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Guidance Note on Cost Accounting Standard on Cost of Utilities (CAS-8) DATED 11-4-2013

CAS - 08 - G Note - Rule - Companies Law - CAS - 08 - G Note - Guidance Note on Cost Accounting Standard on Cost of Utilities (CAS-8) The Council of the Institute of Cost Accountants of India has issued Cost Accounting Standard 8 (CAS-8) on Cost of Utilities which lays down a set of principles and methods of classification, measurement and assignment of Cost of Utilities for determination of the cost of product and presentation and disclosure of such costs in the cost statement. The Guidance Not .....

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has to maintain cost accounting records in accordance 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 .....

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e 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, electricity is a principal input for electrolysis of brine. If there are multiple connections/source of supply of electricity and in production of Caustic soda one of the source is directly connected, it is to be treated as production input and not as utility. For other connection where utili .....

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and not as a utility cost. When different activities are required to be carried out on given input(s) to make it distributable and usable by one or more consuming sections, it should be recognized as a distinct utility. Sub-set of a particular Utility: A given utility may have more than one distinct utilities. For example supplier of electricity may be providing electricity at 11 KVA and thereafter it is converted to 460 V and given to different users. One of such user may employ step down proce .....

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1000oC (saturated steam) which is given to different processes or to the same process and at different point of time, two different utilities shall be considered for steam viz High Pressure steam (48 Kg/cm2) and Low Pressure steam (18 Kg/cm2). The above two examples highlight the importance of selection of appropriate sub sets of a given utility considering the special feature of a sub-set. Sometimes an entity may have centralised utility or utility at department level. For example a manufacturi .....

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ere 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 b .....

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rs Heating Thermal unit K cal or BTU Output Temp 300 to 400 Deg C Air - Compressed air Pressure Volume M3 Kg/sq.cm Assignment is tracing the cost of utility to a product or service and dealt in Chapter 4. The principles and methods adopted should be applied consistently from one period to another and for reasonable uniformity between different products/units. For example inputs of utility such as coal, furnace oil, etc are valued on the basis of FIFO (First-in-First out) method, the same should .....

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treatment of carbon credit are not covered under this standard. Chapter 2 Definitions The following terms are used in this guidance note with the meaning specified: Abnormal cost: An unusual or a typical cost whose occurrence is usually irregular and unexpected and/or due to some abnormal situation of the production or operation. Committed Cost: The cost of maintaining stand-by utilities shall be the committed cost. Cost Object: This includes a product, service, cost centre, activity, sub-activi .....

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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 .....

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h 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 measured at cost of purchase including duties and taxes, transportation cost, insurance and other expenditure directly attributable to procurement (net of trade discounts, rebates, taxes and duties refundable or to be credited) that can be quantified with reasonable accuracy at the time of acquisition. There can be a mix source of supp .....

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reatment is also applicable to any other utility purchased, such as purchase of steam, coke oven gas from other unit, raw water from municipal sources and so on. Cost of utility consists of direct employee cost, fuel , direct expenses, chemicals, stores and spares, repairs & maintenance, depreciation and inter utility transfer cost. 5.3.1 Cost of self generated utilities for own consumption shall comprise direct material cost, direct employee cost, direct expenses and factory overheads. The .....

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rent departments after adjusting transmission losses. In case of cogeneration (power and steam) where waste heat from TG (Turbine Generation) is recovered in waste heat recovery unit and used for production of steam, due credit should be given to the Power plant and corresponding charge to SGP(Steam Generation Plant). Charging of power to the consuming cost object is generally done at the weighted average of the cost of power purchased, generated and distribution cost at the consuming point. Ste .....

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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 .....

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eration of steam and power. Power may be required for pumping water from tubewell. Inter-utility cost is to be determined by the following method: (a) repeated distribution method; (b) matrix algebra through computer application (a) When Repeated Distribution Method is adopted, the utility costs are repeatedly allocated in the specified percentage until the figures become too small to be significant. Steps to be followed under this method are: I. The proportion at which the cost of a utility is .....

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uted to the production cost centres. (b) Matrix algebra through computer application: Spread sheet software such as Excel provides facility for inter-division cost ascertainment and reapportionment of inter utility. This application may be used for determining inter-utility transfer cost. Quantitative records of production and distribution should be recorded for each utility to measure the unit cost of a utility. An illustration of steam cost is at Annexure 2. 5.3.2 In case of Utilities generate .....

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maintenance of pipe line/ Transmission line 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, chemi .....

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nd 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 incurred in connection with the utilities shall not form part of cost of utilities. Finance Costs are incurred by an enterprise in connection with the borrowing of funds. While determining the cost of utility as para 5.3.1 to 5.3.4. above, finance cost i.e. interest related c .....

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nsportation through pipe/transmission line, stepping up/stepping down of power voltage, maintenance of distribution channels, etc. 5.6 Cost of utilities shall not include imputed costs. Imputed cost does not involve any cash payment. It should not be included in the cost of utility. 5.7 Where cost of utilities is accounted at standard cost, the price variances related to utilities shall be treated as part of cost of utilities and the portion of usage variances due to normal reasons shall be trea .....

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charges and normal quantity of purchase. Standard prices are determined for each input and material requisitions are valued at standard price irrespective of the actual purchase price. Any difference between the standard and actual prices of purchase results in input/ material price variance. The material price variance is to be treated as part of input/material cost. There may be also input/material usage variance (the difference between the quantity required as per standard and actual consump .....

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sidy/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 capacit .....

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periods or seasons under normal circumstances taking into account the loss of capacity resulting from planned maintenance. There may be a situation when end product itself may be operated at below normal capacity in adverse market conditions and recession. In such a situation the normal capacity adopted for end product should be treated as normal capacity for the utility. The cost of production and distribution of utilities should be determined based on the normal capacity. The unabsorbed cost i .....

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er to plant requirement and for sale to other parties, the cost of production and utilities is to be determined based on the normal capacity of the utility plant. If it is operating below normal capacity utilization, unabsorbed cost is to be treated as abnormal cost. 5.10 Any abnormal cost where it is material and quantifiable shall not form part of the cost of utilities. Abnormal cost may arise for example due to plant break down, flood fire and the like. Such cost will not form, part of the ut .....

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tilities provided to outside parties, material and quantifiable, shall be deducted from the total cost of utility to arrive at the net cost of utility. The total 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 u .....

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nciples 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 measurement of the cost of utilities should be followed consistently and uniformly among different utilities and period. Change in cost accounting principle should be made .....

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, cost centre, activity, sub-activity, project, contract, customer or distribution channel or any other unit in relation to which utility costs are to be ascertained. The meter installed for recording consumption of utility is the right source of traceability of cost of utility for a cost object. If no meters are provided, the cost of utilities is to be assigned on the basis of rated capacity, wattage, horse power of machines, area volume or on technical assessment. The basis adopted for assigni .....

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e, total cost of the utility is assigned. If no meters are provided, the cost is assigned on the basis of, kw or horse power of machines, as discussed earlier. This practice applies for other utilities. 6.2 Where the cost of utilities is not directly traceable to cost object, it shall be assigned on the most appropriate basis. The cost of utilities is to be assigned on the basis of meter reading which is more reliable. In case meters have not been installed, it should be assessed on technical es .....

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hnical 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, a .....

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e shown under production overhead. For utilities (such as steam, hot water, thermic fluid) produced with heat recovery system, separate cost statement shall be prepared giving details of cost elements. 7.2 Where separate cost statements are prepared for utilities, cost of utilities shall be classified as purchased or generated. Such statement shall also include cost of utilities consumed along with quantitative information by individual consuming units, inter unit transfers, inter company transf .....

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ed both in quantity and value. Cost of utility is to be assigned as provided under para 6 above. Chapter 6 Disclosures 8.1 The cost statements shall disclose the following: 8.1.1 The basis of distribution of Cost of Utility to the consuming centres. The basis of distribution of cost of utility to the consuming centre adopted is to be disclosed in the cost statement. Normally it will be based on meter readings of period/technical estimates, area, etc as detailed in the table below : Power Basis U .....

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e, 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 & Distri .....

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ndicated in the cost statement. Abnormal variance are to be excluded and indicated in the cost statement as a foot note. A cost statement indicating the variance is at Annexure 3. 8.1.4. The cost and price of Utility received from/supplied to related parties. If any utility is procured from or supplied to related parties( as defined under the Companies (Accounting Standards) Rules, 2006) its relationship, nature of transaction viz quantity, rate, other terms/ conditions of procurement are to be .....

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it transfers and inter company transfers. Inter unit transfers/inter company transfers relating to utility received/supplied is to be disclosed in the cost statement or as a foot note. It should indicate cost of a utility supplied and price of a utility purchased. In case of inter-unit transfers, utility should be at cost. if inter utility transfer is at selling price, difference between cost and price to be indicated as a footnote in the cost statement of a product. In case of inter company tra .....

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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 fro .....

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tilities. If any credit or recovery considered while determining the cost of utility, the same should be disclosed in the body of the cost statement. 8.1.9 Any abnormal cost excluded from Cost of utilities. Abnormal cost is to be excluded from the cost of utilities as the same has not contributed to the production of utilities. Disclosure is to be made by way of foot note in the cost statement. For example: During the year there was theft of 300 Tons of coal valued at Rs xxxx. The same has been .....

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y the cost statement which has a material effect on the Cost of utilities. Where the effect of such change is not ascertainable wholly or partly the fact shall be indicated. Cost Accounting principles, and methods applied for the measurement and assignment of cost of utilities are to be applied consistently between one period and uniformly applied for different utilities. If any change is made in these principles and methods results in material effect on the cost of utilities, the same should be .....

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. (2) Steam to various cost centres was being assigned on technical estimates. During the current period, meters have been installed and the cost of steam has been assigned on the basis of meter reading. 8.3 Disclosures shall be made only where material, significant and quantifiable. Level of materiality 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 informa .....

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urchased 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 Cost RAW MATERIAL UNIT Qty RATE AMOUNT COST PER MT COAL MT 9380.00 4386.25 411.43 742.85 COAL HANDLIN .....

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WER KW 871172.00 2.79 24.3 43.87 WATER KL 49003.00 2.72 1.33 2.40 TOTAL VARIABLE COST 456.06 823.41 FIXED COST EMPLOYEES 8.04 14.52 DEPRECIATION 4.5 8.12 OTHERS 1.2 2.17 TOTAL FIXED COST 13.74 24.81 TOTAL COST (VARIABLE+FIXED) 469.80 848.24 Annexure 3 Examples of Steam cost - Transfer to Other units Steam cost per tonne works out to ₹ 471.09 as illustrated under Annexure 2. If steam is transferred to other unit, distribution cost will be in addition to the above cost as illustrated below 1 .....

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on cost ₹ 2.50 per MT 3. Share of Administrative Overheads ₹ 0.50 per MT 4. inter company transfer, cost of utility ₹ 474.09 per MT Example of Sale of Utility 1. Cost of steam generation as para 5.3.1. ₹ 471.09 per MT 2. Distribution cost ₹ 2.50 per MT 3. Share of Administrative Overheads ₹ 0.50 per MT 4. Marketing overhead ₹ 0.75 per MT 5. Cost of Sales ₹ 474.80 per MT 6. Margin ₹ 2.20 per MT 7. Sales to outside parties ₹ 477.00 per MT .....

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Overhead) in the Profit Reconciliation Statement for Profit as per Cost Accounts and Profit as per financial Account. Detailed working is as under: (A) Variable Cost ₹ 11,90,000 (B) Fixed Overheads for the year based on Normal Capacity of ₹ 7,32,000 (C) Abnormal Fixed Overhead due to unutilised capacity ₹ 61,000 (D) Share of Fixed Overhead for Actual Production (B-C) ₹ 671,000 Cost of generation after excluding low utilisation cost (a) Variable cost ₹ 11,90,000 (b) .....

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OF UTILITIES", for comments. In this Standard, the standard portions have been set in bold italic type. This standard should be read in the context of the background material which has been set in normal type. 1. Introduction 1.1 This standard deals with the principles and methods of determining the cost of utilities. 1.2 This standard deals with the principles and methods of classification, measurement and assignment of cost of utilities, for determination of the cost of product or service .....

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ssessable value of excisable utilities used for captive consumption, Cost Accounting Standard 4 on Cost of Production for Captive Consumption (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 .....

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inance 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 e .....

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ity the normal capacity will be the same as actual production of the utility. The normal capacity of a utility meant for captive consumption would be based on the normal capacity for the production facility of the end product of the consuming unit. 4.7 Standard Cost: A predetermined cost of resource inputs for the cost object computed with reference to set of technical specifications and efficient operating conditions. Standard costs are used as scale of reference to compare the actual costs wit .....

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5.1 Each type of utility shall be treated as a distinct cost object. 5.2 Cost of utilities purchased shall be measured at cost of purchase including duties and taxes, transportation cost, insurance and other expenditure directly attributable to procurement (net of trade discounts, rebates, taxes and duties refundable or to be credited) that can be quantified with reasonable accuracy at the time of acquisition. 5.3.1 Cost of self generated utilities for own consumption shall comprise direct mate .....

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ost 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 distrib .....

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centive 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. 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 cost6. Cost of a Stand-by Utility shall include the committed costs of maintaining such a utility. 5.10 Any abnormal .....

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easurement of the cost of utilities 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. 6. Assignment of costs 6.1 While assigning cost of utilities, traceability to a cost object in an economically feasible manner shall be the guiding principle. 6.2 Where the cost of utilities is not directly traceable to cost object, .....

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