Section 12 in The Companies (Cost records and audit) Rules, 2014
12. Quality Control Expenses.-
(a)Adequate records shall be maintained to indicate the expenses incurred in respect of quality control department or cost centre or service centre for goods or services under reference. Where these services are also utilised for other goods or services of the company, the basis of apportionment to goods or services under reference and to other goods or services shall be on equitable and reasonable basis and applied consistently.(b)Quality control cost incurred in-house shall be the aggregate of the cost of resources consumed in the Quality control activities of the entity. The cost of resources procured from outside shall be determined at invoice or agreed price including duties and taxes, and other expenditure directly attributable thereto net of discounts (other than cash discounts), taxes and duties refundable or to be credited by the Tax Authorities. Such cost shall include cost of conformance to quality, namely, (a) prevention cost; and (b) appraisal cost.(c)Identification of quality control costs shall be based on traceability in an economically feasible manner.(d)Quality control costs other than those referred to above shall be determined on the basis of amount incurred in connection therewith.(e)Finance costs incurred in connection with the self-generated or procured resources shall not form part of quality control cost.(f)Quality control costs shall not include imputed costs.(g)Subsidy or grant or incentive and any such payment received or receivable with respect to any quality control cost shall be reduced from cost of the cost object in the financial year when such subsidy or grant or incentive and any such payment is recognised as income.(h)Any abnormal portion of the quality control cost where it is material and quantifiable shall not form part of the cost of quality control.(i)Penalties, damages paid to statutory authorities or other third parties shall not form part of the quality control cost.(j)Any change in the cost accounting principles applied for the measurement of the quality control cost shall be made only if, it is required by law or a change would result in a more appropriate preparation or presentation of cost statements of an organisation.(k)Quality control cost that is directly traceable to the cost object shall be assigned to that cost object. Assignment of quality control cost to the cost objects shall be based on benefits received by them on the principles, namely:-(i)Cause and Effect - Cause is the process or operation or activity and effect is the incurrence of cost and(ii)Benefits received - overheads are to be apportioned to the various cost objects in proportion to the benefits received by them.
