Section 14 in The Companies (Cost records and audit) Rules, 2014
14. Service Department Expenses.-
(a)Proper records shall be maintained in respect of service departments, that is, cost centres which primarily provides auxiliary services across the enterprise, to indicate expenses incurred in respect of each such service cost centre like engineering, work shop, designing, laboratory, safety, transport, computer cell, welfare and other related centres.(b)Each identifiable service cost centre shall be treated as a distinct cost object for measurement of the cost of services subject to the principle of materiality.(c)Cost of service cost centre shall be the aggregate of direct and indirect cost attributable to services being rendered by such cost centre.(d)Cost of in-house services shall include cost of materials, consumable stores, spares, manpower, equipment usage, utilities, and other resources used in such service.(e)Cost of other resources shall include related overheads.(f)Cost of services rendered by contractors within the facilities of the entity shall include charges payable to the contractor and cost of materials, consumable stores, spares, manpower, equipment usage, utilities, and other resources provided to the contractors for such services.(g)Cost of services rendered by contractors at their 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 resources provided to the contractors.(h)Cost of services for the purpose of inter unit transfers shall also include distribution costs incurred for such transfers.(i)Cost of services for the purpose of inter-company transfers shall also include distribution cost incurred for such transfers and administrative overheads.(j)Cost of services rendered to outside parties shall also include distribution cost incurred for such transfers, administrative overheads and marketing overheads.(k)Finance costs incurred in connection with the service cost centre shall not form part of the cost of service cost centre.(l)The cost of service cost centre shall not include imputed costs.(m)Where the cost of service cost centre is accounted at standard cost, the price and usage variances related to the services cost centre shall be treated as part of cost of services. Usage variances due to abnormal reasons shall be treated as part of abnormal cost.(n)Subsidy or grant or incentive and any such payment received or receivable with respect to any service cost centre 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.(o)The cost of production and distribution of the service shall be determined based on the normal capacity or actual capacity utilisation whichever is higher and unabsorbed cost, if any, shall be treated as abnormal cost. Cost of a Stand-by service shall include the committed costs of maintaining such a facility for the service.(p)Any abnormal cost where it is material and quantifiable shall not form part of the cost of the service cost centre.(q)Penalties, damages paid to statutory authorities or other third parties shall not form part of the cost of the service cost centre.(r)Credits or recoveries relating to the service cost centre including charges for services rendered to outside parties, material and quantifiable, shall be reduced from the total cost of that service cost centre.(s)Any change in the cost accounting principles applied for the measurement of the cost of service cost centre 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 enterprise.(t)While assigning cost of services, traceability to a cost object in an economically feasible manner shall be the guiding principle.(u)Where the cost of services rendered by a service cost centre is not directly traceable to a cost object, it shall be assigned on the most appropriate basis.(v)The most appropriate basis of distribution of cost of a service cost centre to the cost centres consuming services is to be derived from logical parameters which could be related to the usage of the service rendered. The parameter shall be equitable, reasonable and consistent.
