CA NeWs Beta*: CAS-14 - COST ACCOUNTING STANDARD ON POLLUTION CONTROL COST

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Saturday, April 21, 2012

CAS-14 - COST ACCOUNTING STANDARD ON POLLUTION CONTROL COST

CAS-14 - COST ACCOUNTING STANDARD ON POLLUTION CONTROL COST
The following is the Cost Accounting Standard - 14 (CAS - 14) issued by the Council of The
Institute of Cost Accountants of India on "POLLUTION CONTROL COST". In this
Standard, the standard portions have been set in bold italic type. This standard should be read
in the context of the background material, which has been set in normal type.
1. Introduction
This standard deals with principles and methods of determining the Pollution control costs.
This standard deals with the principles and methods of classification, measurement and
assignment of pollution control costs, for determination of Cost of product or service, and the
presentation and disclosure in cost statements.
2. Objective
The objective of this standard is to bring uniformity and consistency in the principles and
methods of determining the Pollution Control Costs with reasonable accuracy.
3. Scope
This standard should to be applied to cost statements which require classification,
measurement, assignment, presentation and disclosure of Pollution Control Costs including
those requiring attestation.
4. Definitions
The following terms are being used in this standard with the meaning specified.
4.1 Air pollutant: Air Pollutant means any solid, liquid or gaseous substance (including
noise) present in the atmosphere in such concentration as may be or tend to be injurious to
human beings or other living creatures or plants or property or environment1.
4.2 Air Pollution: Air pollution means the presence in the atmosphere of any air pollutant.2
4.3 Cost Object: This includes a product, service, cost centre, activity, sub-activity, project,
contract, customer or distribution channel or any other unit in relation to which costs are
ascertained.3
4.4 Direct Expenses: Expenses relating to manufacture of a product or rendering a service,
which can be identified or linked with the cost object other than direct material cost and
direct employee cost.4
4.5 Environment: Environment includes water, air and land and the inter-relationship which
exists among and between water, air and land, and human beings, other living creatures,
plants, micro-organism and property.5
4.6 Environmental Pollutant: Environmental Pollutant means any solid, liquid or gaseous
substance present in such concentration as may be, or tend to be, injurious to environment.6
4.7 Environment Pollution: Environmental pollution means the presence in the environment
of any environmental pollutant.7
4.8 Finance Costs: Costs incurred by an enterprise in connection with the borrowing of
funds. This will include interest and commitment charges on bank borrowings, other short
term and long term borrowings, amortisation of discounts or premium related to borrowings,
amortisation of ancillary cost incurred in connection with the arrangements of borrowings,
finance charges in respect of finance leases, other similar arrangements and exchange
differences arising from foreign currency borrowings to the extent they are regarded as an
adjustment to the interest costs.8 The terms Finance costs and Borrowing costs are used
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interchangeably.
4.9 Imputed Costs: Hypothetical or notional costs, not involving cash outlay, computed for
any purpose.9
4.10 Normal capacity: Normal Capacity is the production achieved or achievable on an
average over a number of periods or seasons under normal circumstances taking into account
the loss of capacity resulting from planned maintenance10.
4.11 Pollution Control: Pollution Control means the control of emissions and effluents into
environment. It constitutes the use of materials, processes, or practices to reduce, minimize,
or eliminate the creation of pollutants or wastes. It includes practices that reduce the use of
toxic or hazardous materials, energy, water, and/or other resources.
4.12 Production overheads: Indirect costs involved in the production process or in rendering
service.11
The terms Production Overheads, Factory Overheads, Works Overheads and Manufacturing
Overheads denote the same meaning and are used interchangeably.
Production overheads shall include administration cost relating to production, factory, works
or manufacturing.
4.13 Soil Pollutant: Soil Pollutant is a substance such as cadmium, copper, arsenic, mercury,
oil and organic solvent, which is the source of soil contamination.
4.14 Soil Pollution: Soil pollution means the presence of any soil pollutant(s) in the soil
which is harmful to the living beings when it crosses its threshold concentration level.
4.15 Standard Cost: A predetermined cost of resource inputs for the cost object computed
with reference to set of technical specifications and efficient operating conditions. Standard
costs are used as scale of reference to compare the actual costs with the standard cost with a
view to determine the variances, if any, and analyse the causes of variances and take proper
measure to control them. Standard costs are also used for estimation.
4.16 Water pollution: Pollution means such contamination of water or such alteration of the
physical, chemical or biological properties of water or such discharge of any sewage or trade
effluent or of any other liquid, gaseous or solid substance into water (whether directly or
indirectly) as may, or is likely to, create a nuisance or render such water harmful or injurious
to public health or safety, or to domestic, commercial, industrial, agricultural or other
legitimate uses, or to the life and health of animals or plants or of aquatic organisms.12
5. Principles of Measurement:
5.1 Pollution Control costs shall be the aggregate of direct and indirect cost relating to
Pollution Control activity.
Direct cost includes the cost of materials, consumable stores, spares, manpower, equipment
usage, utilities, resources for testing & certification and other identifiable resources
consumed in activities such as waste processing, disposal, remediation and others.
Indirect cost includes the cost of resources common to various Pollution Control activities
such as Pollution Control Registration and such like expenses.
5.2 Costs of Pollution Control which are internal to the entity should be accounted for when
incurred. They should be measured at the historical cost of resources consumed.
5.3 Future remediation or disposal costs which are expected to be incurred with reasonable
certainty as part of Onerous Contract or Constructive Obligation, legally enforceable shall be
estimated and accounted based on the quantum of pollution generated in each period and the
associated cost of remediation or disposal in future.
For example future disposal costs of solid waste generated during the current period should
be estimated on, say, a per tonne basis.
5.4 Contingent future remediation or disposal costs e.g. those likely to arise on account of
future legislative changes on pollution control shall not be treated as cost until the incidence
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of such costs become reasonably certain and can be measured.
External costs of pollution which are generally the costs imposed on external parties
including social costs are difficult to estimate with reasonable accuracy and are excluded
from general purpose cost statements.
Social costs of pollution are measured by economic models of cost measurement. The cost by
way of compensation by the polluting entity either under future legislation or under social
pressure cannot be quantified by traditional models of cost measurement. They are best kept
out of general purpose cost statements.
5.5 Cost of in-house Pollution Control activity shall include cost of materials, consumable
stores, spares, manpower, equipment usage, utilities, and other resources used in such
activity.
5.6 Cost of Pollution Control activity carried out by outside contractors inside the entity shall
include charges payable to the contractor and cost of materials, consumable stores, spares,
manpower, equipment usage, utilities, and other costs incurred by the entity for such jobs.
5.7 Cost of Pollution Control jobs carried out by contractor at its premises shall be
determined at invoice or agreed price including duties and taxes, and other expenditure
directly attributable thereto net of discounts (other than cash discount), taxes and duties
refundable or to be credited. This cost shall also include the cost of other resources provided
to the contractors.
5.8 Cost of Pollution Control jobs carried out by outside contractors shall include charges
made by the contractor and cost of own materials, consumable stores, spares, manpower,
equipment usage, utilities and other costs used in such jobs.
5.9 Each type of Pollution Control e.g. water, air, soil pollution shall be treated as a distinct
activity, if material and identifiable.
5.10 Finance costs incurred in connection with the Pollution Control activities shall not form
part of Pollution Control costs.
5.11 Pollution Control costs shall not include imputed costs.
5.12 Price variances related to Pollution Control, where standard costs are in use, shall be
treated as part of Pollution Control cost. The portion of usage variances attributable to
normal reasons shall be treated as part of Pollution Control cost. Usage variances attributable
to abnormal reasons shall be excluded from Pollution Control cost.
5.13 Subsidy/Grant/Incentive or amount of similar nature received/receivable with respect to
Pollution Control activity, if any, shall be reduced for ascertainment of the cost of the cost
object to which such amounts are related.
5.14 Any Pollution Control cost resulting from abnormal circumstances, if material and
quantifiable, shall not form part of the Pollution Control cost.
5.15 Fines, penalties, damages and similar levies paid to statutory authorities or other third
parties shall not form part of the Pollution Control cost.
5.16 Credits/recoveries relating to the Pollution Control activity, material and quantifiable,
shall be deducted to arrive at the net Pollution Control cost.
5.17 Research and development cost to develop new process, new products or use of new
materials to avoid or mitigate pollution shall be treated as research and development costs
and not included under pollution control costs. Development costs incurred for commercial
development of such product, process or material shall be included in pollution control costs.
5.18 Any change in the cost accounting principles applied for the measurement of the
Pollution Control cost should be made only if, it is required by law or for compliance with
the requirements of a cost accounting standard, or a change would result in a more
appropriate preparation or presentation of cost statements of an organisation.
6. Assignment of costs
6.1 Pollution Control costs shall be traced to a cost object to the extent economically feasible.
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Direct costs of pollution control such as treatment and disposal of waste shall be assigned
directly to the product, where traceable economically.
Where these costs are not directly traceable to the product but are traceable to a process
which causes pollution, the costs shall be assigned to the products passing through the
process based on the quantity of the pollutant generated by the product.
6.2 Where the Pollution Control cost is not directly traceable to cost object, it shall be treated
as overhead and assigned based on either of the following two principles;
(i) Cause and Effect - Cause is the process or operation or activity and effect is the
incurrence of cost.
(ii) Benefits received – overheads are to be apportioned to the various cost objects in
proportion to the benefits received by them.
Typical of such costs are costs such as administration costs relating to pollution control
activities, costs of certification such as ISO 14000 and registration fees payable to pollution
control authorities
6.3 If the Pollution Control cost (including the share of the cost of reciprocal exchange of
services) is shared by several cost objects, the related cost shall be measured as an aggregate
and distributed among the cost objects as per principles laid down in Cost Accounting
Standard – 3.
7. Presentation
7.1 Pollution Control cost, if material, shall be presented in the cost statement as a separate
item of cost.
7.2 Pollution control costs shall be presented duly classified as follows:
(a) Direct and Indirect cost
(b) Internal and External costs
(c) Current and future costs
(d) Domain area e.g. water, air and soil.
7.3 Activity wise details of Pollution Control cost, if material, shall be presented separately.
8. Disclosures
8.1 The cost statements shall disclose the following:
1. The basis of distribution of Pollution Control cost to the cost objects/ cost units.
2. Where standard cost is applied in Pollution Control cost, the price and usage variances.
3. Pollution Control cost of Jobs done in-house and outsourced separately.
4. Pollution Control cost paid/ payable to related parties13.
5. Pollution Control cost incurred in foreign exchange.
6. Any Subsidy/Grant/Incentive or any amount of similar nature received/receivable
reduced from Pollution Control cost.
7. Any credits/recoveries relating to the Pollution Control cost.
8. Any abnormal portion of the Pollution Control cost.
9. Penalties and damages excluded from the Pollution Control cost.
8.2 Disclosures shall be made only where material, significant and quantifiable.
8.3 Cost incurred on pollution control relating to prior periods and taken to reconciliation
directly shall be disclosed separately.
8.4 Where estimates are made of future costs to be incurred on pollution control, the basis of
estimate shall be disclosed separately.
8.5 If a descriptive note dealing with the social cost of pollution caused by the entity and the
control of such pollution is contained in the same document as the cost statement, the cost
Statement shall carry a reference to such descriptive note.
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8.6 Disclosures shall be made in the body of the Cost Statement or as a foot note or as a
separate schedule.
8.7 Any change in the cost accounting principles and methods applied for the measurement
and assignment of the Pollution Control cost during the period covered by the cost statement
which has a material effect on the Pollution Control cost shall be disclosed. Where the effect
of such change is not ascertainable wholly or partly the fact shall be indicated.
􀋙􀋙
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1. Section 2 (a) of The Air (Prevention and Control of Pollution) Act, 1981.
2. Section 2 (b) of The Air (Prevention and Control of Pollution) Act, 1981.
3. Adapted from CIMA Terminology.
4. Adapted from Paragraph 4.4 of CAS - 10.
5. Section 2 (a) of The Environment (Protection) Act, 1986.
6. Section 2 (b) of The Environment (Protection) Act, 1986.
7. Section 2 (c) of The Environment (Protection) Act, 1986.
8. Adapted from CIMA Terminology.
9. Adapted from CAS 1 paragraph 6.5.13.
10. Adapted from CAS 2 paragraph 4.4.
11. Adapted from CAS-1 Para 6.3.3 and 6.3.4.
12. Section 2 (e) of The Water (Prevention and Control of Pollution) Act, 1974
13. Related party as per the applicable legal requirements relating to the cost statement as
on the date of the statement.
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