KS ACADEMY CA FINAL SAP 1 ANSWER KEY FINANCIAL REPORTING

Transcription

1 KS ACADEMY CA FINAL SAP 1 ANSWER KEY FINANCIAL REPORTING 1. As per para 26 of AS 21 Consolidated Financial Statements, the losses applicable to the minority in a Consolidated subsidiary may exceed the minority interest in the equity of the subsidiary. The excess, and any further losses applicable to the minority, are adjusted against the majority interest except to the extent that the minority has a binding obligation to, and is able to, make good the losses. If the subsidiary subsequently reports profits, all such profits are allocated to the majority interest until the minority's share of losses previously absorbed by the majority has been recovered. Accordingly, 2. As per para 26 of AS 21 Consolidated Financial Statements, the losses applicable to the minority in a consolidated subsidiary may exceed the minority interest in the equity of the subsidiary. The excess, and any further losses applicable to the minority, are adjusted against the majority interest except to the extent that the minority has a binding obligation to, and is able to, make good the losses. If the subsidiary subsequently reports profits, all such profits are allocated to the majority interest until the minority's share of losses previously absorbed by the majority has been recovered. Accordingly, YEAR Profit/Loss minority Interest (30%) Additional Consolidated P & L (Dr) Cr Minority's share of losses borne by A Ltd. Cost of Control At the time of acquisition in Rs Balance Loss of minority borne by Holding Co Nil Nil nil

2 3. (i) Ind AS 20 deals with the other forms of government assistance which do not fall within the definition of government grants. It requires that an indication of other forms of government assistance from which the entity has directly benefited should be disclosed in the financial statements. However, AS 12 does not deal with such government assistance. 4. (ii) AS 12 requires that in case the grant is in respect of non depreciable assets, the amount of the grant should be shown as capital reserve which is a part of shareholders funds. It further requires that if a grant related to a non-depreciable asset requires the fulfilment of certain obligations, the grant should be credited to income over the same period over which the cost of meeting such obligations is charged to income. AS 12 also gives an alternative to treat such grants as a deduction from the cost of such asset. As compared to the above, Ind AS 20, is based on the principle that all government grants would normally have certain obligations attached to them and these grants should be recognised as income over the periods which bear the cost of meeting the obligation. It, therefore, specifically prohibits recognition of grants directly in the shareholders funds. (iii) AS 12 recognises that some government grants have the characteristics similar to those of promoters contribution. It requires that such grants should be credited directly to capital reserve and treated as a part of shareholders funds. Ind AS 20 does not recognise government grants of the nature of promoters contribution. As stated at (ii) above, Ind AS 20 is based on the principle that all government grants would normally have certain obligations attached to them and it, accordingly, requires all grants to be recognised as income over the periods which bear the cost of meeting the obligation. (iv) AS 12 requires that government grants in the form of nonmonetary assets, given at a concessional rate, should be accounted for on the basis of their acquisition cost. In case a nonmonetary asset is given free of cost, it should be recorded at a nominal value. Ind AS 20 requires to value non-monetary grants at their fair value, since it results into presentation of more relevant information and is conceptually superior as compared to valuation at a nominal amount. (v) Existing AS 12 gives an option to present the grants related to assets, including nonmonetary grants at fair value in the balance sheet either by setting up the grant as deferred income or by deducting the grant from the gross value of asset concerned in arriving at at its book value. Ind AS 20 requires presentation of such grants in balance sheet only by setting up the grant as deferred income. Thus, the option to present such grants by deduction of the grant in arriving at at at its book value is not available under Ind AS 20 (v) Ind AS 20 includes Appendix A which deals with Government Assistance No Specific Relation to Operating Activities (vi) Ind AS 20 requires that loans received from a government that have a below-market rate of interest should be recognised and measured in accordance with Ind AS 39 (which requires all loans to be recognised at fair value, thus requiring interest to be imputed to loans with a below-market rate of interest) whereas AS 12 does not require so.

3 . 5. Examples of potential ordinary shares are: (a) Financial liabilities or equity instruments, including preference shares, that are convertible into ordinary shares; (b) Options and warrants; (c) Shares that would be issued upon the satisfaction of conditions resulting from contractual arrangements, such as the purchase of a business or other assets. 6. (i) Existing AS 20 does not specifically deal with options held by the entity on its shares, e.g., purchased options, written put option etc. Ind AS 33 deals with the same. (ii) Ind AS 33 requires presentation of basic and diluted EPS from continuing and discontinued operations separately. However, existing AS 20 does not require any such disclosure. (iii) Existing AS 20 requires the disclosure of EPS with and without extraordinary items. Since as per Ind AS 1, Presentation of Financial Statements, no item can be presented as extraordinary item, Ind AS 33 does not require the aforesaid disclosure. 7. IAS 20 gives an option to present the grants related to assets either by setting up the grant as deferred income or by deducting the grant in arriving at the carrying amount of the asset. Ind AS 20 requires presentation of such grants in the balance sheet as deferred income. Strategic Financial Management 1. Computation of Beta Value Returns = D1+(P1+P0)/P0 x 100 In , 25+( )/242 x 100 = 25.62% In , 30+( )/279 x 100 = 20.07% In , 35+( )/305 x 100 = 17.05% Year , % of Appreciation, /1950 * 100 = 15.79% Dividend Yield 6% Total Return %

4 Year , % of Appreciation, /2258 * 100 = -1.68% Dividend Yield 7% Total Return 5.32 % Beta = Systematic Risk: Due to dynamic nature of society the changes occur in the economic, political and social systems constantly. These changes have an influence on the performance of companies and thereby on their stock prices but in varying degrees. For example, economic and political instability adversely affects all industries and companies. When an economy moves into recession, corporate profits will shift downwards and stock prices of most companies may decline. Thus, the impact of economic, political and social changes is systemwide and that portion of total variability in security returns caused by such system-wide factors is referred to as systematic risk. Systematic risk can be further subdivided into interest rate risk, market risk and purchasing power risk. 3. Unsystematic Risk: Sometimes the return from a security of any company may vary because of certain factors particular to this company. Variability in returns of the security on account of these factors (micro in nature), it is known as unsystematic risk. It should be noted that this risk is in addition to the systematic risk affecting all the companies. Unsystematic risk can be further subdivided into business risk and financial risk.

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8 Corporate and Allied Laws

9 4. 5. As per the section 2(45) of the Companies Act, 2013, the holding of 25% shares of AMC Ltd. by the government of Rajasthan does not make it a government company. Hence, it will be treated as a non-government company. Under section 139 of the Companies Act, 2013, the appointment of an auditor by a company vests generally with the members of the company except in the case of the first auditors and in the filling up of the casual vacancy not caused by the resignation of the auditor, in which

10 case, the power to appoint the auditor vests with the Board of Directors. The appointment by the members is by way of an ordinary resolution only and no exceptions have been made in the Act whereby a special resolution is required for the appointment of the auditors. Therefore, the contention of Mr Sanjay is not tenable. The appointment is valid under the Companies Act, (a) (i) No. Mr. Ram cannot be considered 'Person resident in India' during the financial year notwithstanding the purpose or duration of his stay in India during An individual has to be present in India for more than 182 days in the preceding financial year. Mr. Ram does not satisfy this condition for the financial year (ii) No. Citizenship is no more relevant for determining the status. (b) (i) No. According to the rules, drawal of foreign exchange is not allowed for travel to Nepal or Bhutan. (ii) Following are the transactions (current account) for which drawal of foreign exchange is prohibited. (1) Remittance out of lottery winnings. (2) Remittance of income from racing/riding, etc., or any other hobby. (3) Remittance for purchase of lottery tickets, banned/prescribed magazines, football pools, sweepstakes etc. (4) Payment of commission on exports made towards equity investment in Joint Ventures/Wholly Owned Subsidiaries abroad of Indian companies. (5) Remittance of dividend by any company to which the requirement of dividend balancing is applicable. (6) Payment of commission on exports under Rupee State Credit Route, except commission up to 10% of invoice value of exports of tea and tobacco. (7) Payment related to Call Back Services of telephones. (8) Remittance of interest income on funds held in Non-resident Special Rupee Scheme a/c. ADVANCED AUDITING & PROFESSIONAL ETHICS 1. Revenue Recognition: As per AS 9 Revenue Recognition, in a transaction involving the sale of goods, performance should be regarded as being achieved when the following conditions have been fulfilled: (i) the seller of goods has transferred to the buyer the property in the goods for a price or all significant risks and rewards of ownership have been transferred to the buyer and the seller retains no effective control of the goods transferred to a degree usually associated with ownership; and (ii) no significant uncertainty exists regarding the amount of the consideration that will be derived from the sale of the goods.therefore, revenue from sales transactions should be recognised when the requirements as to performance set out above is satisfied, provided that at the time of performance it is not unreasonable to expect ultimate collection. If at the time of raising of any claim uncertainty regarding collection exist, then revenue recognition should be postponed. In the instant case, the company is engaged in manufacturing and sale of chemical products, and made disclosure in accounting policy on recognition of revenue as per AS 1 stating that revenue is recognized only when it can be reliably measured and it is reasonable to expect ultimate collection, is correct. However, accounting policy disclosed above should also cover the aspect of transfer of risk and reward for the purpose of revenue recognition.

11 2. The auditor may take the following steps to ensure that the dividend has been paid only out of profits: 1. Check whether the dividend was declared out of profits arrived at after providing for depreciation as per Section 123(2) of the Companies Act, 2013 (herein after referred as the Act).Check whether- (i) the depreciation was provided according to provision of Schedule II to the Act. (ii) a board resolution recommending dividend was passed. (iii) the dividend was declared only in the Annual General Meeting. (iv) No dividend declared in general meeting exceeds the amount recommended by the Board. (v) Amount paid or credited as paid on a share in advance of calls is not treated for the purpose of this regulation as paid on the share. (vi) register of members was closed as per the provisions of section 91 of the Act. (vii) dividend has been paid in the prescribed manner within 30 days of time to the registered holder or their order for the compliance of Section 127 of the Act. (viii) Amount of dividend deposited in a separate bank account within five days from the date of declaration of dividend. (ix) intimation sent to Stock Exchange in the case of listed company. (x) were there any complaints of non-payment/delayed payment of dividend? If so, whether corrective action was taken. 3. (a) Key Management Personnel: As per AS 18 on Related Party Disclosures, Key management personnel are those persons who have the authority and responsibility for planning, directing and controlling the activities of the reporting enterprise. Further, Section 2(51) of the Companies Act, 2013 also defines the key managerial personnel in relation to a company as the Chief Executive Officer or the managing director or the manager; the company secretary; the wholetime director; the Chief Financial Officer; and such other officer as may be prescribed. It may be noted here that non-executive directors of a company will not be considered as key management personnel under AS 18 by virtue of merely their being directors, unless they have the authority and responsibility for planning, directing and controlling the activities of the reporting enterprise. Further, the requirements of AS 18 should not be applied in respect of a non-executive director even if he participates in the financial and/or operating policy decision of the enterprise unless he falls in any of the categories discussed in Para 3 of AS 18. (b) Normal Capacity for Inventory Valuation: As per AS 2 on Valuation of Inventories, allocations of fixed production overheads for the purpose of their inclusion in the costs of conversion is based on the normal capacity of the production facilities. Normal capacity is the production expected to be achieved on an average over a number of periods or seasons under normal circumstances, taking into account the loss of capacity resulting from planned maintenance. The actual level of production may be used if it approximates normal capacity. Due to this, the fixed overhead allocated to each unit of production is not increased as a consequence of low production or idle plant. In periods of high production, these overheads allocated are decreased so that inventories are not measured above cost. (c) Integral Foreign Operations: As per AS 11 on The Effects of Changes in ForeignExchange Rates, there are foreign operations, the activities of which are an integral part of the reporting enterprise. This is important since the method used to translate financial results of a foreign operation depends on the way in which it is financed and operates in relation to the reporting enterprise. A foreign operation that is integral to the operation of the reporting enterprise carries onits business as if it were an extension of the reporting enterprise s operations. In such cases, change in exchange rates between the reporting currency and the currency in the country of foreign operation has an almost immediate effect on the reporting enterprise s cash flow from

12 operations. Therefore, the change in the exchange rates affects the individual monetary items held by the foreign operation rather than the net investment in that operation. 4. Validity of Appointment as a Statutory Auditor: To ensure that the appointment is valid, the incoming auditor should take the following steps before accepting his appointment: (i) Ceiling limit: Ensure that a certificate has been issued under section 139 of the Companies Act, 2013 so that the total number of company audits held by the firm (including the new appointment) will not exceed the specified number. (ii) Resolution at AGM: Verify that at AGM of the Company, a proper resolution is passed Inspect general meeting minutes book to see that the appointment is duly recorded. (iii) Compliance with law: Satisfy that the legal procedure contemplated in section 139 and 140 of the said Act, dealing with the appointment and removal of existing auditor, have been followed. Also check whether section 139(5) and 139(7) (in case of a government company or any other company owned or controlled, directly or indirectly, by the Central Government, or by any State Government, or Governments, or partly by the Central Government and partly by one or more State Governments- appointment by the Comptroller and Auditor General of India) are attracted and complied with. (iv) Code of conduct: Communicate with the previous auditor, if any, in writing, to ascertain if there are any professional reasons for not accepting the appointment. ADVANCED MANAGEMENT ACCOUNTING 1. The points of differences between activity based costing and traditional absorption costing can be enumerated below: Activity Based Costing Traditional Absorption Costing (i) Overheads are related to activities and grouped into activity cost pools. (i) Overheads are related to cost centers/ (ii) Activities are classified as (i) Unit Level, (ii) Batch Level, (iii) Product Level and (iv) Facility Level activities. (iii) Costs are related to activities and hence are more realistic. (iv) Activity wise cost drivers are determined. (v) Activity wise recovery rates are determined and there is no concept of a single overhead recovery rate. departments. (ii) Only (i) Unit Level (Variable) and (ii)facility Level (Fixed) activities are identified. (iii) Costs are related to cost centers and hence not realistic of cost behaviour. (iv) Time (Hours) are assumed to be the only cost driver governing costs in all departments. (v) Either multiple overhead recovery rate (for each department) or a single overhead recovery rate may be determined for absorbing overheads. (vi) Cost are assigned to cost objects, e.g. customers, products, services, departments, etc.

13 (vii) Essential activities can be simplified and unnecessary activities can be eliminated. Thus the corresponding costs are also reduced / minimized. Hence ABC aids cost control. (vi) Costs are assigned to Cost Units i.e. to products, or jobs or hours. (vii) Cost Centers / departments cannot be eliminated. Hence not suitable for cost control. 2.

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16 3. 4. Total Carrying cost is 70.5 x 2.50 = Rs Total ordering cost is 2 x 20 = Stock out cost (not mentioned taken as Nil)= It should be noticed that there will be stock-out on 10th day in IInd option.

17 ISCA 1. The key management practices, which are required for aligning IT strategy with enterprise strategy, are given as follows: Understand enterprise direction: Consider the current enterprise environment and business processes, as well as the enterprise strategy and future objectives. Consider also the external environment of the enterprise (industry drivers, relevant regulations, basis for competition). Assess the current environment, capabilities and performance: Assess the performance of current internal business and IT capabilities and external IT services, and develop an understanding of the enterprise architecture in relation to IT. Identify issues currently being experienced and develop recommendations in areas that could benefit from improvement. Consider service provider differentiators and options and the financial impact and potential costs and benefits of using external services. Define the target IT capabilities: Define the target business and IT capabilities and required IT services. This should be based on the understanding of the enterprise environment and requirements; the assessment of the current business process and IT environment and issues; and consideration of reference standards, best practices and validated emerging technologies or innovation proposals. Conduct a gap analysis: Identify the gaps between the current and target environments and consider the alignment of assets (the capabilities that support services) with business outcomes to optimize investment in and utilization of the internal and external asset base. Consider the critical success factors to support strategy execution. Define the strategic plan and road map: Create a strategic plan that defines, in cooperation with relevant stakeholders, how IT- related goals will contribute to the enterprise s strategic goals. Include how IT will support IT-enabled investment programs, business processes, IT services and IT assets. IT should define the initiatives that will be required to close the gaps, the sourcing strategy, and the measurements to be used to monitor achievement of goals, then prioritize the initiatives and combine them in a highlevel road map. Communicate the IT strategy and direction: Create awareness and understanding of the business and IT objectives and direction, as captured in the IT strategy, through communication to appropriate stakeholders and users throughout the enterprise. The success of alignment of IT and business strategy can be measured by reviewing the percentage of enterprise strategic goals and requirements supported by IT strategic goals, extent of stakeholder satisfaction with scope of the planned portfolio of programs and services and the percentage of IT value drivers, which are mapped to business value drivers.

18 2. COBIT 5 builds and expands on COBIT 4.1 by integrating other major frameworks, standards and resources, including ISACA s Val IT and Risk IT, Information Technology Infrastructure Library (ITIL ) and related standards from the International Organization for Standardization (ISO). COBIT 5 is based on an enterprise view and is aligned with enterprise governance best practices enabling GEIT to be implemented as an integral part of wider enterprise governance. COBIT5 also provides a basis to integrate effectively other frameworks, standards and practices used such as Information Technology Infrastructure Library (ITIL), The Open Group Architecture Framework (TOGAF) and ISO It is also aligned with The GEIT standard ISO/IEC 38500:2008, which sets out high-level principles for the governance of IT, covering responsibility, strategy, acquisition, performance, compliance and human behavior that the governing body (e.g., board) should evaluate, direct and monitor. Thus, COBIT 5 acts as the single overarching framework, which serves as a consistent and integrated source of guidance in a non-technical, technology-agnostic common language. The framework and resulting enablers should be aligned with and in harmony with (amongst others) the: > Enterprise policies, strategies, governance and business plans, and audit approaches; x Enterprise risk management framework; and > Existing enterprise governance organization, structures and processes. 3. COBIT 5 frameworks can be implemented in all sizes of enterprises. A comprehensive framework such as COBIT 5 enables enterprises in achieving their objectives for the governance and management of enterprise IT. The best practices of COBIT 5 help enterprises to create optimal value from IT by maintaining a balance between realizing benefits and optimizing risk levels and resource use. Further, COBIT 5 enables IT to be governed and managed in a holistic manner for the entire enterprise, taking in the full end-to-end business and IT functional areas of responsibility, considering the IT related interests of internal and external stakeholders. COBIT 5 helps enterprises to manage IT related risk and ensures compliance, continuity, security and privacy. COBIT 5 enables clear policy development and good practice for IT management including increased business user satisfaction. The key advantage in using a generic framework such as COBIT 5 is that it is useful for enterprises of all sizes, whether commercial, not-for-profit or in the public sector. COBIT 5 supports compliance with relevant laws, regulations, contractual agreements and policies.

19 4. Strategic Planning: Strategic Planning is defined as the process of deciding on objectives of the enterprise, on changes in these objectives, on the resources used to attain these objectives, and on the policies that are to govern the acquisition, use, and disposition of these resources. Strategic planning is the process by which top management determines overall organizational purposes and objectives and how they are to be achieved. Corporate-level strategic planning is the process of determining the overall character and purpose of the organization, the business it will enter and leave, and how resources will be distributed among those businesses. Management Control: Management Control is defined as the process by which managers assure that resources are obtained and used effectively and efficiently in the accomplishment of the enterprise's objectives. Operational Control: Operational Control is defined as the process of assuring that specific tasks are carried out effectively and efficiently DIRECT TAXATION

20 2. (i) (ii) (iii) As the main object of the institution is advancement of object of general public utility,the institution will lose its charitable status for the P.Y , since it has received Rs 30 lakhs from an activity in the nature of trade, which exceeds ` 28 lakhs, being 20% of the total receipts of the institution undertaking that activity for the previous year. The application of 85% of such receipt for its main object during the year would not help in retaining its charitable status for that year. The institution will lose its charitable status and consequently, the benefit of exemption of income for the P.Y , irrespective of the fact that its approval is not withdrawn or its registration is not cancelled. If the total receipts of the institution is ` 150 lakhs, and the institution receives ` 30 lakhs in aggregate from an activity in the nature of trade during the P.Y , then it will not lose its charitable status since receipt of upto 20% of the total receipts of the institution undertaking in a year from such activity is permissible. The institution can claim exemption subject to fulfillment of other conditions under sections 11 to 13. Further, such activity should also be undertaken in the course of actual carrying out of such advancement of any other object of general public utility. The restriction regarding carrying on of a trading activity for a cess, fee or other consideration will not apply if the main object of the institution is relief of the poor. Therefore, receipt of ` 30 lakhs

21 3. from a trading activity by such an institution will not affect its charitable status, even if it exceeds 20% of the total receipts of the institution. The institution can claim exemption subject to fulfillment of other conditions under sections 11to 13.

22 4. Computation of total income of the institution for the A.Y Particulars Rs (in crores) Fees received Less : Expenses incurred to earn the income (4.00) Less : 15% (exempt even if not spent for the objects of the institution) (1.50) 8.50 Less : Accumulated for specified purpose (See Note 1) (4.00) Balance to be spent 4.50 Actual amount spent on purchase of land for cricket field (See Note 2) 2.00 Total income 2.50 Notes: (1) The institution must utilise 85% of its income within the previous year for the objects of the institution. The institution can apply its income either for revenue expenditure or for capital expenditure provided the expenditure is incurred for promoting the objects of the institution.

23 Land acquired and meant for use as cricket field for students is a capital expenditure incurred for promoting the objects of the institution and hence eligible for deduction. (2) Section 11(2) provides that a trust/institution can accumulate or set apart its income for a specified purpose by furnishing statement in prescribed format to the concerned Assessing Officer. However, the period for which the funds can be accumulated cannot exceed 5 years. The amount so accumulated should be invested in the specified forms and modes. In this case, the institution has to furnish statement in Form 10 on or before the due date of filing return of income to the Assessing Officer, stating the purpose for which the income is being accumulated or set apart and the period for which the income is being accumulated or set apart, which shall, in no case, exceed five years. Further, the institution has to invest Rs.4 crore in the specified forms and modes. INDIRECT TAXATION 1. As per section 2(f) of the Central Excise Act, 1944 "manufacture" includes any process- (i) incidental or ancillary to the completion of a manufactured product; (ii) which is specified in relation to any goods in the Section or Chapter Notes of the First Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture, o r (iii) which, in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labelling or re-iabelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer, and the word "manufacturer" shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in production or manufacture on his own account. The processes that qualify to be manufacture as per clause (ii) and (iii) of section 2(f) are termed as deemed manufacture. Thus, if any process which is specified in the Section or Chapter Notes of the First Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture is carried out, goods will be deemed as manufactured, even if as per Court decisions, the process may not amount to manufacture. For instance, if any of specified processes (like re-packing, re-labelling, alteration of retail sale price etc.) is being carried out on goods covered in Third Schedule to the Central Excise Act, 1944, the process will be deemed as manufacture. 2. A. According to rule 2(a) of Central Excise Tariff Act, 1985 if any particular heading refers to a finished or complete articled, the incomplete or unfinished form of that article shall also be classified under the same heading provided the incomplete or unfinished goods have the essential characteristics of the finished goods. For example, railway coaches removed without seats would still be railway coaches. Likewise a car without seat would still be classified as car. It was held in Sony India Ltd. v CCE 2002 (143) ELT 411 that rule 2(a) applies only when components are not subject to further working operation for completion into the finished state. B. According to the Trade Parlance Test, if a product is not defined in the Schedule and Section Notes and Chapter Notes of the Central Excise Tariff Act, 1985, then it should be classified according to its popular meaning or meaning attached to it by those dealing with it, i.e., in commercial sense. However, where the tariff heading itself uses highly scientific or technical terms, goods should be classified in scientific or technical sense.

24 3. According to section 4(1)(a) of the Central Excise Act, 1944, following four conditions are required to be satisfied individually and cumulatively for valuing excisable goods on the basis of transaction value: (a) There should be sale of goods. (b) The goods sold should be for delivery at the time and place of removal. (c) The assessee and the buyer of the goods should not be related persons. (d) The price should be sole consideration for the sale. In those cases where any of the above requirements are not fulfilled, the assessable value is required to be determined on the basis of the Central Excise (Determination of Price of Excisable Goods) Rules, 2000 [Section 4(1)(b)]. 4. As per rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, the value of the excisable goods used for captive consumption is 110% of the cost of production of such goods. The cost of production is to be determined as per Cost Accounting Standard (CAS) -4: Cost of Production for Captive Consumption issued by ICWAI [CBEC Circular No. 692/8/2003 dated ]. Computation of cost of production as per CAS-4 and value of the excisable goods:- Particulars Rs Cost of direct materials 16,875 Less: Central excise duty 1,875 (Note-1) 15,000 Cost of direct employees 12,300 Consumable stores and repairs 8,400 Quality control cost 4,300 Research and development cost 2,700 Administrative cost (production related) [Note-2] 3,000 Total 45,700 Less: Scrap value realized 1,500 Cost of production as per CAS-4 44,200 Value of excisable goods [` 44, %] 48,620 Notes: 1. Since CENVAT credit is available on central excise duty paid on direct materials, it has been deducted from the cost of direct materials in accordance with the Cost Accounting Standard Administrative overheads in relation to activities other than manufacturing activities have not been included in cost of production [CAS-4]. 3. Selling and distribution cost have not been considered while computing the cost of production as they are not in relation to production activity [CAS-4]. 5.

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