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Cost Accounting – II

Notes of uniform and authentic database with the industry, which can be helpful to the Government in
taking appropriate decision, whenever required. So, before one can embark on a study of cost
accounting records, it is absolutely vital to understand the concept of cost accounting records
along with its prescription as well as understand the applicability of cost accounting rules in
India. The purpose of this unit is to enable the students to comprehend basic expressions. Therefore,
all such basic terms are explained and suitable illustrations are provided to define their meaning
and scope.

9.1 Cost Accounting Records as per Companies Act

Section 642 of the Companies Act, 1956 confers powers on the Central Government to make
rules, which form part of subordinate legislation of the Government. The nature of records to be
maintained under Section 209(1)(d) are to be prescribed by the Central Government in exercise
of the powers conferred on them by the provisions of Section 642 of the Companies Act.
The Central Government has the power under Section 209(1)(d) to prescribe particulars relating
to utilisation of material, labour or other items of cost in respect of any class of companies
engaged in production, processing, manufacturing or mining activities. This provision has been
interpreted as meaning that the type of industry or exact nature of cost accounting record will
have to be prescribed by the Central Government. Therefore, these requirements for maintaining
the particulars relating to “utilisation of material, labour or other items of cost” are prescribed
through Cost Accounting Records Rules.
Section 209(1)(d) also specifies that the rules are to be prescribed for any class of company
engaged in production, processing, manufacturing or mining activities. The class of companies
may represent companies manufacturing a particular product like sugar, vanaspati, motor
vehicles, textiles, bulk drugs, etc. The cost accounting records rules are prescribed separately
with respect to each class of companies manufacturing a particular product i.e., industry as a
whole.

9.2 Prescription of Cost Accounting Record Rules

Identification of the class of companies manufacturing a product: The Central Government
selects the products (class of company manufacturing a particular product) for which the cost
accounting record rules are proposed to be notified. The Government generally considers the
following factors in making the final selection:

(i) Products/services of mass consumption i.e., consumer oriented;
(ii) Products which are under statutory pricing mechanism or under some sort of statutory
price control;

(iii) Products which are very critical for infrastructural development or products which are
basic industrial raw materials or inputs as any price increase in these products may affect
the whole economy;

(iv) Products which are very critical for economy and substantial subsidies are granted by the
government;
(v) Products which are subject to any ‘Regulatory Authority’ mechanism or where inputs are
required by respective Regulatory Authority;
(vi) Products which have a likely high profit margin or unfair trade practices due to limited
competition in the market or cartelisation;
(vii) Products, where government revenue needs to be protected;

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