TMI BlogMaterial CostX X X X Extracts X X X X X X X X Extracts X X X X ..... es, semi-finished goods, consumable stores, spares and other indirect materials. This standard does not deal with Packing Materials as a separate standard is being issued on the subject. 1.2 This standard deals with the principles and methods of classification, measurement and assignment of material cost, for determination of the Cost of product or service, and the presentation and disclosure in cost statements. 1.3 The Standard deals with the following issues: u Principle of Valuation of receipt of materials. u Principle of Valuation of issue of materials. u Assignment of material cost to cost objects. Objective 2. The objective of this standard is to bring uniformity and consistency in the principles and metho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, not involving cash outlay, computed only for the purpose of the decision making. ] 4.6 Materials: 5 [ 4.6.1 DIRECT MATERIALS - Materials the costs of which can be attributed to a cost object in an economically feasible way ] 6 [ 4.6.2 INDIRECT MATERIALS - Materials, the costs of which cannot be directly attributed to a particular cost object ] 7 [ 4.7 Material Cost - The cost of material of any nature used for the purpose of production of a product or a service. ] 4.8 Production overheads - Indirect costs involved in the production process or in rendering service. ] The terms Production Overheads, Factory Overheads, Works Overheads and Manufacturing Overheads denote the same meaning and are used inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f valuation of receipt of materials: 5.1.1 The material receipt should be valued at purchase price including duties and taxes, freight inwards, insurance, and other expenditure directly attributable to procurement (net of trade discounts, rebates, taxes and duties refundable or to be credited by the taxing authorities) that can be quantified with reasonable accuracy at the time of acquisition. Examples of taxes and duties to be deducted from cost are Cenvat credits, credit for countervailing customs duty, sales tax set off/VAT credits and other similar items of credit recovered/ recoverable. 5.1.2 Finance costs incurred in connection with the acquisition of materials shall not form part of material cost. 5.1.3 Self manufactured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall not form part of the material cost. Explanation : The date on which a transaction (whether for goods or services) is recognised in accounting in conformity with generally accepted accounting principles. 5.1.8 Any demurrage or detention charges, or penalty levied by transport or other authorities shall not form part of the cost of materials. 5.1.9 Subsidy/Grant/Incentive and any such payment received/receivable with respect to any material shall be reduced from cost for ascertainment of the cost of the cost object to which such amounts are related. 5.2. Principle of valuation of issue of material: 5.2.1 Issues shall be valued using appropriate assumptions on cost flow. E.g. First In First Out, Last In First Out, W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s should not be included in material cost but treated as loss after giving credit to the realisable value of such scrap/defectives. Assignment of costs 6. The basis of assignment of costs to the cost of product or service is dealt within this section. 6.1 Assignment of costs - Materials 6.1.1 Assignment of material costs to cost objects - Material costs shall be directly traced to a Cost object to the extent it is economically feasible and /or shall be assigned to the cost object on the basis of material quantity consumed or similar identifiable measure and valued as per the principles laid under Paragraph 5. 6.1.2 Where the material costs are not directly traceable to the cost object, these may be assigned on a suitable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tured. 7.3 Indirect Materials shall be classified in the cost statement under suitable heads - Indirect materials may be grouped under major heads like tools, stores and spares, machinery spares, jigs and fixtures, consumable stores, etc., if they are significant. Disclosures 8. The following information should be disclosed in the cost statements dealing with determination of material cost. 8.1 Quantity and rates of major items of materials shall be disclosed. Major items are defined as those who form 5% of cost of materials. 8.2 The basis of valuation of materials shall be disclosed. 8.3 Any change in the cost accounting principles and methods applied for the determination of the material cost during the period covered ..... X X X X Extracts X X X X X X X X Extracts X X X X
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