Page 175 - DCOM206_COST_ACCOUNTING_II

Cost Accounting – II

Notes Self Assessment

Fill in the blanks:
4. …………………… are exempted from maintenance of cost accounting records.

5. The expression …………………… means any vegetable oil subjected to a process of
hydrogenation in any form or mixture thereof with any other substance for edible purposes.
6. …………………… means any compound which is manufactured from primary or basic
raw material and which is used in the production, processing or manufacturing of any
dye.

7. …………………… means any food produced by mixing whole milk, partly skimmed milk
or milk powder with ground barely malt or any other malted cereal grain.

8. …………………… means any pharmaceutical, chemical, biological or plant product
including its salts, esters, stereoisomers and derivatives, which are used as such or as an
ingredient in any formulation.

9.4 Maintenance of Records

Every company to which the rules apply shall, in respect of each of its financial year commencing
on or after the date of notification keep proper books of accounts relating to the utilisation of
materials, labour and other items of cost in so far as they are applicable to any of the products or
activities under reference.
It may be clarified that:
(a) The Cost Accounting Records Rules merely refers to the maintenance of cost records. It
does not mean that there has to be cost audit also.
(b) Cost Audit Order is separately issued generally after the initial notification of cost accounting
records rules. These cost audit orders are issued on selected companies only and some of
the companies may never get an cost audit order despite being covered under the respective
cost accounting records rules.
(c) Even though the rules come into effect on the date notified in the official Gazette, it may
not be possible to maintain cost accounting records for an incomplete year. Moreover,
companies need time to design and implement a cost accounting system to meet the
requirements of the law. It sometimes requires the change in their existing accounting
system as well especially where Computerised Accounting System or SAP etc is installed.
Therefore, the cost accounting records rules specify that they shall come into force on a
company manufacturing a product only from the financial year commencing on or after
the notification of the said rules. Thus in respect of a rule notified, say on 26.6.2008, it shall
be applicable to a company whose financial year commences on or after 26.6.2008 or say
2009-2010 (financial year commencing on 1.04.2009 and obligation to maintain cost
accounting records would arise only from 01.04.2009).
(d) The rules also specify that the books of accounts have to be maintained on a “regular
basis” so as to make it possible to calculate the cost of production and cost of sales of each
type of product every quarter and also for the financial year as a whole. The word regular
basis means that the direct cost will have to be recorded concurrently with the production
of each type of product while apportionable costs have to be recorded on the basis of
predetermined costs. However, it may not be necessary to have interlocking or integrated

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