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GUIDANCE NOTE ON COST ACCOUNTING STANDARD ON MATERIAL COST (CAS-6)

CAS - 06 - G Note - Companies Law - CAS - 06 - G Note - The Council of the Institute of Cost and Works Accountants of India (ICWAI) has issued the Cost Accounting Standard 6 (CAS-6) on Material Cost which lays down a set of 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 the cost statements. CAS-6 does not deal with Packing Materials as a separate Cost Accounting Stan .....

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S-6 for ready reference. The Companies (Cost Accounting Records) Rules, 2011 provide that every company, including a foreign company defined under section 591 of the Companies Act, 1956 which is engaged in production, processing, manufacturing or mining activities have to maintain cost accounting records in accordance with the Generally Accepted Cost Accounting principles (GACAP) and Cost Accounting Standards issued by the ICWAI, to the extent these are found to be relevant and applicable. The a .....

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n any stock exchange whether in India or outside India. The Companies (Cost Audit Report) Rules, 2011 cast a duty for a Cost Auditor appointed under Section 233B of the Companies Act, 1956 to certify inter alia that books and records maintained by the company are in conformity with the Cost Accounting Standards issued by the ICWAI to the extent these are found to be relevant and applicable. Chapter 1 Introduction Materials constitute one of the important elements of production. Types of material .....

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at Annexure 1. Process Materials: Process materials/additives are materials used in the process of manufacture in addition to raw material. It varies from industry to industry. Process material for sugar industry is lime, sulphur; in cement industry pozallana and gypsum are additive materials; and in paper industry clay/china clay is additive material. Bought Out Components: Bought out component means a manufactured (industrial) product, which forms part of the finished product (for example fast .....

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semblies: "Sub-assembly" (also sometimes called as "aggregates") means an assembly of various components with a distinct identity, and forms part of the finished product, for example engine, steering in an automobile. "Accessory" may be either a component or sub-assembly, which is not essential for the basic functioning of the product, but supplied as an optional item (for example an air conditioner or music system in an automobile). However, in the case of mining, .....

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and the like which cannot be directly identified economically with a product and are treated as indirect material. Material acquired in exchange of other material: When material is acquired in exchange for other material or service supplied, the cost of material acquired is taken as cost of material supplied or services provided plus other applicable cost such as freight. In paper industry where bagasse from sugar mill is obtained by the paper mill by supplying coal to the sugar mills, in the co .....

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rial and indirect material. On the basis of source of supply, materials are classified as indigenous materials / imported materials. Indigenous materials are manufactured within the country and imported materials are purchased from other countries. For purpose of identification and convenience, each item of material is given a distinct name. Similar items are classified under sub-groups and number of such group is classified under the main or major groups. For example, items of brass may be clas .....

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llowed consistently from one period to another. Chapter 2 Definitions The following terms are used in this guidance note with the meaning specified. 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. Administrative overheads: Expenses in the nature of indirect costs, incurred for general management of an organization. Cost Object: This includes a product, service, cost centre, acti .....

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ional costs, not involving cash outlay, computed only for the purpose of the decision making. Direct Materials: Materials, the costs of which can be attributed to a cost object in an economically feasible way. Indirect Materials: Materials, the costs of which cannot be directly attributed to a particular cost object. Material Cost: The cost of material of any nature used for the purpose of production of a product or a service. Production overheads: Indirect costs involved in the production proce .....

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ontamination, unrecoverable residue, shrinkage etc., and discarded material which may or may not have value. Spoilage: Production that does not meet with dimensional or quality standards in such a way that it cannot be rectified economically and is sold for a disposal value. Net Spoilage is the difference between costs accumulated up to the point of rejection and the salvage value. Chapter 3 Principles of Measurement 5.1. Principle of valuation of receipt of materials: 5.1.1 The material receipt .....

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ted. Indigenous Material: The purchase order inter alia states (1) Specification of material being purchased (2) Purchase price (3) Quantity of supply (4) Time of supply (5) Place of supply (6) Payment terms (7) Other commercial conditions regarding inspection, rejection, trade discount and similar item. If purchase price is ex-works of purchaser, inward freight is inbuilt in the price structure. If purchase price is ex-works of supplier, inward freight is to be paid by the purchaser and it is t .....

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unt of purchaser. In addition to basic purchase price, duties and taxes, freight inwards, insurance and other expenditure directly attributable to procurement are to be taken into account while valuing the receipt if these can be quantified with reasonable accuracy at the time of receipt. If any of these items of expenditure cannot be quantified with reasonable accuracy, these shall be treated as material handling cost. Trade discount, rebates, taxes and duties refundable (or to be credited by t .....

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st of procurement of materials and is to be apportioned to the items purchased on rational basis such as weight / number and the like. Imported Material: Following points are to be considered while valuing imported material: (a) Actual customs duty paid on the basis of classification by the Customs Authorities will be assigned, net of any credits. (b) Material imported free of duty or at concessional rate of duty under export incentive scheme will be accounted for at the actual rate of duty appl .....

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d. If imported as part of a basket of other material, then proportionate charges will be allocated on import value. (d) Intermediate storage - actual charged by the storage provider should form part of the cost of material. (e) Clearing Agent's Charges will be added to cost of materials. Where other services are also provided by the commission agent besides procurement of orders, for example arranging for LC, the charges for such services will also be assigned to the materials covered on a s .....

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ture are to be reckoned. This may include preparatory costs in some industries. In case of procurement of cane considerable efforts and resources are involved, which can be directly identified and classified as sugar cane development costs. This would include cost incurred for dressing of sugar cane before crushing and the like. Similarly, in mining industry raw ore undergoes changes through many stages and cost up to each stage is considered separately and added to the next stage cost. In paper .....

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l for wine is another example of preparatory cost. Handling costs up to works/factory gate: If handling cost is specific and handled singly, it is to be assigned to the material handled. If employees are used for handling the material, it is to be apportioned on the basis of time taken by them. Incoming Inspection: If the material calls for inspection by a third party, specific cost will be assigned to the material inspected. If the Inspection is carried out internally and its cost is significan .....

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the insurance premium will be on the basis of the proportionate value insured. If insurance becomes part of the carrier's responsibility no separate cost will be assigned in this regard. Treatment of containers for materials purchased: Treatment of container cost in the cost of material purchased is as under: Container is non returnable and for which no cost is charged in the invoice: The container cost is included in the material cost. An estimated residual value of the container may be re .....

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egated with manufacturing overheads. The cost borne by the entity will only be added to the cost of material. If charged value is ₹ 100/- per container and return credit is for ₹ 40/-, balance ₹ 60/- is the cost to be included in material cost. Container is charged separately in the invoice and not returnable: This will be included in material cost. Container sold as scrap: The value may be reduced from material cost if material and significant, otherwise sale value of scrap be .....

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layed. This may happen due to any financial stringency delaying the payment to the bank. Such payments of storage are to be excluded from cost of material calculation and are dealt with in the financial accounts. 5.1.3 Self manufactured materials shall be valued including direct material cost, direct employee cost, direct expenses, factory overheads, share of administrative overheads relating to production but excluding share of other administrative overheads, finance cost and marketing overhead .....

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r self manufactured. Self manufactured material used in the assembly of main product are also classified as intermediate products. Cost of self manufactured material is to be determined taking into account the cost of direct material, direct employee cost, direct expenses, share of factory overhead and share of administrative overheads relating to production. Overheads comprise of indirect materials, indirect employee costs and indirect expenses which are not directly identifiable or allocable t .....

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to general management and administration of an organization. These are to be analyzed and distributed between administrative overheads relating to production activities and administrative overheads relating to selling and distribution activities on rational basis. Administrative Overheads relating to production activities will form part of self-manufactured materials. Self manufactured components, if captively consumed and are subject to levy of excise duty, its valuation is to be determined as .....

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g Policies of the entity. Sometimes, capital spares are not separately invoiced but merged with the cost of equipment supplied. These are depreciated with the cost of machinery over its useful life. It may be charged to cost based on machine hours utilized. Spares which are termed as insurance spares are stored to meet a contingency such as failure of a critical part in order to have insurance against stoppage of production. Such spares may be used for replacing a defective part. These are speci .....

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nditions of purchase order. If the purchase order does not specify any level of loss and supplier is responsible to supply good quantity, in such cases, the loss is to be borne by the supplier or the insurer as the case may be. The normal loss is to be absorbed by the good units. Abnormal loss of material is charged to Profit and Loss Account and does not form part of the cost of material. In case of spoiled material if there is any significant realizable value , loss is to be accounted net of s .....

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d. Unit price of material is reduced or inflated to cover the cost of the normal percentage of loss or gain. An illustration is given below: 1000 units of material X purchased @ ₹ 4/- per unit = ₹ 4000 Anticipated loss on shrinkage: 4% i.e. 40 units Receipt will be 960 units and price inflated = ₹ 4000/(1000-40 Units) = ₹ 4.17 per unit If there is gain in the quantity, issue rate will be reduced. Certain materials contain moisture at the time of purchase which may evapora .....

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showing the treatment of driage loss in sugar industry is at Annexure IV. 5.1.7 The FOREX component of imported material cost shall be converted at the rate on the date of the transaction. Any subsequent change in the exchange rate till payment or otherwise shall not form part of the material cost. FOREX conversion has to be on the date of transaction. The cost and financial accounts will have the same basis for alignment. The date on which the property in goods passes is adopted as the date of .....

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orities for delay in clearance of wagon/vessel and the like. Illustrations are: ♦ Demurrages levied by transporter for not removing goods, ♦ Penalties for keeping hazardous goods in unauthorized places in transit without proper safeguards. ♦ Penalties levied by Customs Authorities for delayed clearance. ♦ Demurrage and penalties are abnormal cost and are not part of the material cost. It is charged to Profit & Loss Account. 5.1.9 Subsidy/Grant/Incentive and any such p .....

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saving device and the like. Such subsidy is to be adjusted from the material cost. Incentives received should be reduced from the material cost of the products in respect of which the incentives are received. There can be some difficulty to match incentive with the cost of production due to possible timing differences between the period of production, and the period of receipt of the incentives. Incentives are sometimes recorded on the basis of receipt. In such a situation matching becomes diffi .....

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e Method of valuation of issue of material once adopted shall be followed consistently. If method of valuation is changed, its impact on costs of material shall be disclosed. The FIFO formula assumes a cost flow that the items of materials that were purchased or produced first are issued first, while LIFO assumes the exactly opposite cost flow charging the current price to cost. Under the weighted average cost formula, the cost of each item is determined from the weighted average of the cost of .....

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accounts and cost accounts shall be disclosed in the reconciliation of profit as per cost records and the financial accounts. LIFO method can be gainfully applied while estimating /projection of cost as it reflects current price cost. Illustration on FIFO/LIFO/Weighted average method of issue of material is at Annexure VI. Any accepted method of pricing of issue may be used. However, whatever method of pricing is adopted, the same should be specified and followed consistently. In case of some b .....

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of adjustment of such shortage shall be identified with the relevant product(s). Normally, adjustment in the variation of the book stocks and physical stocks are accounted in consumption of such material because of the approximation involved in the receipt and issue of the same. Another material which requires special mention is petroleum product when issued for further processing. For example Fuel oil is supplied in KL (volume) and its price is also in terms of Rs./KL. This price is related to .....

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agement with a medium by which the effectiveness of current results is measured and responsibility for deviation is placed. Standard costs are used 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. In some process industries like refractory, pharma, formulations and the like, standard mix of raw materials is used to determine the cost of material and variance between stan .....

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n the standard and actual prices of purchase results in material price variance. The material price variance is to be treated as part of material cost. When standard costing system is in vogue, there can be other variances relating to usage during the course of production which may be due to normal or abnormal reasons. Variances due to normal reasons should be treated as cost, while the variances due to abnormal / reasons are treated outside the cost of production. Illustration of material cost .....

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ation. Such an aberration is avoided to understand the cost in a better perspective for any purpose. For instance, the cost of material cannot be loaded with losses due to an earthquake which is an abnormal event. Similarly, loss of production due to major fire accident or a major shutdown due to sudden and long machine breakdown for days together for want of a special part may be treated as Abnormal Cost. Material lost due to major fire accident, burglary, obsolescence, if significant, material .....

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the invoice, which is for more than one material, inward freight shall be allocated to different materials indicated in the invoice on reasonable and appropriate basis such as weight, volume, numbers and the like. If the material is carried by a special carrier, it will be assigned to the specific material transported. 5.2.5 Material cost may include imputed costs not considered in financial accounts. In economics, 'imputed' indicates an ascribed or estimated value when there is no crit .....

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plant hydrogen is produced as by product. If the unit has a captive power plant, it is used as fuel. Its cost is to be imputed based on the fuel substituted such as coal/ furnace oil, based on equivalent calorific value. 5.3 Self manufactured components and sub-assemblies shall be valued including direct material cost, direct employee cost, direct expenses, factory overheads, share of administrative overheads relating to production but excluding share of other administrative overheads, finance .....

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erial cost of good production. Material Cost of abnormal scrap /defectives should not be included in material cost but treated as loss after giving credit to the realisable value of such scrap/ defectives. Scrap results from the processing of material. It is unavoidable residue material arising in the process of manufacture. It may have some value. Example of scrap is border material from stamping, shavings, filing, boring, turning operations and the like. The scrap is accumulated in storage yar .....

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tings in foundry. Runners and risers are valued at weighted average cost at pouring stage (i.e. raw material cost plus conversion cost of molten metal). The material cost of abnormal scrap will not form part of the material cost. Normal scrap generated during process of manufacture is to be treated as a part of material cost. Scrap have generally low recovery value as in the case of steel but it may have significant value as in the case of gold. Thus its recovery value depends upon the type of m .....

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For example: Metal poured, due to time lost in pouring, is incomplete on account of loss of temperature. This has to be disposed off as such by re-melting or sold as scrap. In certain types of processes and operations, some material physically disappears on account of shrinkage, evaporation and the like with the result that the quantity of output is less than the quantity of input. In other cases residue such as smoke, dust, gases, slag and the like arises in the course of operation and has pra .....

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le measure and valued as per the principles laid under Paragraph 5. Assignment of material cost involves establishing a suitable procedure to identify and record the resources consumed by the cost object. Cost Object or Cost Centre is the logical sub-unit for accumulation of cost. Cost Centre may be classified in different ways like function-wise and nature wise: Function-wise Production/Process Cost Centres: for example Machine Shop, Welding shop, Assembly shop and the like. Service Cost Centre .....

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ment within a plant, the cost object is maintenance department. Different costs can be assigned to the same cost object, depending on the purpose. For example, costs from all parts of the value chain may be assigned to a product for pricing decisions. The direct cost of one cost object may be the indirect cost of another cost object. For assigning direct material cost to a cost object, the source document is material requisition. Details of material issued for manufacturing a cost object/ produc .....

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for batch, unit or job: This method is preferred as it establishes direct relationship of actual material usage for the product. Method (ii): Based on any method other than actual, for example, Standard: Under this method material is issued as Standard Bill of material. The standard cost for each direct material is defined at the beginning of the year. The variances from standard on account of price / consumption and the like are adjusted to consumption at the year end. Some organizations follow .....

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Bill of material method is to be used in case of goods, where the direct link of actual consumption for product is not available. The manufacturer using this method should certify the quantitative requirement considered for calculation of material consumption as per Bill of Material. It may be ensured that usage variance is within reasonable limit and it should be adjusted in calculation of cost of production. For tracing of material cost direct to a cost object, concept of "to the extent .....

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ooks. For major direct materials, reconciliation is to be ensured both in quantity and value. 6.1.2 Where the material costs are not directly traceable to the cost object, these may be assigned on a suitable basis like technical estimates. Materials which are not directly traceable to cost object, are to be assigned on some rational basis consistently. Technical estimates help in arriving at such rational basis. For Example, Grease or lubricants used for maintenance work may be consumed by all t .....

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hird party according to specifications provided by the buyer, the processing/ manufacturing charges payable to the third party shall be treated as part of the material cost. It relates to a production operation outsourced. The material undergoes change and enters the work in process stage or semi finished goods stage. A part of the production operation is outsourced. The outsourcing charges paid to third party is treated as part of material cost. Example (1): Casting requires trimming, machining .....

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nufacturing operations / activity is subcontracted, the subcontract charges related to materials shall be treated as direct expenses and assigned directly to the cost object. This provision covers a situation where the manufacturer gets part of the manufacturing operation subcontracted. For example steel strip is sent to slitter for smaller size, slitting charges paid to subcontractor is to be treated as direct expenses and assigned directly to cost object. 6.3 Assignment of costs- Indirect mate .....

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r different heads for the cost centres aggregated and accumulated shall be distributed to the production cost centres on a rational basis. 6.3.2 The cost of materials like catalysts, dies, tools, moulds, patterns etc., which are relatable to production over a period of time shall be amortized over the production units benefited by such cost. Indirect materials like cost of catalysts, dies, tools, patterns and the like have longer service life. Some special patterns are charged to the cost of the .....

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life exceeding one year shall be included in cost over the useful life of the material. It gives a general principle where the life of any indirect material is estimated beyond a year, (life of the material should be estimated on technical basis) to amortise its cost over the estimated life. Chapter 5 Presentation 7.1 Direct Materials shall be classified in the cost statement under suitable heads. Cost Statements shall depict Direct Material costs as detailed below: a. Raw materials, b. Componen .....

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f manufactured. Raw Material cost is to be indicated separately for indigenous and imported raw material consumed. This requirement of presentation by source wise also applies to other types of material viz. components, semi-finished and sub-assemblies also. In process industry direct material is classified as raw material, additives / filler, process chemicals and dyes. Illustration of the manner in which material cost should be presented is in Annexure VIII a to VIII c. 7.3 Indirect Materials .....

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ms of materials shall be disclosed. Major items are defined as those who form 5% of cost of materials. Major items of raw materials indicating quantity and rates are to be disclosed in the cost statement which constitutes more than 5% of the total cost of materials. An item of cost is considered as major and significant if that item forms at least 5 % of the total cost of materials. Criteria of 5% of disclosure of material has been prescribed taking into account total items to be disclosed in th .....

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ess Industry, Material Broke, Filler, sizing, alum dyes has been indicated separately which are individually less than 5% of the total material cost, but considering their significance these items have been presented and disclosed separately. Other chemicals which were not significant have been grouped under item B-5 of the above Annexure. Each major item of material which forms 5% of the cost of materials is considered material and should be disclosed in the cost statement; whereas items below .....

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shall be disclosed in the cost statement. Example Periodic quarterly Weighted Average is used for pricing the issues of material. In the Cost accounting records, all major and significant items are included in the direct materials identified with the product. Direct materials forming more than 5 % of the total material cost have been separately classified. Items forming less than 5 % of the total material cost have been suitably grouped and shown under others direct material. Components which a .....

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ated. The cost accounting principles and methods adopted for determining the material cost is to be followed consistently from one period to subsequent period. If there is any change in the cost accounting principles and methods during the period resulting in material effect on the cost, the same shall be disclosed indicating its impact in the cost statement. 8.4 Any abnormal cost excluded from the material cost shall be disclosed. Abnormal cost arises due to idle time for some heavy break-down .....

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oduction was lost. The loss of material has been assessed by a surveyor. As the position of allowable claim has not yet been ascertained no credit has been taken for claims recoverable. 8.5 Any demurrage or detention charges, penalty levied by transport or other authorities excluded from the material cost shall be disclosed. As discussed in earlier para, any demurrage, detention, penalty is to be excluded from material cost. Example Demurrage of ₹ 6.5 lacs have been paid to the Railways in .....

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iod of five years. Such subsidies received and receivable are reduced from transport cost of the materials specified by the Government. 8.7 Cost of Materials procured from related parties shall be disclosed. If any material is procured from related parties, (as defined under the Companies Act, 1956) its relationship, nature of transaction viz. quantity, rate, other terms / conditions of procurement are to be disclosed. The objective of disclosure is to ascertain that the transaction is at arm .....

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215 lacs were supplied by XYZ Ltd. Of these, 2200 engines valuing ₹ 198 lacs were consumed and they are shown under the bought out components in the direct material cost in the cost statement. The price fixed is based on the assessable value for Excise duty plus 10 % mark-up on that. This valuation has been consistent and considered as reasonable by the management. There are no other related party transaction relating to purchase of material. 8.8 Any cost imputed in arriving at the materia .....

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tity burnt as fuel, hydrogen is priced after converting the quantity to thermal equivalent quantity of LSD oil and valued at the price of the LSD Oil. 8.9 Disclosures shall be made only where significant, material and quantifiable. Standard provides that any item of materials forming 5% of the total cost of material is to be disclosed both in quantity, rate and value. Further materiality and significance of information depends on nature, size and complexity of manufacturing operation. An item of .....

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ar context of its omission. Information is material, if its non-disclosure could influence the decision of the user. 8.10 Disclosures may be made in the body of the Cost statement or as a footnote or as a separate schedule. Disclosures may be made in the body of the cost statement as foot note. If there are many items of disclosures, the same may be included in Schedule of Notes to the cost statement. Annexure I Illustrative list of industries and raw materials used S. No. Description Names of i .....

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5 Wollen Fabrics Woollen Yarns 16 Cement Lime stone and gypsum 17 Zinc Zinc ore 18 Aerated water Concentrate 19 Coffee powder Coffee beans 20 Gear, Pinion, shaft Rough forging for such items Annexure II Illustration on valuation of receipt of indigenous supply XYZ co Faridabad Inv.No.KKM/29[2009] To M/s KLM, Noida Item Quantity Nos. Rate Rs./Unit Amount (Rs.) 1. Bottom Cap 2. Top Cap 2200 2200 2.79 2.26 6138 4972 Total Assessable value 11110 Excise Duty 8% 889 Education Cess 2% 18 Secondary and .....

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gainst the above account viz. Excise Duty payable will be debited and Basic Excise Duty receivable account will be credited to discharge the payment liability of excise. In certain purchases there may be no excise duty and the like and only VAT is paid. Entry will be in regard to purchase price and VAT paid will be adjusted against VAT payment liability. VAT is a state subject. Provisions, rules and regulations governing this tax differ from state to state. A registered dealer can set-off VAT pa .....

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position. ♦ Purchase of goods from unregistered dealers. ♦ Goods purchased in the course of inter-state trade where VAT is disallowed. Annexure III a Landed Cost of imported material on FOB Basis Calculation of landed cost of Imported material on FOB Basis Party s name XYZ Invoice No. MRR Date LC/TT No. 49 15.9.2009 XXX FOB/CIF FOB Bill of Entry No. and date XXX dated 8.10.2009 Item Qty. (Kg.) Rate per unit Bill Value ($ = ₹ 50.55) P .Black 10800 $3.00 $ 32,400 1637820 Amount(R .....

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g & Forwarding expenses 6801 Total Purchase value 10800 kg 2148391 Less CVD 142261 Less Education Cess on CVD 2845 Less Secondary and Higher Education Cess on CVD 1423 Less Special Addl. Duty** 77315 (-)223844 Net Purchase Value 1924547 **applicable to manufacturer only and not service provider Landed Cost per unit 178 Annexure III b Landed Cost of imported material on CIF Basis Calculation of landed cost of Imported material on CIF Basis Party s name XYZ Invoice No. MRR Date LC/TT No. 49 5t .....

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ucation Cess on Custom 1% 117 Special Addl. Duty 4% 6243 TOTAL CUSTOM DUTY 42978 Freight 0 Insurance 0 Clearing & Forwarding expenses 5530 Total Purchase value 300kg. 166665 Less CVD 11456 Less Education Cess on CVD 229 Less Secondary and Higher Education Cess on CVD 115 Less Special Addl. Duty 6243 (-)18043 Net Purchase Value 148622 Landed Cost per unit 300 KG 495 ANNEXURE IV ILLUSTRATION SHOWING THE TREATMENT OF DRIAGE LOSS IN SUGAR INDUSTRY Quantity (Tonnes) Sugarcane Purchased Received L .....

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ry 1.128 1093732 (c) Repairs and maintenance 0.609 590499 (d) Other expenses 3.187 3090182 4 Loading and unloading charges 3.922 3802853 5 Net harvesting charges 0 0 6 Taxes and levies (a) Cane cess /purchases tax 17.537 17004243 (b) Octroi 0 0 (c) Other levies 0 0 Total MT 969621 606.355 587934541 7 Transport charges (a) Transport cost 0 0 (b) Others 12.765 12377212 8 Cane development expenses (a) Salaries and wages of cane dev. Staff 1.429 1385588 (b) Others 2.378 2305758 Total MT 969621 622.9 .....

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f dispatch of Documents 2nd Dec XXXX (Rs 45 per $ as per market rate published by RBI) Date of receipt of Documents 6th Dec XXXX (Rs 43 per $) Date of payment by the Bank 8th Dec XXXX (Rs 42 per $ used by the Bank in India) The cost of materials will be taken @ ₹ 45 per US$ being the date of dispatch of documents. The rate used by their bank for debit is the market rate at the time of conversion within a day which need not tally with the published rate. The difference between ₹ 45 an .....

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the receipts and issues of January 2009: Date Receipts Date Issue (Qty.) Units (tonnes) Rupees/unit 2-1-2009 300 4 7-1-2009 200 16-1-2009 500 6 18-1-2009 400 23-1-2009 450 5 29-1-2009 100 FIFO method: Receipt Issue Balance Date Qty. Rate (Rs.) Amt. (Rs.) Qty. Rate (Rs.) Amt. (Rs.) Qty. Rate (Rs.) Amt. (Rs.) 1-1-09 - 2-1-09 300 4 1200 300 4 1200 7-1-09 200 4 800 100 4 400 16-1-09 500 6 3000 100 4 400 500 6 3000 600 3400 18-1-09 100 4 400 200 6 1200 300 6 1800 23-1-09 450 5 2250 200 6 1200 450 5 2 .....

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Rate(Rs) Amt(Rs) Qty Rate(Rs) Amt(Rs) Qty Rate(Rs) Amt(Rs) 1-1-09 - 2-1-09 300 4 1200 300 4 1200 7-1-09 200 4 800 100 4 400 16-1-09 500 6 3000 600 5.667* 3400 18-1-09 400 5.667 2000 200 5.667 1133 23-1-09 450 5 2250 650 5.2** 3380 29-1-09 100 5.2 520 550 5.2 2860 Weighted average method: *Issue on 18-1-09 → (3400/600=5.667) **Issue on 29-1-09 → (1133+2250)/650=5.2 Annexure VII Illustration of material cost variance (price, use, mix and yield) Examples of material cost variance (price, .....

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y. (Standard Price -Actual price) Material A :5000 × (6.00-6.50) =2,500 Material B 4500 × (4.00-3.50) = 2250 (Adverse) Favourable Total (Rs.) (2500) 2250 (250) Material Usage variance: (Actual production × standard material per unit - actual material) × standard price per unit {(9000 × 0.6)/0.95 - 5000} × ₹ 6.00 = 4105 {9000 × .0.4)/0.95 - 4500} × ₹ 4.00 = 2842 Favourable Adverse Total 4105 (2842) 1263 Material Mix Variance (Actual quan .....

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III-a Illustration of presentation of material cost - Engineering Industry S.No. Description Unit Qty Rate Amount A Direct Material Rs. Rs. 1. Sheet Kg. 10 200 2000 2. 2(a) Bought out components Imported Crank shaft No. 1 6900 6900 Cylinder block No 1 12500 12500 Hydraulic lift value No. 1 7200 7200 Wheel Assembly Rear No. 2 3230 6460 2(b) Indigenous Injection pump No. 1 18500 18500 Tyres No. 5 3000 15000 Battery No. 1 7500 7500 3 Others constituting less than 5% of the Total material cost 17500 .....

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tion of presentation of material cost - Caustic Soda (Power used for electrolysis process is treated as part of material cost) Sl. No. Particulars Unit Quantity Rate Rs./Unit Amount (Rs.) A Materials consumed 1 Direct Material (a) Purchased - Indigenous Salt (Industrial Grade) MT 997500 750 748125000 - Imported 0 0 0 0 (b) Self Manufactured - Power consumed in electrolyser KWH 15250000 5 76250000 Total Direct Material 824375000 2 Process material (a) Barium Carbonate KG 876600 19 16655400 (b) So .....

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in the context of the background material, which has been set in normal type. 1. Introduction 1.1 This standard deals with principles and methods of determining the Material Cost. Material for the purpose of this standard includes raw materials, process materials, additives, manufactured / bought out components, sub-assemblies, accessories, semi finished goods, consumable stores, spares and other indirect materials. This standard does not deal with Packing Materials as a separate standard is bei .....

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is standard is to bring uniformity and consistency in the principles and methods of determining the material cost with reasonable accuracy. 3. Scope This standard should be applied to cost statements which require classification, measurement, assignment, presentation and disclosure of material costs 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 i .....

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t do not meet quality standards. This may include reworks or rejects. 4.4.1 Reworks: Defectives which can be brought up to the standards by putting in additional resources. Rework includes repairs, reconditioning and refurbishing. 4.4.2 Rejects: Defectives which cannot meet the quality standards even after putting in additional resources. Rejects may be disposed off as waste or sold for salvage value or recycled in the production process. 4.5 Imputed Costs: Hypothetical or notional costs, not in .....

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he production process or in rendering service8. The terms Production Overheads, Factory Overheads, Works Overheads and Manufacturing Overheads denote the same meaning and are used interchangeably. 4.9 Scrap: Discarded material having some value in few cases and which is usually either disposed of without further treatment (other than reclamation and handling) or reintroduced into the production process in place of raw material9. 4.10 Standard Cost: A predetermined norm applied as a scale of refe .....

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s and take proper measure to control them. 4.11 Waste and spoilage: 4.11.1 Waste: Material loss during production or storage due to various factors such as evaporation, chemical reaction, contamination, unrecoverable residue, shrinkage, etc., and discarded material which may or may not have value11. 4.11.2 Spoilage: Production that does not meet with dimensional or quality standards in such a way that it cannot be rectified economically and is sold for a disposal value. Net Spoilage is the diffe .....

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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 materials shall be valued including direct material cost, direct employee cost, direct expenses, factory overheads, share of adminis .....

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amortised over a period, not exceeding the useful life of the equipment. 5.1.5 Normal loss or spoilage of material prior to reaching the factory or at places where the services are provided shall be absorbed in the cost of balance materials net of amounts recoverable from suppliers, insurers, carriers or recoveries from disposal. 5.1.6 Losses due to shrinkage or evaporation and gain due to elongation or absorption of moisture etc., before the material is received shall be absorbed in material c .....

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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 appro .....

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Cost Accounting Standard on Determination of Average (Equalized) Cost of Transportation. 5.2.5 Material cost may include imputed costs not considered in financial accounts. Such costs which are not recognized in financial accounts may be determined by imputing a cost to the usage or by measuring the benefit from an alternate use of the resource. 5.3 Self manufactured components and sub-assemblies shall be valued including direct material cost, direct employee cost, direct expenses, factory overh .....

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of good production. Material Cost of abnormal scrap /defectives should not be included in material cost but treated as loss after giving credit to the realisable value of such scrap / defectives. 6. Assignment of costs 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 feasib .....

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cessing/ manufacturing charges payable to the third party shall be treated as part of the material cost. 6.2.2 Wherever part of the manufacturing operations / activity is subcontracted, the subcontract charges related to materials shall be treated as direct expenses and assigned directly to the cost object. 6.3 Assignment of costs- Indirect materials 6.3.1 The cost of indirect materials shall be assigned to the various Cost objects based on a suitable basis such as actual usage or technical norm .....

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all be classified in the cost statement under suitable heads. E.g. ♦ Raw materials, ♦ Components, ♦ Semi finished goods and ♦ Sub-assemblies 7.2 Direct Materials shall be classified as Purchased - indigenous, imported and self manufactured. 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 .....

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