted and the like. Variances due to normal reasons should be treated as cost while the variances due to abnormal\ reasons should not form part of the cost of production. For other expenses and overhead, expenses budgeted and actual are compared at different level of activity. 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. Subsidy, grant or incentives are provided for specific purpose. For example, generation of non-conventional energy. Any subsidy, grant received/receivable should be reduced from the utility cost. 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 cost. Cost of a Stand-by Utility shall include the committed costs of maintaining such a utility. Where utilities are created exclusively for captive consumption, utility plants are operated based ....
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....al cost of a utility is to be adjusted for the cost of utility supplied to outside parties if the its cost is material and quantifiable. Credit should also be given for the recovery made for the utility consumed by other units such as township and the like. The net cost arrived at, be then charged to the different units benefitted by the use of a utility. Example: (1) Where a unit has a township/colony, electricity and water charges recovered for its use may be credited to the cost of these utilities and net cost distributed to production centres. (2) If utility is sold by Unit A to outside parties, credit is to be given to the cost of utility at price of utility sold to outside parties (i.e. cost of utility including distribution + administrative Overhead+ Marketing Overhead and Margin) 5.13 Any change in the cost accounting principles applied for the measurement of the cost of utilities 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 organisation. Cost accounting principle applied for mea....
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..... 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. In the absence of meter, utility is to be distributed to the consuming departments based on usage parameters such as stated in the project report, technical estimates taking into account the equipment rating capacity, space, volume and the like .The project report of the plant lays down various usage requirement of utility, and the same should also be taken into account while assigning the utility consumption. Chapter 5 Presentation 7.1 Utilities costs shall be presented as a separate cost head for each type of utility in the cost statement, if material. The cost statement should indicate the details of each utility separately, if material, as detailed blow: Cost statement of A Product Particulars Unit Qty Rate/Per unit Amount(Rs) Material consumed Xx Xx Xx Utilities Water KL 62500 1.50 93750 Dm Water KL 3560 3.00 10680 Power Kwh 615780 4.00 2463120 Steam MT 2560 780.00 1996800 In the context of cost statement, Mat....
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.... Production Volume Design & Drawing Volume Administration Volume Sales Department Volume 8.1.2 The cost of purchase, production, distribution, marketing and price with reference to sales to outside parties. If a utility purchased as well as generated is sold to outside parties, the utility cost statement should disclose the following details Particulars Units Rate Amount POWER Purchased Generated Total Less Distribution loss Net units Distribution Deptt A Deptt B Other Outside parties Total Sale to outside parties Cost of generation & Distribution Add: Administrative Overhead Add: Marketing & Distribution cost Total Sale Price For Example: Disclosure: During the period, unit has sold 5680 KWH units to outside parties @ Rs. 6.50 per KWH against cost of sales (including marketin....
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.... per KWH ....... Rs. 0.25 Cost of Sales per KWH .... Rs. 3.75 8.1.6 Cost of utilities incurred in foreign exchange. Cost of inputs for a utility incurred in foreign exchange is to be disclosed by way of footnote in the cost statement of the utility. For Example: Unit has captive thermal power plant. It has imported 1500 MT coke valued in foreign exchange US $ xxxxx during the current year. 8.1.7 Any Subsidy/Grant/Incentive and any such payment reduced from Cost of utilities. Any subsidy/grant/incentive received relating to utilities is to be reduced from the cost of utilities and disclosure made accordingly by way of a foot note. Example: The State Government has been subsidizing setting up of non-conventional energy plant/its use. Such subsidies received and receivable are to be reduced from the cost of utility. Example: Unit has set up wind plant and received subsidy of Rs. 10.0 lakhs. This has been reduced from the capital cost of the plant and resulting in lower depreciation of Rsxxxx. 8.1.8 Credits/recoveries relating to the Co....
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....and significance has not been stated in the standard. As stated in para 7.1 Material and significance of an information will be different from situation to situation. Materiality of cost information is to be judged from the perspective of the users of that information. If material, the same is to be disclosed. 8.4 Disclosures shall be made in the body of the Cost Statement or as a foot note or as a separate schedule. Disclosure in the body of cost statement will depend on cost of each utility. If it forms material part of the cost of the utility, the same should be disclosed in the cost statement. Disclosures may also be by way of foot note. Annexure 1 CLASSIFICATION OF UTILITY Power Purchased Power Generated Power (stand alone) Co Generation Water Raw Water Treated water Demineralized water Distilled water/softening water Chilled/cold water Hot water Steam Low Pressure steam High pressure steam Climatic control Air conditioning Humidification Air Handling units Air Compressed Air Instrument Air (Vacuum ) Oxygen Gas Nitrogen gas, Hydrogenation Annexure 2 Illustration of Steam C....
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....st of a utility determined as per para 5.3.2 plus share of administrative overhead to be charged. Example: Inter Company transfer price 1. Cost of steam generation as para 5.3.1. Rs. 471.09 per MT 2. Distribution cost Rs. 2.50 per MT 3. Share of Administrative Overheads Rs. 0.50 per MT 4. inter company transfer, cost of utility Rs. 474.09 per MT Example of Sale of Utility 1. Cost of steam generation as para 5.3.1. Rs. 471.09 per MT 2. Distribution cost Rs. 2.50 per MT 3. Share of Administrative Overheads Rs. 0.50 per MT 4. Marketing overhead Rs. 0.75 per MT 5. Cost of Sales Rs. 474.80 per MT 6. Margin Rs. 2.20 per MT 7. Sales to outside parties Rs. 477.00 per MT Illustration : Determination of Abnormal Cost due to low capacity Utilisation Installed capacity Power Plant 400,000 kwh Normal Capacity fixed after accounting for normal unavoidable interruptions 366,000 kwh Generation of Power: 2007-08 370,000 2008-09 340,000 Generation during 2008-09 was low due to strike for 30 days. Ther....
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....n (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. 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.^[1] 4.2 Committed Cost: The cost of maintaining stand-by utilities shall be the committed cost. 4.3 Cost Object: This includes a product, service, cost centre, activity, sub-activity, project, contract, customer or distribution channel or any other unit in relation to which costs are ascertained.^[2] 4.4 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....
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....erheads. 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 inter company 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. 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 accounte....