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TMI BlogGuidance Note on Cost Accounting Standard on Cost of Utilities (CAS-8), DATED 11-4-2013X X X X Extracts X X X X X X X X Extracts X X X X ..... ining activities has to maintain cost accounting records in accordance with the generally accepted cost accounting principles and cost accounting standards issued by the ICAI, to the extent these are found to be relevant and applicable. The above Rules further provides that these will be applicable to companies wherein: (a) aggregate value of net worth as on the last date of the immediately preceding financial year exceeds five crores of rupees; or (b) the aggregate value of the turnover made by the company from sale or supply of all products or activities during the immediately preceding financial year exceeds twenty crores of rupees; or (c) the company's equity or debt securities are listed or are in the process of listing on any stock exchange whether in India or outside India. Chapter 1 Introduction Production processes need several inputs other than raw material in the form of water, steam, electricity, and the like. These inputs are known as utilities. Utilities are classified according to the nature of utility, such as power, steam, water, compressed air and so on. A distinction is to be made whether an input is a utility or production input. For example in case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a simple air tool or for more complicated tasks such as the operation of pneumatic control. Compressed Air Utility may be centralized services or it may be that individual air compression units are provided for each department depending upon the requirement. In case individual air compression units are provided it may be possible to merge the cost of operating the air compressor with the respective departmental expenses. But where centralized air compression and supply is made, a separate air compressed utility is to be accounted. Classification of utility: "Various types of utilities are used in manufacturing process as indicated in Annexure-1. These are classified according to the nature of utility, such as power, steam water, compressed air and the like". Examples of cost measurement are: • Use of historical cost; • Use of actual or standard cost; • Designation of items of cost which must be included or excluded from the utility cost. Unit of Measurement of Utility: Each utility has a different measurement unit considering its nature and cost is expressed in per unit of the related utility. Details of measurement of unit of different utility is gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omputed with reference to set of technical specifications and efficient operating conditions. Utilities: Significant inputs such as power, steam, water, compressed air and the like which are used for manufacturing process but do not form part of the final product. Stand-by utilities: Any utility created to safeguard against the failure of the main source of inputs. Chapter 3 Principles of measurement 5.1 Each type of utility shall be treated as a distinct cost object. As each utility is a distinct cost object, cost of each utility is to be collected and measured separately. For example power, steam, water, compressed air, oxygen, nitrogen, coke oven gas and the like are distinct utilities, and the cost is collected and measured for each utility separately. The costs are booked to each utility through initial documents such as supplier 's bill, if directly identifiable with utility, payroll analysis sheet, stores requisition, etc. A separate cost statement is to be prepared for each utility. 5.2 Cost of utilities purchased shall be measured at cost of purchase including duties and taxes, transportation cost, insurance and other expenditure directly attributable to procure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ves, deprecation and other works overhead. Unit cost of steam is arrived at on the basis of units consumed in different departments after adjusting distribution loss. Steam may be of high pressure, low pressure and medium pressure with multiple paths by which the steam pressure is reduced according to the purpose of use. Steam costs are highly dependent on the path that steam follows in the generation and distribution system. Raw water: Raw water is either purchased or obtained from ground wells/canal. The cost of water mainly consists of share of cost of power allocated through inter-utility transfer. The total cost of water should include employee cost, fuel, power, repair and maintenance of tube wells, depreciation, overhead. The total monthly cost of operating this department is divided by the quantity of K Ltr of water pumped during the month to determine the unit cost of water pumped. Cost of Soft Water: Water, if hard, requires treatment. The cost of soft water will include the cost of raw water, chemicals, cost of maintenance of settling tanks, employees cost, depreciation and the like. The cost of demineralised water is also arrived at on the above basis. Inter Utilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n cost and share of administrative overheads. In case of inter company transfer, cost of utility so transferred should comprise as para 5.3.2 viz. direct material (fuel and the like), direct labour, direct expenses, chemicals, share of factory overheads, distribution cost and share of administrative overhead. Cost of a utility determined as above plus share of administrative overhead is to be charged for inter company transfer. Transmission loss should be treated as per agreement between the parties. 5.3.4 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 price of utilities sold to out side parties should include cost of utilities as computed under para 5.3.3. plus marketing overhead and margin, as illustrated in Annexure 3. 5.4 Finance costs incurred in connection with the utilities shall not form part of cost of utilities. Finance Costs are incurred by an enterprise in connection with the borrowing of funds. While determining the cost of utility as para 5.3.1 to 5.3.4. above, finance co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of production. For other expenses and overhead, expenses budgeted and actual are compared at different level of activity. 5.8 Any Subsidy/Grant/Incentive or any such payment received/receivable with respect to any cost of utilities shall be reduced for ascertainment of the cost to which such amounts are related. Subsidy, grant or incentives are provided for specific purpose. For example, generation of non-conventional energy. Any subsidy, grant received/receivable should be reduced from the utility cost. 5.9 The cost of production and distribution of utilities shall be determined based on the normal capacity or actual capacity utilization whichever is higher and unabsorbed cost, if any, shall be treated as abnormal cost. Cost of a Stand-by Utility shall include the committed costs of maintaining such a utility. Where utilities are created exclusively for captive consumption, utility plants are operated based on the production plan of end product. Normal capacity of end product is considered to be normal capacity for the utility. Normal Capacity is the production achieved or achievable on an average over a number of periods or seasons under normal circumstances taking into acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arged to the different units benefitted by the use of a utility. Example: (1) Where a unit has a township/colony, electricity and water charges recovered for its use may be credited to the cost of these utilities and net cost distributed to production centres. (2) If utility is sold by Unit A to outside parties, credit is to be given to the cost of utility at price of utility sold to outside parties (i.e. cost of utility including distribution + administrative Overhead+ Marketing Overhead and Margin) 5.13 Any change in the cost accounting principles applied for the measurement of the cost of utilities shall be made only if, it is required by law or for compliance with the requirements of a cost accounting standard, or a change would result in a more appropriate preparation or presentation of cost statements of an organisation. Cost accounting principle applied for measurement of the cost of utilities should be followed consistently and uniformly among different utilities and period. Change in cost accounting principle should be made only if required by law or for compliance with requirement of law. If various inputs are valued on FIFO basis, it should be followed consistently. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the equipment rating capacity, space, volume and the like .The project report of the plant lays down various usage requirement of utility, and the same should also be taken into account while assigning the utility consumption. Chapter 5 Presentation 7.1 Utilities costs shall be presented as a separate cost head for each type of utility in the cost statement, if material. The cost statement should indicate the details of each utility separately, if material, as detailed blow: Cost statement of A Product Particulars Unit Qty Rate/Per unit Amount(Rs) Material consumed Xx Xx Xx Utilities Water KL 62500 1.50 93750 Dm Water KL 3560 3.00 10680 Power Kwh 615780 4.00 2463120 Steam MT 2560 780.00 1996800 In the context of cost statement, Materiality is to be judged in terms of nature, quantity and cost of utility. A piece of information is material, if its omission/non-disclosure could influence the decision of the user. If a utility is not material, it may be shown under production overhead. For utilities (such as steam, hot water, thermic fluid) produced with heat recovery system, separate cost statement shall be prepared giving details of cost element ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Example: Disclosure: During the period, unit has sold 5680 KWH units to outside parties @ ₹ 6.50 per KWH against cost of sales (including marketing and distribution cost) of ₹ 5.10 per KWH. 8.1.3 Where cost of utilities is disclosed at standard cost, the price and usage variances. In case standard costing technique is used, cost statement of a utility should disclose price and usage variance separately relating to various inputs. Variances should be indicated in the cost statement. Abnormal variance are to be excluded and indicated in the cost statement as a foot note. A cost statement indicating the variance is at Annexure 3. 8.1.4. The cost and price of Utility received from/supplied to related parties. If any utility is procured from or supplied to related parties( as defined under the Companies (Accounting Standards) Rules, 2006) 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's length and on purely commercial terms. Example Related party → XYZ Ltd Nature of relationship → We and our subsidiarie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be disclosed in the body of the cost statement. 8.1.9 Any abnormal cost excluded from Cost of utilities. Abnormal cost is to be excluded from the cost of utilities as the same has not contributed to the production of utilities. Disclosure is to be made by way of foot note in the cost statement. For example: During the year there was theft of 300 Tons of coal valued at Rs xxxx. The same has been excluded from the cost of the power generated. 8.1.10 Penalties and damages paid etc. excluded from cost of utilities. Penalties and damages paid are not an item of cost as these are levied for non compliance with regulatory /contractual requirements. These are to be excluded from cost and disclosure made as a footnote in the cost statement. 8.2 Any change in the cost accounting principles and methods applied for the measurement and assignment of the Cost of utilities during the period covered by the cost statement which has a material effect on the Cost of utilities. Where the effect of such change is not ascertainable wholly or partly the fact shall be indicated. Cost Accounting principles, and methods applied for the measurement and assignment of cost of utilities are to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RY TAX 6.25 11.28 RAW MTRL. TOTAL 422.07 762.05 CHEMICALS LIME MT 11.85 3460.21 0.41 0.74 CAUSTIC SODA MT 11.85 27512.87 3.26 5.89 H C L MT 67.94 3694.60 2.51 4.53 RESIN-FFIP LT 118.50 151.91 0.18 0.32 SULPHURIC ACID LT 2.37 8438.82 0.2 0.36 CHLORINE LT 1.58 7594.94 0.12 0.22 SODIUM SULPHATE KG 19.75 151.91 0.03 0.05 OTHERS 0.00 1.00 1.65 2.98 CHEMICAL TOTAL 8.36 15.09 POWER KW 871172.00 2.79 24.3 43.87 WATER KL 49003.00 2.72 1.33 2.40 TOTAL VARIABLE COST 456.06 823.41 FIXED COST EMPLOYEES 8.04 14.52 DEPRECIATION 4.5 8.12 OTHERS 1.2 2.17 TOTAL FIXED COST 13.74 24.81 TOTAL COST (VARIABLE+FIXED) 469.80 848.24 Annexure 3 Examples of Steam cost - Transfer to Other units Steam cost per tonne works out to ₹ 471.09 as illustrated under Annexure 2. If steam is transferred to other unit, distribution cost will be in addition to the above cost as illustrated below 1. Steam generation cost as 5.3.1 above ₹ 471.09 Per MT 2. Distribution cost : Per MT Operation & Main tenance cost of distribution line ₹ 1.00 Depreciation ₹ 0.75 Other ₹ 0.75 Total Distribution cos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tandard portions have been set in bold italic type. This standard should be read in the context of the background material which has been set in normal type. 1. Introduction 1.1 This standard deals with the principles and methods of determining the cost of utilities. 1.2 This standard deals with the principles and methods of classification, measurement and assignment of cost of utilities, for determination of the cost of product or service, and the presentation and disclosure in cost statements. 2. Objective The objective of this standard is to bring uniformity and consistency in the principles and methods of determining the cost of utilities with reasonable accuracy. 3. Scope 3.1 This standard shall be applied to cost statements which require classification, measurement, assignment, presentation and disclosure of cost of utilities including those requiring attestation. 3.2 For determining the cost of production to arrive at an assessable value of excisable utilities used for captive consumption, Cost Accounting Standard 4 on Cost of Production for Captive Consumption (CAS 4) shall apply. 3.3 This standard shall not be applicable to the organizations primarily engaged in g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ol them. Standard costs are also used for estimation. 4.8 Utilities: Significant inputs such as power, steam, water, compressed air and the like which are used for manufacturing process but do not form part of the final product. 4.9 Stand-by utilities: Any utility created to safeguard against the failure of the main source of inputs. 5. Principles of measurement 5.1 Each type of utility shall be treated as a distinct cost object. 5.2 Cost of utilities purchased shall be measured at 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. 5.3.1 Cost of self generated utilities for own consumption shall comprise direct material cost, direct employee cost, direct expenses and factory overheads. 5.3.2 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 per paragraph 5.3.1. 5.3.3 Cost of Utilities generated for the inter compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presentation of cost statements of an organisation. 6. Assignment of costs 6.1 While assigning cost of utilities, traceability to a cost object in an economically feasible manner shall be the guiding principle. 6.2 Where the cost of utilities is not directly traceable to cost object, it shall be assigned on the most appropriate basis. 6.3 The most appropriate basis of distribution of cost of a utility to the departments consuming services is to be derived from usage parameters. 7. Presentation 7.1 Utilities costs shall be presented as a separate cost head for each type of utility in the cost statement, if material. 7.2 Where separate cost statements are prepared for utilities, cost of utilities shall be classified as purchased or generated. Such statement shall also include cost of utilities consumed along with quantitative information by individual consuming units, inter unit transfers, inter company transfers and sale to outside parties wherever applicable. 8. Disclosures 8.1 The cost statements shall disclose the following: 1. The basis of distribution of Cost of Utility to the consuming centres. 2. The cost of purchase, production, distribution, marketing and price w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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