Page 182 - DCOM206_COST_ACCOUNTING_II

Unit 9: Cost Accounting Records

combination of the two. Also production bonus and other incentives can also be fixed by the Notes
company. The cost centres namely production and service departments can be determined by
the company taking into account the technical aspects of production relating to each factory. In
respect of jobs carried out in the workshops, so long as proper method is available for absorption
of the cost, the rules do not specify any other stipulation. The company is also free to adopt
either straight-line method or written down value method of depreciation except that the
depreciation charged should not be excess of what is specified under schedule XIV of the
Companies Act. In the matter of allocation, apportionment and absorption of overheads, the
company is free to adopt any method. In the matter of treatment of the ‘by products’ and ‘joint
products’, the company has all the flexibility in adopting a rational method so long as it confirms
to sound costing principles and is applied consistently. It may be seen that greater freedom and
flexibility is given to a company to maintain the records in whatever form they require so long
as the method adopted is reasonable, equitable and consistent.
Self Assessment

Fill in the blanks:
11. …………………… means a transfer of resources or obligations between related parties,
whether or not a price is charged.
12. …………………… relationships means parties who are considered to be related if at any
time during the reporting period one party has the ability to control the other party or
exercise significant influence over the other party in making financial and/or operating
decisions.
13. Holding company means a holding company within the meaning of Section
…………………… of the Companies Act, 1956(1 of 1956).
14. Subsidiary means a subsidiary company within the meaning of Section ……………………
of the Companies Act, 1956(1 of 1956).
15. …………………… subsidiary means a company is said to be a fellow subsidiary of another
company if both are subsidiaries of the same holding company.

9.6 Summary

 Cost Accounting Record Rules are the prescribed details by the Central Government w.r.t.
utilisation of material, labour or other items of cost in respect of a class of companies
notified under the provisions of Companies Act, 1956.

 The Cost Accounting Record Rules are aimed at inducing the companies to have control
over their operations and costs with a view to achieve optimum utilisation of resources in
the economy.
 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.

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