(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 oJ computation of average transportation cost.
(b) ln case of a manufacturer having his own transport fleet, proper records shall be maintained to determine the actual operating cost of vehicles showing details of various elements of cost such as salaries and wages of driver, clelners and others, cost of fuel, lubricant grease, amortized cost of tyres and baftery, repairs and maintenance, depreciation of the vehicles, distance covered and trips made.
goods hauled and transported to the depot.
(c.) In case of hired transport charges incurred for despatch of goods, complete details shall be recorded as to date of despatch, type of transport used, desciiption ofthe goods, destination of buyer, name of consignee, challan number, quantity of goods in terms of weight or volume, distance involved, amount paid and oiher related details.
(d) Records shall be maintained separately for inward and outward transportation cost specifying the details particulars of goods despatched, name of supplier or recipient, amount of freight etc.
(e) Separate records shall be maintained for identification of transportation cost towards inward movement of material (procurement) and transportation cost of outward movement of goods removed or sold for both home consumption and exDort.
72- -3 (t Records for transportation cost from factory to depot and thereafter shall be maintained separately.
(g) Records for transportation cost for carrying any material or product to.job-workers place and back shall be maintained separately so as include the same in the transaction value of the product.
(h) Records for transportation cost for goods involved exclusively for trading activities shall be maintained separately and the same shall not be included for claiming any deduction for calculating assessable value excisable goods cleared for home consumption.
(t) Records of transportation cost directly allocable to a particular category of products shall be maintained separately so that allocation can be made.
f) For common transportation cost both for own fleet or hired ones, proper records for basis of apportionment shall be maintained.
(k) Records for transportation cost for exempted goods, excisable goods cleared for export shall be maintained separately.
(/,) Separate records of cost for mode of transportation other than road like ship or air are to be maintained, which shall be included in total cost of transportation.
(m) Inward transportation costs shall form the part 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.
(4 Abnormal and non+ecurring 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 - 13- t for the goods or services under reference to collaborators or technology suppliers in terms of agreements entered into with them.
(b) Royalty and technical know-how fee paid or incurred in lump-sum or which are in the nature of 'ons-time' payment, shall be amortised on the basis of the estimated output or benefit to be derived from the related asset. Amortisation of the amount of royalty or technical know-how fee paid for which the benefit is ensued in the current or future periods shall be determined based on the production or service volumes estimated for the period over which the asset is expected to benefit the entity.
(c/ Amount of the royalty and technical know-how fee shall not include finance costs and imDuted costs.
(d) Subsidy or grant or incentive and any such payment received or receivable with respect to amount of royalty and technical know-how fee 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.
(e) Penalties, damages paid to statutory authorities or other third parties shall not form part of the amount of royalty and technical know-how fee.
(fl Credits or recoveries relating to the amount royalty and technical know-how fee, material and quantifiable, shall be deducted to arrive at the net amount of royalty and technical know-how fee.
@) AnV change in the cost accounting principles applied for the measurement of the amount of royalty and technical know-how fee 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.
(h) Royalty and technical know-how fee that is directly traceable to a cost object shall be assigned to that cost object. ln case such fee is not directly traceable to a cost object then it shall be assigned on any of the following basis, namely:- Units produced;
Units sold; or Sales value.
(r) The amount of royalty fee paid for mining rights shall form part of the cost of material.
0 The amount of royalty and technical know-how fee shall be assigned on the nature or purpose of such fee. The amount of royalty and technical know-how fee related to product or process know how shall be heated as cost of production; if it is related to trademarks or brands shall be treated 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 ofa) cause and effect or b) benefits received. Such costs shall include the following elements, namely:- i) ii) iii) - 14-
(b)
(c)
(d) @)
(h)
(e) 0 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 activities by other entities and charged to the entity;
vii. Expenditure incurred in securing copyrights or licences;
viii. Expenditure incurred for developing computer software;
ix. Costs incurred for the design of tools, jigs, moulds and dies; and x. Other costs that can be directly attributed to research and development activities and can be identified with specific projects.
Subsidy or grant or incentive and any such payment received or receivable with respect to research and development 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.
Any abnormal cost where it is material and quantifiable shall not form part of the research and development cost.
Fines, penalties, damages and similar levies paid to statutory authorities or other third parties shall not form part of the research and development cost.
Research and development costs shall not include imputed costs.
Credits or recoveries relating to research and development cost, if material and quantifiable, including from the sale of output produced from the research and development activity shall be deducted from the research and development cost.
Research and development costs attributable to a specific cost object shall be assigned to that cost object directly. Research and development costs that are not attributable to a specific product or process shall not form part of the product cost.
Development cost which results in the creation of an intangible asset shall be amortised over its useful life. Assignment of development costs shall be based on the principle of "benefits received".
15- , (y' Research and development costs incurred for the development and improvement of an existing process or product shall be included in the cost of production. In case the research and development activity related to the improvement of an existing process or product continues for more than one accounting period, the cost of the same shall be accumulated and amortised over the estimated period of use of the improved process or estimated period over which the improved product will be produced by the entity after the commencement of commercial production, as the case may be, if the improved process or product is distinctly different from 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. lf the expenditure is only to improve the quality of the existing product or minor modifications in aftributes, the principle shall not be applied.
(/ 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.
1 2. 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 shall be determined at invoice or agreed price including duties and taxes, and other expenditure directly aftributable thereto net of discounts (other than cash discounts), taxes and duties refundable or to be credited by the Tax Authorities. Such cost shall include cost of conformance to quality, namely, (a) prevention cost; and (b) appraisal cost.
(c,) ldentification of quali$ control costs shall be based on traceability in an economically feasible manner.
(d,) Quality control costs other than those referred to above shall be determined on the basis of amount incurred in connection therewith.
Finance costs incuned in connection with the self-generated or procured resources shall not form part of quality control cost.
Quality control costs shall not include imputed costs.
Subsidy or grant or incentive and any such payment received or receivable with respect to any quality control 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.
Any abnormal portion of the quality control cost where it is material and quantifiable shall not form part of the cost of quality control.
(e) 0 @)
(h) - 16- t
(r) Penalties, damages paid to statutory authorities or other third parties shall not form part of the qualig control cost.
A) Any change in the cost accounting principles applied for the measurement of the quality control cost 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 organisation.
(k) Quality control cost that is directly traceable to the cost object shall be assigned to that cost object. Assignment of quality control cost to the cost objects shall be based on benefits received by them on the principles, namely:-
(i) Cause and Effect - Cause is the process or operation or activity and effect is the incurrence of cost and
(ii) Benefits received - overheads are to be apportioned to the various cost objects in proportion to the benefits received by them.
13. Pollution Control Expenses,-
(a) Adequate records shall be maintained to indicate the expenses incurred in respect of pollution control. 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) 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 consumeo.
(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 on account of future legislative changes on pollution control shall not be treated as cost until the incidence of such costs become reasonablv certain and can be measured.
(fl External costs of pollution which are generally the costs imposed on external parties including social costs are difficult to estimate with reasonable accuracy and are excluded from general purpose cost statements.
77 I @)
(h) Social costs of pollution are measured by economic models of cost measurement.
The cost by way of . compensation by the polluting entity either under future legislation or under social pressure cannot be quantified by haditional models of cost measurement. They are best kept out of general purpose cost statements.
Cost of in-house pollution control activity shall include cost of materials, consumable stores, spares, manpower, equipment usage, utilities, and other resources used in such activity.
(r) Cost of pollution control activity canied out by outside contractors inside the entity shall include charges payable to the contractor and cost of materials, consumable stores, spares, manpower, equipment usage, utilities, and other costs incurred by the entity for such jobs.
0) Cost of pollution control 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 orovided to the contractors.
(k) Cost of pollution control 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.
(/) Each type of pollution control namely, water, air, soil pollution shall be treated as a distinct activity, if material and identifiable.
(m) Finance costs incurred in connection with the pollution control activities shall not form part of pollution control costs.
(n) Pollution control costs shall not include imputed costs.
(o) Price variances related to pollution control, where standard costs are in use, shall be treated as part of pollution control cost. The portion of usage variances attributable to normal reasons shall be treated as part of pollution control cost.
Usage variances attributable to abnormal reasons shall be excluded from pollution control cost.
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.
Any pollution control cost resulting from abnormal circumstances, if material and quantifiable, shall not form part of the pollution control cost.
Fines, penalties, damages and similar levies paid to statutory authorities or other third parties shall not form part of the pollution control cost.
Credits or recoveries relating to the pollution control activity, material and quantifiable, shall be deducted to arrive at the net pollution control cost.
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
(p)
(q)
(r)
(s)
(t) , development costs and not included under pollution control costs. Development costs incurred for commercial development of such product, process or material shall be included in oollution control costs.
(u) Any change in the cost accounting principles applied for the measurement of the pollution control cost 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.
(v/ Pollution control costs shall be traced to a cost object to the extent economically feasible.
(w) Direct costs of pollution control such as treatment and disposal of waste shall be assigned directly to the product, where traceable economically.
(x) Where these costs are not directly traceable to the product but are traceable to a process which causes pollution, the costs shall be assigned to the products passing through the process based on the quantity of the pollutant generated by the product.
(y) Where the pollution control cost is not directly traceable to cost object, it shall be treated as overhead and assigned 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; and
(ii) Benefits received - overheads are to be apportioned to the various cost objects in proportion to the benefits received by them.