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GUIDANCE NOTE ON MAINTENANCE OF COST ACCOUNTING RECORDS FOR CONSTRUCTION INDUSTRY INCLUDING REAL ESTATE AND PROPERTY DEVELOPMENT ACTIVITY
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....are in the process of listing on any stock exchange, whether in India or outside India. Provided that these rules shall not apply to a company which is a body corporate governed by any special Act; Provided further that these rules shall not apply to the activities or products covered in any of the following rules,- (a) Cost Accounting Records (Bulk Drugs) Rules, 1974 (b) Cost Accounting Records (Formulations) Rules, 1988 (c) Cost Accounting Records (Fertilizers) Rules, 1993 (d) Cost Accounting Records (Sugar) Rules, 1997 (e) Cost Accounting Records (Industrial Alcohol) Rules, 1997 (f) Cost Accounting Records (Electricity Industry) Rules, 2001 (g) Cost Accounting Records (Petroleum Industry) Rules, 2002 (h) Cost Accounting Records (Telecommunications) Rules, 2002." A copy of the above notification is attached as annexure I. In view of the above as well as the clarification issued on 25th May, 2012 (annexed as annexure II) by the Ministry of Corporate Affairs, companies engaged in: (a) Construction (incl. development or real estate) industry who meets with the threshold limits la....
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....re executed as per client's requirements at client's project site. • The client normally makes payment based on the progress of work as per the contract. • Contracts also normally stipulate work/quality certification by a client nominated third party consultant. • Contracts also lay down performance guarantee conditions, warranty/defect liability period, liquidated damages for schedule delay, price variation clause if any, client's obligations during construction period, method to be followed for any change in scope of work, claim management, force-majeure clause, arbitration etc. • The duration of a project may vary from project to project for different industries. Normally the projects are of long duration (more than 12 months) and revenue is recognised generally based on Accounting Standard (AS-7) notified by Government of India, Ministry of Corporate Affairs. 2.2 The categories under which the Constructions Industry may be operating are: • Construction involving civil and heavy engineering • Real estate and Property development • Construction projects involving specialty tr....
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....perate • DBFOT- Design, Build, Finance, Operate and Transfer • EPC- Engineering, Procurement and Construction. • OMT- Operate Maintain Transfer 2.3.2 Real Estate Development Model The term real estate is essentially used in connection with development of land and construction/development of everything that is permanently attached to the land. These permanent fixtures to the land include buildings, fencing to the buildings and other fixtures such as plumbing, heating and lighting appliances. Real estate development is the act of purchasing land, real estate, making improvements to the land and/or existing buildings on it and/or new construction - either by themselves or by contractors and selling the property after development. Developers purchase the land/real estate from Government/existing owner. Some commonly used models of Real estate development are: • Green field development (Traditional model) • Redevelopment model Examples of Real estate development projects are: • Housing, Land and Township Infrastructure Development • Development of commercial real estate â€....
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....t of cost statement and the company is free to adopt a system suitable to provide cost information. 3.2 There cannot be any exhaustive list of cost records that are required to be maintained. This would depend on the particular situation, structure of the company and the activities that the company is engaged in. What is intended is to ensure maintenance of such records and details in a structured manner on a regular basis so that the accumulation is possible on a periodical basis to arrive at the cost of a particular cost object. Such analysis of individual cost components and relating it to the activity for which the same is incurred would help the company in taking proper management decisions. 3.3 It should be kept in mind that in a manufacturing organisation, the operations include certain repetitive processes resulting in a particular "product" that can be measured in finite manner. In a construction activity, each project or operation can be different and distinct and there is a need to define the "cost object" in relation to which the costs are required to be accumulated and reported. 3.4 Reference is also drawn to the product group classification notified by the Mi....
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....construction activity, as applicable. • Real Estate Development Model: The business model is primarily development and sale of real estate. CARR will be applicable from the start of development/construction activity on getting necessary approvals for commencement of work from appropriate government/local authorities. • Construction involving in-house fabrication or manufacturing: The business model involves engineering, procurement, manufacturing/fabrication, construction and/or installation/commissioning. Hence CARR will be applicable from the initial stage of Engineering or Procurement or Construction activity, as applicable. 3.7 These rules will not apply to construction activity which is not meant for sale or for commercial use. For example, a company not engaged in construction business, but constructing staff quarters for its employees or erecting manufacturing plant, will not be covered under the maintenance of CARR relating to Construction activity. 3.8 Nature of cost accounting records for construction activity Companies are to maintain books of accounts as per section 209 of the Companies Act, 1956, including cost accou....
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....gaged in construction of residential flats may have different types of flats in the same building, and in blocks of flats, the buildings containing those flats may be different in structure and construction. The Project in the context of construction activity is to be considered as the cost object. (B) A company is constructing 3 residential projects A, B & C in 3 different places. Project A consists of 3 buildings, Project B consists of 5 buildings and Project C consists of 2 buildings each of such building containing different types of flats. The company is also engaged in Project D which is construction of a 15 KM stretch of road which also includes a Bridge. Project E of the company is construction and erection of a Power Plant. The company has received the contract of road and bridge construction as 2 separate projects (say Projects D1 and D2). For maintenance of cost accounting records, the company would be required to maintain specified records in respect of Projects A, B, C, D1, D2 and E as its distinct and individual cost objects. 3.9.2 Detailed cost records are also to be maintained for each sub cost centre/sub project. These records are also....
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....ual projects as explained above. For continuing projects, the costs would represent the amount of expenses pertaining to the project as considered in its financial profit and loss account. Similarly, the corresponding revenue recognized for the project during the financial period would be considered for arriving at the margin as per cost accounts. 3.13 Expenses, which are classified as non-cost items as per the generally accepted cost accounting principles and cost accounting standards should not be considered as a part of cost and should be considered as a charge in the costing profit and loss account (reconciliation statement between cost accounts and financial accounts). 3.14 In respect of large companies engaged in various different construction projects, the administrative overheads and corporate expenses are not allocated to individual project accounts. However, for cost accounting records and to arrive at the true project costs, such overheads should be apportioned to individual projects on a suitable basis. 3.15 Interest and Financing charges, not directly related or identified with a particular project should be apportioned to the projects on a suitable basis. ....
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....Accountants of India, recognizing the need for structured approach to the measurement of cost in manufacture or service sector and to provide guidance to the user organizations, government bodies, regulators, research agencies and academic institutions to achieve uniformity and consistency in classification, measurement and assignment of cost to product and services, constituted Cost Accounting Standards Board (CASB) with the objective of formulating the Cost Accounting Standards. 5.2 The Board has so far released 14 Cost Accounting Standards. The structure of Cost Accounting Standard consists of: • Introduction, • Objectives of issuing standards, • Scope of standard, • Definitions and explanations of the terms used in the standard, • Principles of Measurement, Assignment of Cost, • Presentation and Disclosure. 5.3 While formulating the Cost Accounting Standards, the CASB takes into consideration the applicable laws, usage and business environment prevailing in India. CASB also gives due consideration to the Cost Accounting Standards, principles and practices being followed by the other countries in....
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....cts) and cost drivers. (b) Accounting for material cost, stores at store yards, employee cost, and other relevant cost components. (c) Accounting, allocation and absorption of Overheads (d) Accounting for Depreciation/Amortization, Transfer in and transfer out of equipment from the site. (e) Accounting for scarps, wastage etc. (f) Basis for Inventory Valuation (g) Methodology for valuation of Inter-Unit/Inter Company and Related Party transactions. (h) Treatment of abnormal and non-recurring costs including classification of other non-cost items. The following are examples of Non-Cost Items which are treated as reconciliation items:- • Compensations on account of damage/loss of life etc. • Insurance claims received (pertaining to previous years) • Idle cost on the project (example: waiting for the ROW, etc. on NHAI contracts) • Demurrage charges, • Contract Cancellation Expenses, • Warranty/Defect Liability cost (in excess of normal provision for such items) • Liquidated damages (adjusted against contract value in financial acc....
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.... is to be certified by a Cost Accountant (as per the definition prescribed in the rules). For the above purpose, the Cost Accountant may be either a permanent employee of the company or a practicing cost accountant/firm holding valid certificate of practice. In either case, it is recommended that Board of Directors is kept informed about the arrangement. (iii) Board of Directors of the company need to approve all the Annexure to the compliance report. (iv) Compliance Report is to be filed in Form B as per the notification dated 3rd June, 2011, and no other details of cost records are required to be filed with the Government. A template of the annexure to the Compliance Report is annexed at annexure IV. Necessary guidance for filling the annexure is given in paragraph C. (v) Form A of the Compliance Report along with Annexure is required to be e-filed with the Central Government within 180 days from the close of financial year. C. Filling of Annexure to the Compliance Report Item 1: General a. Name of the Company, b. Registered office address c. Financial year to which the Compliance Report relates Fill above details of the....
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....r cost accounts. For Real Estate business, any difference in valuation of inventory between financial books and cost accounting records needs to be disclosed. D. Filing of the Compliance Report in XBRL Mode The Ministry of Corporate Affairs vide General Circular No. 8/2012, dated 10th May, 2012 has mandated the filing of Cost Audit Report and Compliance Report in the extensible Business Reporting Language (XBRL) mode from the financial year 2011-12. The Ministry of Corporate Affairs, vide General Circular No. 18/2012, dated 26th July, 2012 has extended the last date for filing of the Cost Audit Reports and Compliance Reports for the year 2011-12, with the Central Government in the XBRL mode upto 31st December, 2012. For this purpose the Costing Taxonomy and related Business Rules including sample instance document may be downloaded from the website of Ministry of Corporate Affairs. The specific links are as follows: Costing Taxonomy - http://mca.gov.in/Ministry/pdf/Costing_taxonomy_2012-09-12.zip Business Rules - http://mca.gov.in/Ministry/pdf/Business_Rules_XBRL_Cost_Audit_taxonomy_2012_21_Sep_2012.zip The Existing Form A of Compliance Report is not to b....
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.... 605 dated 22nd April, 1976, (xv) G.S.R. 126(E) dated 24th March, 1977, (xvi) G.S.R. 157(E) dated 1st April, 1977, (xvii) G.S.R. 417(E) dated 28th June, 1977, (xviii) G.S.R. 45(E) dated 31st January, 1979, (xix) G.S.R. 506(E) dated 10th May, 1984, (xx) G.S.R. 688 dated 25th June, 1984, (xxi) G.S.R. 767 dated 7th July, 1984, (xxii) G.S.R. 664 dated 1st July, 1985, (xxiii) G.S.R. 574 dated 31st July, 1990, (xxiv) G.S.R. 258(E) dated 3rd March, 1993, (xxv) G.S.R. 677(E) dated 29th October, 1993, (xxvi) G.S.R. 678(E) dated 29th October, 1993, (xxvii) G.S.R. 186(E) dated 12th April, 1996, (xxviii) G.S.R. 202(E) dated 6th May, 1996, (xxix) G.S.R. 271(E) dated 9th July, 1996, (xxx) G.S.R. 537(E) dated 11th September, 1997, (xxxi) G.S.R. 536(E) dated 11th September, 1997, (xxxii) G.S.R. 704(E) dated 28th September, 2001, (xxxiii) G.S.R. 276(E) dated 24th April, 2001, (xxxiv) G.S.R. 277(E) dated 24th April, 2001, (xxxv) G.S.R. 685(E) dated 8th October, 2002, and (xxxvi) G.S.R. 562(E) dated 2nd September, 2004, except as respects things done or omitted to be done before such supersession, the Central Government hereby makes the following rules, namely:- 1. Short Title and Commencement- (1....
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....rvicing, refitting, repairing, finishing or breaking up of any products. (k) "Mining Activity" includes any act, process or method employed in relation to the extraction of ores, minerals, oils, gases or other geological materials from the earth's crust, including sea bed or river bed. (l) "Processing Activity" includes any act, process, procedure, function, operation, technique, treatment or method employed in relation to- (i) altering the condition or properties of inputs for their use, consumption, sale, transport, delivery or disposal; or (ii) accessioning, arranging, describing, or storing products; or (iii) developing, fixing, and washing exposed photographic or cinematographic film or paper to produce either a negative image or a positive image; or (iv) printing, publishing, finishing, perforation, trimming, cutting, or packaging; or (v) pumping oil, gas, water, sewage or any other product; or (vi) transforming or transmitting, distributing power or electricity; or (vii) harboring, berthing, docking, elevating, lading, stripping, stuffing, towing, handling, or warehousing products; or ....
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....ions but does not include any non-operational income; (q) All other words and expressions used in these rules but not defined, and defined in the Act and rules made under clause (d) of sub-section (1) of section 209 of the Act shall have the same meanings as assigned to them in the Act or rules, as the case may be. 3. Application- (1) These rules shall apply to every company, including a foreign company as defined under section 591 of the Act, which is engaged in the production, processing, manufacturing, or mining activities and wherein, the aggregate value of net worth as on the last date of the immediately preceding financial year exceeds five crores of rupees; or wherein 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 wherein 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. Provided that these rules shall not apply to a company which is a body corporate governed by any special Act; Provided further that these rule....
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....ial years immediately preceding a financial year or where the company had been in existence for a period less than eight years, in respect of all the preceding years shall be kept in good order. (7) It shall be the duty of every person, referred to in sub-section (6) and (7) of section 209 of the Companies Act, 1956 (1 of 1956), to take all reasonable steps to secure compliance by the company with the provisions of these rules in the same manner as he is liable to maintain accounts required under sub-section (1) of section 209 of the said Act. 5. Form of the Compliance Report - Every company to which these rules apply shall submit a compliance report, in respect of each of its financial year commencing on or after the 1st day of April, 2011, duly certified by a cost accountant, along with the Annexure to the Central Government, in the prescribed form. 6. Time-limit for submission of Compliance Report - Every company shall submit the compliance report referred to in rule 5 to the Central Government within one hundred and eighty days from the close of the company's financial year to which the compliance report relates. 7. Authentication of Annexure to the Compliance R....
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....; (b) *Address of the registered office or of the principal place of business in India of the company (c) *E-mail Address of the company 3(a) *Financial year covered by the compliance report From (DD/MM/YYYY) To (DD/MM/YYYY) (b) *Date of Board of directors' meeting in which annexure to the compliance report was approved (DD/MM/YYYY) 4. Details of the cost accountant (a) *Category of the cost accountant ◯ Individual ◯ Cost accountant's firm (b) In case of indi....
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....bsp; (v) Country (vi) Pin Code (g) *E-mail ID of the cost accountant or cost accountant's firm ....
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....company) or an authorised representative (in case of a foreign company) Digital Signatures *Designation *Director identification number of the director or Managing Director; or Income-tax PAN of the manager or of authorised representative; or Membership number, if applicable or income-tax PAN of the secretary (secretary of a company who is not a member of ICSI may quote his/her income-tax PAN) Director of the company Digital Signatures Director identification number of the director Modify Check Form Prescrutiny ....
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....the cost accountant desires to point out any material deficiency or give a qualified report, he shall indicate the same against the relevant para. (iii) Briefly give your observations and suggestions, if any, relevant to the maintenance of cost accounting records by the company. (iv) Cost accountant may use separate sheet(s) for (ii) and (iii) above, if required. ANNEXURE TO THE COMPLIANCE REPORT [See rule 2 and rule 5] 1. GENERAL: (a) Name of the company: (b) Registered office address: (c) Financial year to which the Compliance Report relates. 2. QUANTITATIVE INFORMATION: S no. Name of the Product or Service Group Unit Annual Production (Qty.) Net Sales (Qty.) (Value in Rupees) A Produced or Manufactured Product Groups 1. 2. 3. etc. B Services Groups 1. ....
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....uirements. Cost Accounting Records Rules 2011 do not visualize companies to change their cost accounting system if already in-place; but they are required to comply with the Generally Accepted Cost Accounting Principles and Cost Accounting Standards issued by the Institute of Cost Accountants of India, to the extent these are found to be relevant and applicable and also file compliance report with the Central Government. It was also observed that existence of structured & verified cost accounting records would enable the companies to fulfill regulatory requirements; comply with the Tax Accounting Standards; and assist is their tax assessments. 2. Based on the discussions held, detailed clarifications were issued on 16th January, 2012 that were duly acknowledged by the CFI vide their letter dated 27th January, 2012 and also conveyed to all their member companies for implementation. 3. However, the matter has been once again examined in the Ministry and it has been decided that there appear no reasons for granting any special exemption to the construction (incl. development or real estate) industry from the applicability of the Companies (Cost Accounting Records) Rules 2011. He....
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.... with reference to their letter no. 59/MCA/2012 dated 3rd April, 2012. You are requested to bring this to the notice of all your member companies & associations for due compliance. 2. The President, Institute of Cost Accountants of India, 12, Sudder Street, Kolkata - 700 016 with a request to circulate this for the information of all concerned. Annexure III MCA general circular No 67/2011 dated 30th November 2011 52/13/CAB-2011 Government of India Ministry of Corporate Affairs Cost Audit Branch 'B-1' Wing, 2nd Floor, Paryavaran Bhavan, CGO Complex, Lodhi Road, New Delhi- 110 003 Dated the November 30, 2011 To, The President, Institute of Cost and Works Accountants of India, 12, Sudder Street, Kolkata - 700 016 Subject: Cost Accounting Records and Cost Audit - Clarifications about coverage of certain sectors thereunder. Sir, Ministry has examined various issues raised by the companies and/or professionals in connection with the recently issued circulars/notifications concerning cost accounting records and coverage of cost audit. To remove doubts and ambiguities, the following clarifications are issued: ....
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.... these order, the words "Intermediate products" mean only such products that have already undergone partial manufacturing/ production process and are used as inputs for the production, processing, manufacturing or mining of the final products of the industries listed in the said order; the words "articles or allied products thereof" refer to such articles or allied products that are produced either wholly or predominantly (not less than 50% by weight or volume) by using the listed products as their primary inputs. To explain this aspect further, the following clarifications are given as illustrations: (i) for Paints & Varnish Industry, all other items such as tanning or dyeing extracts, tanning & their derivatives, dyes, pigments & other colouring matters, putty & other mastics, printing inks, etc. mentioned in Chapter 32 of the Central Excise Tariff Act, 1985 are not covered unless such items are used as intermediates for the production of Paints & Varnishes or are produced as their allied products. (ii) for Tyres & Tubes industry, all other items such as natural or synthetic or reclaimed rubber, compounded rubber, hard rubber, rubber thread or cord, conveyer ....
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.... 2. Real Estate Development Activities (5051) Number 500 3. etc. C Trading Activities (Product Group-wise) 1. Building Material 120 2. 3. etc. D Other Income 10 Total Income as per Financial Accounts 30678 3. RECONCILIATION STATEMENT: Net Margin (Profit or Loss) as per Cost Accounts (In lakh Rupees) A. From Produced or Manufactured Product Groups 3 B. From Services Groups 300 C. From Trading Activities 6 Total as per Cost Accounts 309 Add: Incomes not considered in Cost Accounts (if any) 10 Less: Expenses not considered in Cost Accounts (if any) 5 Add/Less: Difference in Stock Valuation -3 Profit or (Loss) as per Financial Accounts 311 SIGNATURE NAME COST ACCOUNTANT (S) MEMBERSHIP NUMBER (S) SEAL & DATE Annexure V Cost Statement for in-house manufactu....