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Exposure Draft Guidance Note on Cost Accounting Standard on Capacity Determination CAS-2 (Revised 2015)

News and Press Release - Dated:- 30-12-2015 - The Council of the Institute of Cost Accountants of India has issued the Cost Accounting Standard - 2 (CAS - 2)(Revised 2015) on Capacity Determination which lays down a set of principles and methods of classification, and determination of capacity of an entity for ascertainment of the cost of product or service and the presentation and disclosure in the cost statements. The Cost Accounting Standards have been set in bold italic type and reference nu .....

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n (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 specified in the Table A and Table B to the above referred Rules have to maintain cost records in Form CRA-1 annexed to above rules having an overall turnover from all its products and services of rupees thirty five crore or more during the immediately preceding .....

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Cost Auditor and conduct of an audit in accordance with Cost Auditing Standards, in an objective states that the cost auditor conducting cost audit shall comply with the Cost Accounting Standards (CAS) and Generally Accepted Cost Accounting Principles (GACAP) issued by the Institute of Cost Accountants of India. Chapter 1 Introduction Need for Capacity Determination: The capacity details are required for internal management for planning, scheduling of production and subsequent follow up during .....

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in 2012 and was applicable for manufacturing sector. The Companies Act, 2013 includes service sector also in the ambit of Section 148 for the purposes of maintenance of cost records and audit. Accordingly, the Central Government issued The Companies (Cost Records & Audit) Rules, 2014 including Service Sector for the purposes of maintenance of cost records and audit. In view of the above provisions there was a need to revise CAS- 2 on Capacity Determination. The CAS-2 has used various terms .....

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n is to be furnished in respect of Manufactured Sector and Service Sector as follows: Manufactured Sector (Part B): 1. Available Capacity: (a) Installed Capacity; (b) Capacity enhanced during the year, if any; (c) Capacity available through leasing arrangements, if any; (d) Capacity available through loan licence/third parties; (e) Total available capacity [ (a) to (d)] The above information is to be furnished for each product separately. Service Sector (Part C): 1. Available Capacity: (a) Insta .....

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rvice provided in a specified period. 4.3 Cost Object: An activity, contract, cost Centre, customer, product, process, project, service or any other object for which costs are ascertained. 4.4 Installed capacity: Installed capacity is the maximum capacity of producing goods or providing services, determined either based on technical specification of the facility or through a technical evaluation. 4.5 Normal Capacity: Normal capacity is the volume of production or services achieved or achievable .....

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ble use of the available facilities and resources. Determination of capacity in terms of units of production or services provided or equivalent machine or man hours will depend upon the type of industry, manufacturing process, type of service industry and so on. These are: i) Output quantity: This will be applicable only in the case of single product non-seasonal plants. The standard variables to be reckoned with will be: (a) A year will be deemed to be having estimated number of working days sa .....

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ental capacity becomes the determinant of the overall plant capacity. ii) Available machine or man hours: This unit for measuring and expressing capacity will be applicable in most of the industries particularly where products /sizes/ profiles are manufactured from the same facilities. The relevant variables will be: (a) A year of say 330 working days of 3 shifts, each will be norm (or industry norm, if available); (b) A normal production time (turn-around time) will include set-up time, tool ch .....

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this selected standard unit; (e) In determining standard hour for each product manufactured or service provided a normal efficiency rate is to be used; (f) Segmental imbalances or excess capacities expressed in terms of available machine hours or man hours is to be indicated along with the declared capacity; and (g) Capacity in respect of services provided will be based on available working hours and facilities. iii) Joint products and by-product: capacity shall be measured in terms of outputs o .....

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umber of shifts or machine hours or man hours. Generally installed capacity is based on the specifications of machine or equipment given by the suppliers. It is the rated capacity of a plant installed, that is, the maximum possible productive capability of the plant as rated by the manufacturers or erector of the plant. It refers to the output that can be achieved if production is carried out at a maximum speed without interruptions. It is the potential output that could be achieved with install .....

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ity are not available, the estimates by technical experts on capacity under ideal conditions shall be considered for determination of installed capacity. The installed capacity is the production capacity of the machineries installed in the unit as on that day or period or the year under report. The installed capacity is to be determined with reference to a single working shift or double or triple shift working as per technical specifications. 5.3 Reassessment of Installed Capacity: Installed cap .....

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such change. In case the installed capacity is reassessed as per directions of the Government or Regulator, the installed capacity shall be in accordance with the said directives. 5.4 Normal Capacity: Normal capacity is determined after suitable adjustments to the Installed Capacity. Normal capacity is determined for the business as a whole. For determination, prime considerations are physical capacity and average sales expectancy. Average is calculated by taking expected sales over a reasonabl .....

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a day s maximum production (or hourly production) should be made. (b) Daily production should be multiplied by normal working days, that is, total days in year less: (1) Weekly off; (2) statutory holidays; and (3) normal shut down period for repairs and maintenance. Generally working days are taken at 300 days in a year. In case of continuous plant, it may be calculated for 330 days x 24 hours (365 days minus normal shutdown period for necessary overhauling). Illustrations of calculation of inst .....

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shift. Similarly for weaving installed capacity is expressed in terms of loom shift. The production per loom shift will depend on the type of loom, type of cloth that is grey cloth or processed cloth. For example, the capacity of the diesel engine, the capacity of the product will vary as per Horse power/Number of cylinders and so on. One number of diesel engine with 4 cylinders may be equivalent to the production of 4 numbers of diesel engine with 1 cylinder. In case of machineries at varying .....

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termined based on the Number of Available Beds in the Hospital for In-Patients (IP) multiplied by 365 days. Capacity Utilisation is calculated on the basis of Number of Bed Days occupied. However, in case of different procedures / departments, Capacity is determined separately on the basis of available equipment & facilities. In case of aeronautic service industry, where aircrafts of different capacities are landing and taking off depending upon the type of aircraft of different capacities, .....

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f International Civil Aviation Federation. Capacity of the Port is determined based on the available facilities for handling of different materials. Capacity is determined Material-wise as different Materials got different handling equipment / mechanisms. The Capacity of the Port is calculated by working out Material-wise covering Number of Berths, Barge Jetties, Anchorages and Handling Equipment. Generally, Capacity of a Port is declared in Tonnage for different Materials. Capacity of an Educat .....

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to be indicated. If the unit of measurement is other than actual production, such as per shift and so on, installed capacity, and normal capacity shall be indicated in terms of goods produced or services provided to have a meaningful comparison of actual production of goods or services provided in absolute terms. 6.2 Actual Capacity utilization shall be presented as a percentage of installed capacity. Actual production of goods or services provided is to be considered and expressed as a percenta .....

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Manufactured goods or services provided through in-house facility ii) Goods Produced or services provided through outsourcing f. Reasons for low capacity utilization. g. Abnormal cost due to under-utilization of capacity. Disclosure is to be made for the basis adopted for arriving at installed capacity and normal capacity. Details shall be furnished for shift working that is single shift or multiple shifts. In case there is change in the installed and normal capacity either due to increase or re .....

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apacity is the difference between normal capacity and actual capacity utilization where the actual capacity is lower than the normal capacity. 7.2 Disclosures shall be made only where material, significant and quantifiable. A piece of information is material, if its non disclosure could influence the decision of a user. Materiality and significance of any information will not be same for different entities but would depend from situation to situation. If the information is material, significant .....

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y determination in Engineering Industry Manufacturer s Specifications - capacity per Hour = 550 units No. of shifts (each shift of 8 hours) = 3 shifts Holidays in a year: Sundays = 52 Other holidays = 13 Annual maintenance - days = 30 Preventive weekly maintenance for the machine on Sunday. Normal idle capacity for batch change over, Lunch, personal needs etc. = 1 hour per shift Production based on sales expectancy in past 5 years = 30.1, 26.9, 29.7, 24.4 and 30.2 lakhs units Actual Production f .....

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ration of Capacity Utilization in Textile - Spinning Mill Installed capacity of Spinning Mills = 26208 spindles on single shift basis Actual spindles available during the year (After adjustment for idle spindles) = 25605 spindle on single shift basis Total spindle shift worked on three shift basis = 74613 spindle shifts Average spindle shift worked on single shift basis = 74613/3 = 24871 Actual capacity utilisation on single shift basis = 24871/26208*100 = 94.90 % Annexure 3 Illustration of Capa .....

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