Cost Accounting Standards and Costing Systems
Cost Accounting Standards and Costing Systems tests the regulatory framework - CAS, cost records, cost audit - and the bookkeeping systems that sit behind cost accounts.
Cost Accounting Standards
The CAS Board of ICMAI issues standards binding on companies maintaining cost records under the Companies (Cost Records and Audit) Rules, 2014. Know the scope of the core ones: CAS 1 classification of cost; CAS 2 capacity determination (installed, available and normal capacity); CAS 3 overheads; CAS 6 material cost; CAS 7 employee cost; CAS 11 administrative overheads; CAS 16 depreciation; CAS 22 manufacturing cost; CAS 23 cost of production. Standards are principles, not rigid rules, and departures must be disclosed.
Cost records and audit
Specified industries must maintain cost records in the prescribed form. Where cost audit applies, the cost auditor is a practising cost accountant appointed by the board and ratified by members, with Form CRA-2 for appointment and CRA-3 for the report. Cost audit verifies cost records; it does not replace the statutory financial audit.
Costing systems
Integrated accounting keeps cost and financial transactions in one set of books. Non-integrated accounting uses a cost ledger with control accounts - stores, WIP, finished goods, cost of sales - reconciled periodically with the financial ledger.
Worked example
Financial profit ₹1,00,000. Add donation ₹10,000 recorded only in financial books; deduct interest received ₹5,000 recorded only in financial books; deduct overhead over-absorbed ₹8,000. Profit as per cost accounts = 1,00,000 + 10,000 − 5,000 − 8,000 = ₹97,000. Over-absorption means cost accounts charged more overhead than was incurred, so cost profit is lower; under-absorption would be added back.
Traps
Adding over-absorption instead of deducting it; confusing CAS 2 normal capacity with budgeted capacity; assuming cost audit applies to every company; and letting purely financial items such as income tax or donations enter cost accounts.