TMI BlogCompanies (cost records and audit) Amendment Rules, 2017X X X X Extracts X X X X X X X X Extracts X X X X ..... Form CRA-I and Form CRA-3, the following Forms shall respectively be substituted and shall be deemed to have been substituted with effect from the 1st day of April, 2016, namely:- FORM CRA-I (See rule 5(1) of the Companies (cost records and audit) Rules, 2014) Particulars relating to the Items of Costs to be included in the Books of Accounts 1. Material Costs.- (a) Proper records shall be maintained showing separately all receipts, issues and balances both in quantities and cost of each item of raw material required for the production of goods or rendering of services under reference. (b) The material receipt shall 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. (c) Finance costs incurred in connection with the acquisition of materials shall not form part of material cost. (d) Self-manufactured materials or captive consumption shall be valued including direct materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luding share of other administrative overheads, finance cost and marketing overheads. (p) The material cost of normal scrap or defectives which are rejects shall be included in the material cost of goods manufactured. The material cost of actual scrap or defectives, not exceeding the normal shall be adjusted in the material cost of good production. Material cost of abnormal scrap or defectives should not be included in material cost but treated as loss after giving credit to the realisable value of such scrap or defectives. (q) Material costs shall be directly traced to a cost object to the extent it is economically feasible or shall be assigned to the cost object on the basis of material quantity consumed or similar identifiable measure and valued as per above principles. (r) Where the material costs are not directly traceable to the cost object, the same shall be assigned on a suitable basis like technical estimates. (s) Where a material is processed or part manufactured by a third party according to specifications provided by the buyer, the processing or manufacturing charges payable to the third party shall be treated as part of the material cost. (t) W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form part of administrative overheads. (e) Separation costs related to voluntary retirement, retrenchment, termination and other related matters shall be amortised over the period benefitting from such costs. (f) Employee cost shall not include imputed costs. (g) Cost of idle time is ascertained by the idle hours multiplied by the hourly rate applicable to the idle employee or a group of employees. (h) Where employee cost is accounted at standard cost, variances due to normal reasons related to employee cost shall be treated as part of employee cost. Variances due to abnormal reasons shall be treated as part of abnormal cost. (i) Subsidy or grant or incentive and any such payment received or receivable with respect to any employee cost shall 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. (j) Any abnormal cost where it is material and quantifiable shall not form part of the employee cost. (k) Penalties, damages paid to statutory authorities or other third parties shall not form part of the employee cost. (l) The cost of free housing, free con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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. (d) Cost of self-generated utilities for own consumption shall comprise direct material cost, direct employee cost, direct expenses and factory overheads. (e) In case of utilities generated for the purpose of inter unit transfers, the distribution cost incurred for such transfers shall be added to the cost of utilities determined as above. (f) 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. (g) Cost 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 shall also include the margin. (h) Finance costs incu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom usage parameters. 4. Direct Expenses.- (a) Proper records shall be maintained in respect of direct expenses in such a manner as to enable company to book these expenses cost centre wise or cost abject or department wise with reference to goods or services under reference and to furnish necessary particulars. (b) Direct expenses incurred for the use of bought out resources shall be determined at invoice or agreed price including duties and taxes, and other expenditure directly attributable thereto net of trade discounts, rebates, taxes and duties refundable or to be credited. (c) Other direct expenses shall be determined on the basis of amount incurred in connection therewith. (d) Direct expenses paid or incurred in lump-sum or which are in the nature of 'one - time' payment, shall be amortised on the basis of the estimated output or benefit to be derived from such direct expenses. (e) If an item of direct expenses does not meet the test of materiality, it can be treated as part of overheads. (f) Finance costs incurred in connection with the self-generated or procured resources shall not form part of direct expenses. Direct expenses sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erials, consumable stores, spares, manpower, equipment usage, utilities, and other costs incurred by the entity for such jobs. (e) Cost of repairs and maintenance jobs carried out by contractor at its premises shall be determined at invoice or agreed price including duties and taxes, and other expenditure directly attributable thereto net of discounts (other than cash discount), taxes and duties refundable or to be credited. This cost shall also include the cost of other resources provided to the contractors. (f) Cost of repairs and maintenance jobs carried out by outside contractors shall include charges made by the contractor and cost of own materials, consumable stores, spares, manpower, equipment usage, utilities and other costs used in such jobs. (g) Each type of repairs and maintenance shall be treated as a distinct activity, if material and identifiable. (h) Cost of repairs and maintenance activity shall be measured for each major asset category separately. (i) Cost of spares replaced which do not enhance the future economic benefits from the existing asset beyond its previously assessed standard of performance shall be included under repairs and mai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost of reciprocal exchange of services) is shared by several cost objects, the related cost shall be measured as an aggregate and distributed among the cost objects. 6. Fixed Assets and Depreciation.- (a) Proper and adequate records shall be maintained for assets used for production of goods or rendering of services under reference in respect of which depreciation or amortisation has to be provided for. These records shall, inter-alia, indicate grouping of assets under each good or service, the cost of acquisition of each item of asset including installation charges, date of acquisition and rate of depreciation. (b) The depreciation and amortisation shall be the amount recognised as an expense for the year in the financial statements, which shall be measured as per the provisions contained in Schedule Il of the Companies Act, 2013 and the accounting standards applicable for the time being in force. The amount of Depreciation and Amortisation not recognised as expense in the financial statements shall be treated as a non-cost item. (c) Depreciation on an asset which is temporarily retired from production of goods and services shall be considered as abnormal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form part of the overheads. (j) Credits or recoveries relating to the overheads, material and quantifiable, shall be deducted from the total overhead to arrive at the net overheads. Where the recovery exceeds the total overheads, the balance recovery shall be treated as other income. (k) Any change in the cost accounting principles applied for the measurement of the overheads shall be made only if, it is required by law or a change would result in a more appropriate preparation or presentation of cost statements of an entity. (l) While assigning overheads, traceability to a cost object in an economically feasible manner shall be the guiding principle. The cost which can be traced directly to a cost object shall be directly assigned. (m) Overheads shall be classified according to functions, viz., works, administration, selling and distribution, head office, corporate etc. (n) Assignment of overheads to the cost objects shall be based on either of the following two principles: (1) Cause and Effect - Cause is the process or operation or activity and effect is the incurrence of cost and (2) Benefits received overheads are to be apportioned to the various cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trative overheads should be made only if it is required by law or a change would result in a more appropriate preparation or presentation of cost statements of an organisation. (j) While assigning administrative overheads, traceability to a cost object in an economically feasible manner shall be the guiding principle. (k) Assignment of administrative overheads to the cost objects shall be based on either of the following two principles; namely:- (i) Cause and Effect - Cause is the process or operation or activity and effect is the incurrence of cost. (ii) Benefits received - overheads are to be apportioned to the various cost objects in proportion to the benefits received by them. 9. Transportation Cost.- (a) Proper records shall be maintained for recording the actual cost of transportation showing each element of cost such as freight, cartage, transit insurance and others after adjustment for recovery of transportation cost. Abnormal costs relating to transportation, if any, are to be identified and recorded for exclusion of computation of average transportation cost. (b) In case of a manufacturer having his own transport fleet, proper records sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the cost of procurement of materials which are to be identified for proper allocation or apportionment to the materials or products. (n) Outward transportation cost shall form the part of the cost of sale and shall be allocated or apportioned to the materials and goods on a suitable basis. (o) The following basis shall be used, in order of priority, for apportionment of outward transportation cost depending upon the nature of products, unit of measurement followed and type of transport used, namely . i) Weight; ii) Volume of goods; iii) Tonne-Km; iv) Unit or Equivalent unit; v) Value of goods; vi) Per cent. of usage of space. (p) Once a basis of apportionment is adopted, the same shall be followed consistently. (q) For determining the transportation cost per unit, distance shall be factored in to arrive at weighted average cost. (r) Abnormal and non-recurring cost shall not be a part of transportation cost. 10. Royalty and Technical Know-how.- (a) Adequate records shall be maintained showing royalty or technical know-how fee including other recurring or non-recurring payments of similar nature, if any, made for the goods or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted as cost of sales. 11. Research and Development Expenses.- (a) Research and development costs shall include all the costs that are directly traceable to research or development activities or that can be assigned to research and development activities strictly on the basis of a) cause and effect or b) benefits received. Such costs shall include the following elements, namely:- i. The cost of materials and services consumed in research and development activities; ii. Cost of bought out materials and hired services as per invoice or agreed price including duties and taxes directly attributable thereto net of trade discounts, rebates, taxes and duties refundable or to be credited; iii. The salaries, wages and other related costs of personnel engaged in research and development activities; iv. The depreciation of equipment and facilities, and other tangible assets, and amortisation of intangible assets to the extent that they are used for research and development activities; v. Overhead costs, other than general administrative costs, related to research and development activities; vi. Costs incurred for carrying out research and development act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the existing process or product and the product is marketed as a new product. The amount allocated to a particular period shall be included in the cost of production of that period. If the expenditure is only to improve the quality of the existing product or minor modifications in attributes, the principle shall not be applied. (j) Development costs attributable to a saleable service namely; providing technical know-how to outside parties shall be accumulated separately and treated as cost of providing the service. 12. Quality Control Expenses.- (a) Adequate records shall be maintained to indicate the expenses incurred in respect of quality control department or cost centre or service centre for goods or services under reference. Where these services are also utilised for other goods or services of the company, the basis of apportionment to goods or services under reference and to other goods or services shall be on equitable and reasonable basis and applied consistently. (b) Quality control cost incurred in-house shall be the aggregate of the cost of resources consumed in the Quality control activities of the entity. The cost of resources procured from outside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and reasonable basis and applied consistently. (b) Pollution Control costs shall be the aggregate of direct and indirect cost relating to Pollution Control activity. Direct cost shall include the cost of materials, consumable stores, spares, manpower, equipment usage, utilities, resources for testing and certification and other identifiable resources consumed in activities such as waste processing, disposal, remediation and others. Indirect cost shall include the cost of resources common to various pollution control activities such as pollution control registration and such like expenses. (c) Costs of pollution control which are internal to the entity should be accounted for when incurred. They should be measured at the historical cost of resources consumed. (d) Future remediation or disposal costs which are expected to be incurred with reasonable certainty as part of onerous contract or constructive obligation, legally enforceable shall be estimated and accounted based on the quantum of pollution generated in each period and the associated cost of remediation or disposal in future. (e) Contingent future remediation or disposal costs e.g. those likely to arise o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art of pollution control cost. Usage variances attributable to abnormal reasons shall be excluded from pollution control cost. (p) Subsidy or grant or incentive and any such payment received or receivable with respect to pollution control activity shall 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. (q) Any pollution control cost resulting from abnormal circumstances, if material and quantifiable, shall not form part of the pollution control cost. (r) Fines, penalties, damages and similar levies paid to statutory authorities or other third parties shall not form part of the pollution control cost. (s) Credits or recoveries relating to the pollution control activity, material and quantifiable, shall be deducted to arrive at the net pollution control cost. (t) Research and development cost to develop new process, new products or use of new materials to avoid or mitigate pollution shall be treated as research and development costs and not included under pollution control costs. Development costs incurred for commercial development of such product, process or ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ials, consumable stores, spares, manpower, equipment usage, utilities, and other resources provided to the contractors for such services. (g) Cost of services rendered by contractors at their premises shall be determined at invoice or agreed price including duties and taxes, and other expenditure directly attributable thereto net of discounts (other than cash discount), taxes and duties refundable or to be credited. This cost shall also include the cost of resources provided to the contractors. (h) Cost of services for the purpose of inter unit transfers shall also include distribution costs incurred for such transfers. (i) Cost of services for the purpose of inter-company transfers shall also include distribution cost incurred for such transfers and administrative overheads. (j) Cost of services rendered to outside parties shall also include distribution cost incurred for such transfers, administrative overheads and marketing overheads. (k) Finance costs incurred in connection with the service cost centre shall not form part of the cost of service cost centre. (l) The cost of service cost centre shall not include imputed costs. (m) Where the cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses incurred on primary or secondary packing indicating the basis of valuation. (b) The packing material receipts 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) that can be quantified at the time of acquisition. (c) Finance costs directly incurred in connection with the acquisition of packing material shall not form part of packing material cost. (d) Self-manufactured packing materials shall be valued including direct material cost, direct employee cost, direct expenses, job charges, factory overheads including share of administrative overheads comprising factory management and administration and share of research and development cost incurred for development and improvement of existing process or product. (e) Normal loss or spoilage of packing material prior to receipt in the factory shall be absorbed in the cost of balance materials net of amounts recoverable from suppliers, insurers, carriers or recoveries from disposal. (f) The forex component of imported packing mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g materials shall form part of the cost of production. (t) Cost of secondary packing materials shall form part of distribution overheads. 16. Finance Costs.- (a) Finance costs are interest and other costs incurred by an entity in connection with the financing arrangements and shall be measured in accordance with the accounting standards applicable for the time being in force. (b) Finance costs incurred shall be identified for- i) acquisition or construction or production of qualifying assets including fixed assets; and ii) Other finance costs for production of goods or operations or services rendered which cannot be classified as qualifying assets. (c) Finance costs directly attributable to the acquisition or construction or production of a qualifying asset shall be included in the cost of the asset. (d) Finance costs shall not include imputed costs. (e) Subsidy or grant or incentive and any such payment received or receivable with respect to finance costs shall 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. (f) Penal interest for de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmal time lost in batch change over; iii) Time lost due to preventive maintenance and normal break downs of equipments; iv) Loss in efficiency due to ageing of the equipment; or v) Number of shifts (e) Capacity utilisation is the actual production measured as a per cent. of installed capacity. 19. Work-in-Progress and Finished Stock.- The method followed for determining the cost of work-in-progress and finished stock of the goods and for services under delivery or in-process shall be appropriate and shall be indicated in the cost records so as to reveal the cost element that have been taken into account in such computation. All conversion costs incurred in bringing the inventories to their present location and condition shall be taken into account while computing the cost of work-in-progress and finished stock. The method adopted for determining the cost of work-in progress and finished goods shall be followed consistently. 20. Captive Consumption.- If the goods or services under reference are used for captive consumption, proper records shall be maintained showing the quantity and cost of each such goods or services transferred to other departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s defined under clause 76 of section 2 of the Companies Act, 2013 (18 of 2013). (b) Normal price means price charged for comparable and similar products in the ordinary course of trade and commerce where the price charged is the sole consideration of sale and such sale is not made to a related party. Normal price can be construed to be a price at which two unrelated and non-desperate parties would agree to a transaction and where such transaction is not clouded due to the proximity of the parties to the transaction and free from influence though the parties may have shared interest. (c) The basis adopted to determine normal price shall be classified as under: i) Comparable uncontrolled price method; ii) Resale price method; iii) Cost plus method; iv) Profit split method; v) Transactional net margin method; or vi) Any other method, to be specified. (d) In respect of related party transactions or supplies made or services rendered by a company to a company termed related party relationship and vice-a-versa, records shall be maintained showing contracts entered into, agreements or understanding reached in respect of - i) purchase a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... market price, export delivery or sales under advance license, export delivery or sales under other obligations, export delivery or sales under market price, and delivery or sales to related party or inter unit transfer. Such details shall be maintained separately for each plant or unit wise or service centre wise for total as well as per unit sales realisation. 28. Cost Statements.- (a) Cost statements (monthly, quarterly and annually) showing quantitative information in respect of each good or service under reference shall be prepared showing details of available capacity, actual production, production as per excise records, capacity utilisation (in-house), stock purchased for trading, stock and other adjustments, quantity available for sale, wastage and actual sale during current financial year and previous year. (b) Such statements shall also include details in respect of all major items of costs constituting cost of production of goods and services, cost of sales of goods or services and margin in total as well as per unit of the goods and services. The goods or services emerging from a process, which forms raw material or an input material or service for a subs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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