The Companies (cost records and audit) Amendment Rules, 2017

MINISTRY OF CORPORATE AFFAIRS
NOTIFICATION
New Delhi, the 7th December, 2017

G.S.R. 1498(E).—In exercise of the powers conferred by sub-sections (1) and (2) of section 469 and
section 148 of the Companies Act, 2013 (18 of 2013) (hereinafter referred as the Act), the Central
Government hereby makes the following rules further to amend the Companies (cost records and audit)
Rules, 2014, namely:-
1. These rules may be called the Companies (cost records and audit) Amendment Rules, 2017.
2. In the Companies (cost records and audit) Rules, 2014 (hereinafter referred to as the principal rules),
in rule 2, after clause (f), the following clause shall be inserted and shall be deemed to have been inserted
with effect from the 1st day of April, 2016, namely:-
(fa) “Indian Accounting Standards” means Indian Accounting Standards as referred to in Companies
(Indian Accounting Standards) Rules, 2015.
38 THE GAZETTE OF INDIA : EXTRAORDINARY [PART II—SEC. 3(i)]
3. In the principal rules, in the Annexure, for Form CRA-1 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-1
[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 material cost,
direct employee cost, direct expenses, factory overheads, share of administrative overheads relating to
production but excluding share of other administrative overheads, finance cost and marketing
overheads.
(e) Spare parts shall be recognised as property, plant and equipment when they meet the definition of
property, plant and equipment and depreciated accordingly. Otherwise, such items shall be classified as
inventory.
(f) Normal loss or spoilage of material prior to reaching the factory or at places where the services are
provided shall be absorbed in the cost of balance materials net of amounts recoverable from suppliers,
insurers, carriers or recoveries from disposal.
(g) Losses due to shrinkage or evaporation and gain due to elongation or absorption of moisture etc., before
the material is received shall be absorbed in material cost to the extent they are normal, with
corresponding adjustment in the quantity.
(h) The forex component of imported material cost shall be converted at the rate on the date of the
transaction. Any subsequent change in the exchange rate till payment or otherwise shall not form part of
the material cost.
(i) Any demurrage or detention charges, or penalty levied by transport or other authorities shall not form
part of the cost of materials.
(j) Subsidy or grant or incentive and any such payment received or receivable with respect to any material
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.
(k) Issues shall be valued using appropriate method as per the provisions contained in the accounting
standard applicable for the time being in force.
(l) Where materials are accounted at standard cost, the price variances related to materials shall be treated
as part of material cost.
(m) Any abnormal cost shall be excluded from the material cost.
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(n) Wherever, material costs include transportation costs, determination of costs of transportation shall be
governed by paragraph number 9 on determination of cost of transportation.
(o) Self-manufactured components and sub-assemblies or captive consumption shall be valued including
direct material cost, direct employee cost, direct expenses, factory overheads, share of administrative
overheads relating to production but excluding 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) Wherever part of the manufacturing operations or activity is subcontracted, the subcontract charges
related to materials shall be treated as direct expenses and assigned directly to the cost object.
(u) The cost of indirect materials shall be assigned to the various cost objects based on a suitable basis such
as actual usage or technical norms or a similar identifiable measure.
(v) The cost of materials like catalysts, dies, tools, moulds, patterns etc. which are relatable to production
over a period of time shall be amortised over the production units benefited by such cost.
(w) The cost of indirect material with life exceeding one year shall be included in cost over the useful life of
the material.
2. Employee Cost.-
(a) Proper records shall be maintained in respect of employee costs in such a manner as to enable the
company to book these expenses cost centre wise or department wise with reference to goods or
services under reference and to furnish necessary particulars. Where the employees work in such a
manner that it is not possible to identify them with any specific cost centre or service centre or
department, the employees cost shall be apportioned to the cost centre or service centres or departments
on equitable and reasonable basis and applied consistently.
(b) Employee Cost shall be ascertained taking into account the gross pay including all allowances payable
along with the cost to the employer of all the benefits, including the cost of retirement benefits charged
in the financial statements in an accounting period. In case of companies to which Indian Accounting
Standards apply, any re-measurement of such costs recognised in other comprehensive income shall not
form part of the employee cost.
(c) Bonus whether payable as a statutory minimum or on a sharing of surplus shall be treated as part of
employee cost. Ex gratia payable in lieu of or in addition to bonus shall also be treated as part of the
employee cost.
(d) Remuneration payable to managerial personnel including Executive Directors on the Board and other
officers of a corporate body under a statute shall be considered as part of the employee cost of the year
40 THE GAZETTE OF INDIA : EXTRAORDINARY [PART II—SEC. 3(i)]
under reference whether the whole or part of the remuneration is computed as a per cent. of profits.
Remuneration paid to non-executive directors shall not form part of employee cost but shall 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 conveyance and any other similar benefits provided to an employee shall
be determined at the total cost of all resources consumed in providing such benefits.
(m) Any recovery from the employee towards any benefit provided, namely, housing shall be reduced from
the employee cost.
(n) Any change in the cost accounting principles applied for the determination of the employee 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 enterprise.
(o) Where the employee services are traceable to a cost object, such employees’ cost shall be assigned to
the cost object on the basis such as time consumed or number of employees engaged or other related
basis or similar identifiable measure.
(p) While determining whether a particular employee cost is chargeable to a separate cost object, the
principle of materiality shall be adhered to.
(q) Where the employee costs are not directly traceable to the cost object, the same shall be assigned on
suitable basis like estimates of time based on time study.
(r) The amortised separation costs related to voluntary retirement, retrenchment, and termination or other
related matters for the period shall be treated as indirect cost and assigned to the cost objects in an
appropriate manner provided that unamortised amount related to discontinued operations, shall not be
treated as employee cost.
(s) Recruitment costs, training cost and other such costs shall be treated as overheads and dealt with
accordingly.
(t) Overtime premium shall be assigned directly to the cost object or treated as overheads depending
on the economic feasibility and the specific circumstance requiring such overtime.
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(u) Idle time cost shall be assigned direct to the cost object or treated as overheads depending on the
economic feasibility and the specific circumstances causing such idle time.
3. Utilities.-
(a) Proper records shall be maintained showing the quantity and cost of each major utility such as power,
water, steam, effluent treatment, and other related utilities produced and consumed by the different cost
centres in such detail as to have particulars for each utility separately.
(b) Each type of utility shall be treated as a distinct cost object.
(c) 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.
(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 intercompany 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 incurred in connection with the utilities shall not form part of cost of utilities.
(i) The cost of utilities shall include the cost of distribution of such utilities. The cost of distribution will
consist of the cost of delivery of utilities up to the point of consumption.
(j) Cost of utilities shall not include imputed costs.
(k) Where cost of utilities is accounted at standard cost, the price variances related to utilities shall be
treated as part of cost of utilities and the portion of usage variances due to normal reasons shall be
treated as part of cost of utilities. Usage variances due to abnormal reasons shall be treated as part of
abnormal cost.
(l) Subsidy or grant or incentive and any such payment received or receivable with respect to any cost of
utilities 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.
(m) The cost of production and distribution of utilities shall be determined based on the normal capacity or
actual capacity utilisation 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.
(n) Any abnormal cost where it is material and quantifiable shall not form part of the cost of utilities.
(o) Penalties, damages paid to statutory authorities or other third parties shall not form part of the cost of
utilities.
(p) Credits or recoveries relating to the utilities including cost of utilities provided to outside parties,
material and quantifiable, shall be deducted from the total cost of utility to arrive at the net cost of
utility.
42 THE GAZETTE OF INDIA : EXTRAORDINARY [PART II—SEC. 3(i)]
(q) 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 a change would result in a more appropriate preparation or
presentation of cost statements of an organisation.
(r) While assigning cost of utilities, traceability to a cost object in an economically feasible manner shall
be the guiding principle.
(s) Where the cost of utilities is not directly traceable to cost object, it shall be assigned on the most
appropriate basis.
(t) The most appropriate basis of distribution of cost of a utility to the departments consuming services is
to be derived from 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 shall not include imputed costs.
(g) Where direct expenses are accounted at standard cost, variances due to normal reasons shall be treated
as part of the direct expenses. Variances due to abnormal reasons shall not form part of the direct
expenses.
(h) Subsidy or grant or incentive and any such payment received or receivable with respect to any direct
expenses 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.
(i) Any abnormal portion of the direct expenses where it is material and quantifiable shall not form part of
the direct expenses.
(j) Penalties, damages paid to statutory authorities or other third parties shall not form part of the direct
expenses.
(k) Credits or recoveries relating to the direct expenses, material and quantifiable, shall be deducted to
arrive at the net direct expenses.
(l) Any change in the cost accounting principles applied for the measurement of the direct expenses 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.
(m) Direct expenses that are directly traceable to the cost object shall be assigned to that cost object.
5. Repairs and Maintenance.-
(a) Proper records showing the expenditure incurred by the workshop, tool room and on repairs and
maintenance in the various cost centres or departments shall be maintained under different heads.
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(b) Repairs and maintenance cost shall be the aggregate of direct and indirect cost relating to repairs and
maintenance activity. Direct cost shall include the cost of materials, consumable stores, spares,
manpower, equipment usage, utilities and other identifiable resources consumed in such activity.
Indirect cost shall include the cost of resources common to various repairs and maintenance activities
such as manpower, equipment usage and other costs allocable to such activities.
(c) Cost of in-house repairs and maintenance activity shall include cost of materials, consumable stores,
spares, manpower, equipment usage, utilities, and other resources used in such activity.
(d) Cost of repairs and maintenance activity carried 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.
(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
maintenance cost.
(j) The cost of major overhaul shall be amortised on a rational basis.
(k) Finance costs incurred in connection with the repairs and maintenance activities shall not form part of
repairs and maintenance costs.
(l) Repairs and maintenance costs shall not include imputed costs.
(m) Price variances related to repairs and maintenance, where standard costs are in use, shall be treated as
part of repairs and maintenance cost. The portion of usage variances attributable to normal reasons shall
be treated as part of repairs and maintenance cost. Usage variances attributable to abnormal reasons
shall be excluded from repairs and maintenance cost.
(n) Subsidy or grant or incentive and any such payment received or receivable with respect to repairs and
maintenance 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.
(o) Any repairs and maintenance cost resulting from some abnormal circumstances, namely, major fire,
explosions, flood and similar events, if material and quantifiable, shall not form part of the repairs and
maintenance cost.
(p) Fines, penalties, damages and similar levies paid to statutory authorities or other third parties shall not
form part of the repairs and maintenance cost.
(q) Credits or recoveries relating to the repairs and maintenance activity, material and quantifiable, shall be
deducted to arrive at the net repairs and maintenance cost.
(r) Any change in the cost accounting principles applied for the measurement of the repairs and
maintenance 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.
44 THE GAZETTE OF INDIA : EXTRAORDINARY [PART II—SEC. 3(i)]
(s) Repairs and maintenance costs shall be traced to a cost object to the extent economically feasible.
(t) Where the repairs and maintenance cost is not directly traceable to cost object, it shall be assigned
based on either of the following the principles of (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 objects in proportion to the benefits received by them.
(u) If the repairs and maintenance cost (including the share of the 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.