MAINTENANCE OF COST RECORDS
Every
company to which “Cost Accounting Records Rules 2011” apply, including units
and branches, in respect of each of its financial year, are required to keep
cost records on regular basis in such manner so as to make it possible to
calculate per unit cost of production or cost of operations, cost of sales and
margin for each of its products and activities carried out at individual
production units or locations for every financial year on monthly / quarterly /
half-yearly / annual basis.
These
Cost Records are required to be maintained in accordance with the Generally
Accepted Cost Accounting Principles (GACAP) and Cost Accounting Standards (CAS)
issued by the Institute of Cost Accountants of India (Formerly Institute of Cost
and Works Accountants of India), to the extent these are found to be relevant
and applicable. The Cost Accountant is required to clearly indicate and explain
any variation, if any, in his compliance report or cost audit report as the
case may be.
Cost
Records are required to be maintained on continuous basis from the basic stage
of inputs to the final output. These rules also required that the records
should be maintained in such a manner so that they are able to provide
necessary data which is required to be furnished under these rules. All such cost records and cost statements,
maintained under these rules shall be reconciled with the audited financial
statements for the relevant financial year specifically indicating expenses or
incomes not considered in the cost records of statements so as to ensure
accuracy and to reconcile the costing profit of all its products/activities
with the overall profit of the company. The Cost Accountant is required to
clearly indicate and explain any variation, if any, in his compliance report or
cost audit report as the case may be.
There
cannot be any exhaustive list of cost accounting records. Any transaction,
statistical, quantitative or other details that has a bearing on the cost of
the product/activity would be important. It is advisable to maintain such
records and details in a structured manner on a regular basis so that the
accumulation is possible on a periodical basis. An illustrative list of Cost
Records can be as follows:
1. Production
1.1.
Raw
Material consumption register / report;
1.2.
Production Report;
1.3.
Rejection / wastage /scrap report;
1.4.
Report on stoppage of machines with reasons;
1.5.
Idle time report with reasons;
1.6.
Machine utilization report;
1.7.
By-Product & Joint Product.
2. Work-in-Progress and Finished Goods
2.1.
Process stock register-cost centre-wise and
product wise;
2.2.
Finished goods stock register-product wise;
2.3.
Daily Stock Accounts (DSA) maintained under
Central Excise Law.
3. Repairs and Maintenance
3.1.
Work order register / card showing material and
spares consumed and labour utilized;
3.2.
Procedure followed for routine maintenance;
3.3.
Details major breakdowns & repairs;
3.4.
Details of Abnormal Repairs & Reconditioning
activities.
4. Utilities (Water, Steam, Power, DM Water,
Air, Effluent Treatment etc.)
4.1.
Records of input and output;
4.2.
Record of cost centre-wise allocation of
outputs.
5. Raw Materials and Stores Accounting
5.1.
Goods received register;
5.2.
Bin cards;
5.3.
Materials / stores ledgers;
5.4.
Packing material;
6. Employee Cost
6.1.
Attendance registers /sheets;
6.2.
Wages / salary sheet;
6.3.
Leave and gratuity payments.
7. Overheads
7.1.
Details such as production hours, labour hours,
machine hours to facilitate distribution of overheads;
7.2.
Overheads keys.
8. Cost Accounts
8.1.
Overheads analysis register;
8.2.
Cost centre-wise asset register;
8.3.
Product Ledger
8.4.
Annexures and proformae as per rules
8.5.
Reconciliation of profit/loss as per cost
records and financial records.
9. Sales
9.1.
Product-wise Sales analysis;
9.2.
Stock Transfer;
9.3.
Marketing / Market Research Cost
The following steps can be taken to ensure proper maintenance of cost
records:
1.
Study and examine the chart of accounts with
special reference to the system of cost methods adopted by the company.
2.
Study the basis raw material and packing
materials, chemicals and stores required for the manufacture of the product and
their sources.
3.
Study the organizational structure and know the
details of manufacturing process.
4.
Examine whether cost centres are split-up into
production & services functions.
5.
The licensed capacity and installed capacity
should be ascertained. Any addition to production capacity during the preceding
two years should also be ascertained.
6.
Examine the adequacy of internal checks and
control.
7.
Before starting the assignment, meet the various
important executives of the company and note down the functions,
responsibilities and powers delegated to each.
8.
Obtain an understanding of the business and the
production processes involved, the flow of the process, till the finished goods
are packed and transferred to the finished stores for dispatch.
9.
Obtain the Balance Sheets of the company for the
past two years and make a note of the important points contained in the
Directors’ Report to the shareholders on the various financial, operation and
technical matters.
10.
Study the books/records containing production
records etc., statistics maintained by the factory(s) in compliance with the
Excise and other Government requirements and note down the Licensed and
Installed capacities. Ascertain the reasons for shortfall in production, if
any, as compared to the previous two years.
11.
Compare actual production with the installed
capacity.
12.
Prepare a complete quantitative analysis
beginning with input materials (both direct and indirect), corresponding
production at each stage of production, any by-product or join products
produced, scrap and wastages generated, quantity transferred for captive
consumption and the stage from which such transfer is taking place and final
reconciliation with that of sales and stocks in respect of each type of
product.
13.
Study the Cost Accounting System followed by the
company. Examine whether the same system is followed in case the Company is
engaged in production of different and varied types of products manufactured at
different locations and such locations are operating under different autonomous
Divisions under the overall management of the Company.
14.
Make proper identification of various production
and service cost centres and check whether the expenditure is initially booked
to these cost centres correctly.
15.
Check whether the relevant cost accounting
standards and generally accepted cost accounting principles (GACAP) are being
followed for valuation of materials, utilities, overheads etc.
16.
It is necessary to prepare individual
service/utilities cot statements, viz., Water Steam, Power, DM Water, Purified
Air etc. Ensure consumption records of these utilities at various production
and service centres properly maintained and allocate the costs on an equitable
basis to the various consuming cost centres. In respect of supplies made to or
received from other units of the company, ensure that the transfers are made at
cost of production/generation at per-determined transfer price in financial
accounts, the same has to be reserved for cost accounts and considered at cost.
17.
Ascertain any abnormal reasons for low
production and/or high usage of services/utilities and high down time in the
plant. Find out whether these have been properly recorded and reported
separately.
18.
Verify whether consistency Is maintained with
regard to cost accumulation, cost analysis, cost allocation and apportionment,
cost treatment and costing procedures adopted for inventory valuation from
period to period.
19.
Examine the records maintained for inter-company
transfers.
20.
Ascertain if any Royalty/Technical Services Fee
has been paid to Collaborator/Technology Supplier. If it is one-time lump sum
payment, check whether the charge to cost of product is spread over the period
for which benefit is to be derived out of the payment and the same is equitable
and reasonable.
21.
Examine whether there is any Royalty agreement
and check its effect on cost of production and allocation of the cost to the
product.
22.
Examine the practice followed for maintaining
quality of the product and related Quality Control Expenses. Check the amount
incurred on quality control, quality control, quality audit etc. and their
treatment in the cost of product.
23.
Examine whether the company is complying with
the various legal provisions with respect to pollution control and the expenses
incurred therefor and whether absorption of such cost in the product is done
equitably and consistently.
24.
Cost of production should be derived for
domestic sale and export sale separately.
25.
Verify the reconciliation statement between the
profit/loss as per the cost accounts and as per the financial accounts. Also
examine the variations and reasons thereof.
26.
Examine whether the data maintained in the cost
record are reconciled with the relevant returns submitted by the company to
government authorities.
27.
Where a system of standard costing is used, it should
be ensured that such costs are converted into actual for the purpose of
determining the figures required to comply with the requirements of Cost
Accounting Record Rules. The method of adjustment of variances to arrive at the
actual cost from the standard cot should be examined.
28.
Examine that cost statements have been prepared
as per requirements of Cost Accounting Records Rules.
29.
Examine whether Cost Accounting Standards and
Generally Accepted Cost Accounting Principles issued by the Institute of Cost
Accountants of India are being followed.
30.
Examine if there are any abnormal features
affecting production during the year, e.g., strikes, lock-outs, major
breakdowns in the plant, substantial power cuts, serious accidents, etc., and
what is their impact on the cost of production.
31.
Examine if there are any special expenses, which
have been directly allocated to products under reference, and what is the total
amount as also the incidence per unit of product.
**All
such Cost Records, Cost Statements and Reconciliation Statements, maintained
under these rules, relating to a period of not less than eight financial years
immediately preceding a financial year or where the company had been in
existence for a period less than eight years, in respect of all the preceding
years are to be kept in good order.
**Penal Provisions: The Rules provide for
penalty for cost accountant and companies as follows
a) Default by a Cost Accountant: If
default is made by the Cost Accountant in compliance with the provision of
these rules, he shall be punishable with fine, which may extend to ` 5000.
b) Contravention by a Company: If a
company contravenes any provisions of these rules, the company and every
officer thereof who is in default, including the persons referred to in section
209 (6) of the Act, shall be punishable as provided under section 642 (2) read
with section 209 (5) & (7) of the Companies Act, 1956 (1 of 1956).
