TaxTMI 
TaxTMI 
GUIDANCE NOTE ON COST ACCOUNTING STANDARD ON COST OF SERVICE COST CENTRE (CAS-13)
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....t) Rules, 2014. As per rule 3, for the purposes of sub-section (1) of Section 148 of the Companies Act, 2013, the class of companies including foreign companies defined in clause (42) of Section 2 of the Companies Act, 2013 (18 of 2013), engaged in the production of the goods or providing services as specified in the Table A and Table B to the above referred Rules, has to maintain cost records as per the principles enunciated in Form CRA-1 annexed to the above Rules if the companies meet the threshold limit as specified in the Rules. Form CRA-1 annexed to the "Companies (Cost Records and Audit) Rules, 2014" specifies various items of costs which are to be included in the books of account. Paragraph 14 of Form CRA-1 deals with Service Cost Centres. As per proviso to Section 148 (3) of the Companies Act 2013, the auditor conducting the cost audit shall comply with the Cost Auditing Standards issued by the Institute of Cost Accountants of India with the approval of Central Government. As per Objective of the Cost Auditing Standard 103 on Overall Objective of the Independent Cost Auditor and conduct of an audit in accordance with Cost Auditing Standards, the cost auditor condu....
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....uct or service in an inter-unit transfer. 4.5 Imputed Cost: Notional cost, not involving cash outlay, computed for any purpose. 4.6 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. 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.^[2] 4.9 Production Overheads: Indirect costs involved in the production of a product or in rendering service. 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. 4.12 Stand-by service: Any facility created as backup against any failure of the main source of servi....
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.... a) Employees cost of manpower engaged in-house services; b) Materials consumed - direct and indirect. c) Consumable stores; d) Direct Expenses e) Equipment usage - depreciation and amortization of fixed assets identified with a service cost centre; f) Utilities consumed - power, water, coal etc.; g) Other Overheads. The above elements of cost (viz. materials, consumable stores, spares, employees cost, equipment usage, utilities and so on) are to be measured as stated in paragraph 5.2.1 above. 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. Contractors are engaged for providing services. They render specified services as per agreement/purchase order. Materials, consumable stores, spares, manpower, equipment usage & utilities etc. required by the contractor are provided by the entity. Cost of such services will be the charges paid to contractors as per agreemen....
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....s related party. As per Section 76 of the Companies Act, 2013 "related party", with reference to a company, means- (i) a director or his relative; (ii) a key managerial personnel or his relative; (iii) a firm, in which a director, manager or his relative is a partner; (iv) a private company in which a director or manager is a member or director; (v) a public company in which a director or manager is a director or holds along with his relatives, more than two per cent of its paid-up share capital; (vi) any body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager; (vii) any person on whose advice, directions or instructions a director or manager is accustomed to act: Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions given in a professional capacity; (viii) any company which is- a) a holding, subsidiary or an associate company of such company; or b) a subsidiary of a holding company to which it is also a subs....
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....centre; and c) Usage variances attributable to abnormal reasons shall be excluded from cost of service centre. 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. Subsidy or grant or incentive and any such payment received or receivable with respect to any service cost centre cost is to be reduced from cost of the cost object in the financial year when such subsidy or grant or incentive and any such payment is recognised as income. Subsidy and grant received/receivable shall be recognized on a systematic basis. These should be reconciled with the related cost for which these are intended to compensate over the period. Illustration: Subsidy may be receivable for running up a medical facility for a plant located in backward area. Subsidy receivable for this purpose may be reduced from the cost of such services, while ascertaining the cost of the service cost centre. 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....
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....ained, it shall be treated as abnormal cost and shall not form part of cost of service cost centre. The rationale of exclusion of abnormal cost is that inclusion of such items in the cost will make the cost not comparable with a normal situation. Such an aberration is avoided to understand the cost in a better perspective for any purpose. For determining the abnormal cost following conditions shall be satisfied: a) costs were never envisaged; and b) they are not likely to recur during an accounting period. Such Abnormal cost of service cost centre shall not form part of the cost of service cost centre and shall be dealt with in the profit and loss account reconciliation statement. If the damaged property, plant and equipment of the service cost centre are insured against such abnormal events, claims may have been lodged with insurance company. Any shortfall between expenditure incurred on repairs and maintenance and insurance claim received should be treated as abnormal cost and shall be dealt with in the profit and loss account reconciliation statement. In case of non-insurance of property, plant and equipment, the cost incurred, if material and quantifi....
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....o be as per relevant cost accounting standard and are to be followed consistently. However, change in principle of measurement of cost of a service cost centre shall 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. Chapter 4 Assignment of Costs 6.1 While assigning cost of services, traceability to a cost object in an economically feasible manner shall be the guiding principle. Direct tracing of cost of Service cost centres is the process of identifying and assigning cost that is specifically or physically associated with cost object economically. It involves establishing a suitable procedure to directly tracing/ identifying the cost and recording the same to the cost objects. Cost Object is a logical sub-unit for collection of cost. Thus cost object may be any activity, contract, cost centre, customer, process or any other work unit for which a separate cost measurement is desired. Cost is assignable or chargeable to one or more cost objects on the basis of relative benefits received or other equitable re....
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....shall be equitable, reasonable and consistent. The cost of a service cost centre is to be distributed to the cost centres consuming services of the service cost centres. The basis selected should be rational and equitable. It should be based on logical parameters taking into account the services rendered. Chapter 5 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. Cost of each service cost centre shall be indicated as a separate item in the cost statement, if material. What is considered material or immaterial depends on the situation. The materiality of a particular cost is important in classifying costs. The less significant a cost, the less likely will it be traced to a cost object. The criteria that can be applied for determining the materiality has been explained under Paragraph 5.1 and is equally applicable in this regard. Chapter 6 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, ....
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....rvice cost centre such as school, medical facility etc. in certain backward areas is set up and if any subsidy is received, the same shall be adjusted against the relevant cost of service centre and its impact is to be disclosed separately. 8.1.7 If any credit or recovery is considered while determining the cost of service centre, the same shall be disclosed. For Example: certain service cost is recovered from inter-company transfer shall be adjusted against the relevant service cost centre. 8.1.8 Any abnormal portion of the service cost centres is to be excluded as the same has not contributed to the cost object. Disclosure is to be made by way of foot note in the cost statement. 8.1.9 Penalties and damages are to be excluded from the service cost centres as these are not an item of cost and are levied for non-compliance with regulatory/ contractual requirements and disclosure is to be made. 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. Cost Accounting principles and methods applied for the measurement and assignment of cost of se....
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....s 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.^[5] 4.2 Administrative Overheads: Cost of all activities relating to general management and administration of an entity. Administrative overheads shall exclude production overheads^[6], marketing overheads^[7] and finance cost. Production ov....
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....r 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 production 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....
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....al 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^[10]. Cost of a Stand-by service shall include the committed costs of maintaining such a facility for the service. 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, onl....