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All you need to know about cost records

Recent updates

 

29th October 2021

Due date for filing of cost audit report in Form CRA-4 for FY 2020-21 extended up to 30th November 2021. (MCA General Circular 18/2021)

What are cost records?

As per rule 2(e) of the Companies (Cost Records and Audit) Rules, 2014, “cost records” means books of account relating to

  • utilisation of materials,
  • labour and
  • other items of cost as applicable to the production of goods or provision of services as provided in section 148 of the Act and these rules.

Cost records are to be maintained to comply with statutory requirements and applicable cost accounting standards should be followed. The purpose of records is to control various operations and costs to achieve optimum economies in the utilization of resources.

Who is required to maintain cost records?

The Central Government may, by order, in respect of such class of companies engaged in the production of such goods or providing such services as may be prescribed, direct that particulars relating to the utilisation of material or labour or to other items of cost as may be prescribed shall also be included in the books of account kept by that class of companies.

As per Rule 3 of the Companies (Cost Records and Cost Audit) Rules, 2014, every company including foreign companies shall maintain cost records if all the following conditions are met:

  • The company must be engaged in the production of goods or providing services specified in either Table A or Table B.
  • The company's overall turnover from all its products and services should be Rs 35 Crore or more during the immediately preceding financial year.

Cost records applicability

Exemption from applicability for maintenance of cost records

Following companies are exempted from maintenance of cost records-

  • Foreign companies having only liaison offices in India and are engaged in the production, import, and supply or trading of medical devices listed in Sl.no 33 of Table-B.
  • A company that is classified as a micro-enterprise or a small enterprise including as per the turnover criteria under sub-section (9) of section 7 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006).

Manner of maintenance of cost records

(1) The company shall maintain cost records for all units and branches in Form CRA-1 for each financial year.

(2) The cost records shall be maintained on regular basis in such manner as to facilitate calculation of per unit cost of production or cost of operations, cost of sales and margin for each of its products and activities for every financial year on monthly or quarterly or half-yearly or annual basis.

(3) The cost records shall be maintained in such manner so as to enable the company to exercise, as far as possible, control over the various operations and costs to achieve optimum economies in utilisation of resources and these records shall also provide necessary data which is required to be furnished under these rules.

Format of cost records

Rule 5(1) stated that the cost records shall be maintained in the forms specified in CRA-1. The form categorises the requirement of maintaining proper details as per 30 headings. The headings are as follows:

(1) Material Cost,

(2) Employee Cost,

(3) Utilities,

(4) Direct Expenses,

(5) Repair and Maintenance,

(6) Fixed Assets and Depreciation,

(7) Overheads,

(8) Administrative Overheads,

(9) Transportation Cost,

(10) Royalty and Technical Know-how,

(11) Research and Development expenses,

(12) Quality Control Expenses,

(13) Pollution Control Expenses,

(14) Service Department Expenses,

(15) Packing Expenses,

(16) Interest and Financing Charges,

(17) Any other item of Cost,

(18) Capacity Determination,

(19) Workin-progress and finished stock,

(20) Captive Consumption,

(21) ByProducts and Joint Products,

(22) Adjustment of Cost Variances,

(23) Reconciliation of Cost and Financial Accounts,

(24) Related Party Transactions,

(25) Expenses or Incentives on Exports,

(26) Production records,

(27) Sales records,

(28) Cost Statements,

(29) Statistical Records,

(30) Records of Physical Verification.

Penalty for non-compliance

If any of the provision related to maintenance of cost records is contravened,

  • the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and
  • every officer of the company who is in default shall be punishable with fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees.

Related

Cost audit applicability - A definitive guide


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CA Rupali Gupta

CA Rupali Gupta