ORDER, 2011


[Gazette of Pakistan, Extraordinary, Part-II, 19th September, 2011]

S.R.O. 852(I)/2011.—The following draft of Fertilizer Industry (Cost Accounting Records) Order, 2011 which is proposed to be made in exercise of powers conferred by clause (e) of sub-section (1) of Section 230  read with Section 246 of the Companies Ordinance, 1984 (XLVII of



1984), and Section 43 of the Securities and Exchange Commission of Pakistan Act, 1997 (XLVII of 1997) is hereby published for the information of all persons likely to be affected thereby and notice is hereby given that the draft will be taken into consideration after thirty days of its publication in the Official Gazette.

Any objection or suggestion which may be received from any person in respect of the said draft before the expiry of the said date will be considered by the Securities and Exchange Commission of Pakistan.

1. Short title, extent, commencement and application.—(1) This Order shall be called the Fertilizer Industry (Cost Accounting Records) Order, 2011.

(2)        It shall come into force at once.

(3)        This Order shall apply to every company engaged in production, processing and manufacturing of Fertilizers

2.         Maintenance of records.—(1) Every company to which this Order applies shall, in respect of each financial year commencing on or after the commencement of this Order, keep cost accounting records, containing, inter-alia, the particulars specified in Schedule I, II and III to this Order.

(2)        The cost accounting records referred to in sub-Paragraph (1) shall be kept in such a way as to make it possible to calculate from the particulars entered therein the cost of production and cost of sales of each of the formulation products referred to in sub- Para (2) of Para 1, during a financial year.

(3)        Where a company is manufacturing any other .product in addition to those referred to in sub-Para (2) of Para 1, the particulars relating to the utilization of materials, labour and other items of cost insofar as they are applicable to such other product shall not be included in the cost of product referred to in that para.

(4)        It shall be the duty of every person referred to in sub-section (7) of Section 230 of the Companies Ordinance, 1984 (XLVII of 1984), to comply with the provisions of sub-Paragraph (1) to (3) in the same manner as they are liable to maintain financial accounts required under Section 230 of the said Ordinance.

3. Penalty.—If a company contravenes the provisions of Paragraph 3 the company and every officer thereof who is in default, including the persons referred to in sub-Paragraphs (4) of Paragraph 2 shall be punishable under sub-section (7) of Section 230 of the companies Ordinance, 1984 (XLVII of 1984).


(See Paragraph 2)


(1)        Direct Material.–

(a)        Adequate records shall be maintained showing receipts, issues and balances, both in quantities and values of each item of direct material required for production of chemical fertilizer of any type. The basis on which the value of receipts, and issues have been calculated shall be clearly indicated in the cost records maintained or if so desired by the company in a separate manual of procedures, if any, maintained by the company or in foot-notes or separate explanatory notes to the cost statements for the relevant period. Such basis shall be applied consistently throughout the relevant period. The values shall include all direct charges up to works such as excise duty, haulage, transport, freight, handling and insurance. In case of imported material, custom duty, Iqra surcharge, port charges, inland freight charges, freight and insurance charges, sales tax and any other levies payable at the time of import shall be shown separately and included to work out landed cost.

(b)        If the value of direct material consumed is determined on a basis other than actual, the method adopted for such valuation as well as the method for reconciliation of such consumption with actual and the method for dealing with variations, if any, shall be disclosed in the cost records or indicated by way of footnotes or in any other suitable manner.

(c)        All issues of production materials shall be reconciled with figures shown in shown in Annexes of Schedule III, or in any other form as thereto as possible. Any losses/surpluses arising as a result of physical verification of inventories and adjustments thereof shall be clearly indicated in the cost records.

(d)       Record of purchase/supply contracts entered into with local and foreign suppliers as the case may be shall be maintained showing the rate at which various quantities of materials are to be acquired. The records shall indicate principal features of each contract particularly conditions relating to quantity, quality and, in case of catalysts showing their life, and in case of chemicals their strength and technical contents, price, period of delivery, discount for transit loss and terms of payment including cash discounts.

(e)        Any abnormal wastage of material whether in transit, storage or for any other reason, shall be recorded separately indicating the stage at which such losses occur and reasons thereof. Method of dealing with such losses in the calculation of cost shall be indicated in the records. Normal wastages will be absorbed by the remaining material itself.

(f)        Realizable value of any waste material, by-product or intermediary product recovered or sale proceeds of any process material or intermediary product shall be credited to the cost of such process to arrive at the net cost of that particular process and finally that of the fertilizer produced.

(g)        If the quantity and value of materials consumed in a company are determined on a basis other than actual, the method adopted shall be mentioned in cost records and it shall be followed consistently. The overall reconciliation of such quantities and values of materials with the actual shall be made at least quarterly during the financial year explaining the reasons for variances. The treatment of such variances in determining the cost of items referred to in Paragraph 3 shall be indicated in the cost records.

(h)        The records shall be maintained in such detail as may enable the company to readily provide data as required in the various Cost Statements prescribed in this Order in a verifiable state.

(2)        Catalysts, Other Chemicals, Consumable Stores/Spares, etc:–

(a)        Adequate record of each item of catalysts, chemicals, consumable stores/spares shall be maintained to show receipts, issues and balances, both in quantities and, values, required for production of chemical fertilizer and/or actually used for the relevant cost centers.

(b)        Cost of catalysts, chemicals, consumable stores and spare parts shall include all direct charges incidental to procurement of each item upto the factory. The cost of such chemicals, stores/spares etc. consumed shall be charged to relevant cost centers on the basis of actual consumption as recorded in the Cost Statements. The items issued for capital expenditure, viz. as additions to plant and machinery shall be shown under relevant heads and not in the cost statements of chemical fertilizer.

(c)        The basis of valuation of receipt and consumption of each item shall be indicated in the cost records and shall be consistently followed.

(d)       Wastage of chemicals, consumable stores, spares whether in transit, storage or at any other point shall be quantified and shown separately. Method of dealing with such losses in costing shall also be indicated in the cost records.


(a)        Adequate record shall be maintained to show the attendance of workers employed by the company whether on regular, temporary, or on contract basis, as the case may be. Proper record shall also be maintained in respect of payment made for overtime work and production incentives whether in the shape of production bonus or incentives based on out-put given to the workers, Payment of any retirement benefits including pension, provident fund, gratuity, old age benefits and any welfare expenses shall also be included in the labour or factory overhead cost of beneficiary cost center/department. This will be done in a manner that labour cost is available for each cost center or department and for each product whether intermediary, by-product or main product so that different Cost Statements are filled properly and easily. Idle time shall be recorded separately, cost center-wise as far as possible showing reasons for idle time. The method adopted for accounting of idle time payment in determining cost of each product shall be disclosed in the cost records.

(b)        Fair and reasonable allocation shall be made for wages paid to such direct labour as has been utilized in more than one departments, between the various departments or cost centers and the basis of such allocation shall be consistently followed. Idle time or lay-off payments shall be recorded separately indicating the reasons and the method of treatment in the calculation of the cost of the items referred to in Paragraph 2. Any wages paid for additions to plant and machinery or other capitalized assets, shall be capitalized and excluded from the cost statements of chemical fertilizer.


(a)        Adequate records shall be maintained showing the quantity and cost of various utilities and services both purchased and produced as detailed below and consumed and utilized by different cost centers:–

            (i)         Power

            (ii)        Steam

            (iii)       De-mineralised Water

            (iv)       Compressed Air

            (v)        Others (to be specified)

(b)        The records shall be maintained so as to enable assessment of consumption or utilization of services by different departments, cost centers or manufacturing units. Allocation of cost of utilization shall be on the basis of actual consumption, if possible, or on the basis of technical estimates in the absence of actual measurement. In the case of fixed charges or fuel adjustment surcharge for electricity claimed by the utility company, irrespective of the actual power consumed and if the amount payable as per actual consumption falls below the contractual minimum, the difference between the contractual minimum and the actual amount shall be treated as fixed or period cost and transferred to relevant Cost Statement. Cost of service including power and gas consumed in and chargeable to non-manufacturing departments, if significant, shall be shown separately.

            Note.—In case of self generation quantity and reasons for underutilization shall be specified and the relevant cost should be treated as fixed/period cost. In ease of natural gas separate records shall be maintained for use of gas as direct material and use of gas in utility services or for supply to housing colonies, if any.


Adequate records showing expenditure incurred on workshop facilities for repairs and maintenance of plant and machinery in different departments and cost centers shall be maintained on permanent basis. Details of cost determination and the basis of allocation of repairs and maintenance expenditure to different departments or manufacturing units or cost centers shall be indicated. Cost of work of capital nature, of heavy repairs, and overhaul cost, benefit of which is likely to be spread over a period longer than one financial year, shall be shown separately. If a separate maintenance team is working for a particular department the salaries, wages, cost of consumables, spares and tools should be charged as direct expense of that department. If the maintenance services are utilized for other products, the portion utilized for them shall be segregated and charged thereto.


(a)        Adequate records shall be maintained showing values and other particulars of fixed assets in respect of which depreciation is to be provided. The records shall inter-alia indicate the cost of each item of asset, the date of its acquisition, accumulated depreciation, the rate of depreciation and the depreciation charge, for the relevant period.

(b)        Basis on which depreciation is calculated and allocated to the various departments and products shall be clearly indicated in the records.


(a)        Record shall be maintained showing insurance premium paid for the various risks covered on the assets and other interests of the company.

(b)        Method of allocating insurance cost to the various cost centers shall be indicated in the cost records and followed consistently.


Adequate record including technical agreements shall be maintained in respect of fee paid to the collaborators or technology suppliers on recurring or non-recurring basis, party-wise. The basis of charging such amounts to the beneficiating formulations shall be indicated in the cost records.


Adequate records showing the amounts comprising the manufacturing overhead expenses other than those already mentioned and details of apportionment thereof to the various departments or processes or cost centers, shall be maintained. The factory overheads shall include, among other items, indirect labour cost along with share of labour related cost such as fringe benefits, other labour and staff welfare expenses, and establishment expenses of manufacturing of items referred to in Paragraph 2. If products other than chemical fertilizers including salable by-products are also being produced in the factory, adequate bases should be developed to apportion the overhead cost equitably.


In case certain chemical fertilizers require periodic checks by the quality control department, as to the chemical strength conforming to standards laid down by the Government or industry, necessary records shall be maintained so that the expenses incurred on the quality control department are collected and charged to the different products. Adequate records shall be maintained of rejected fertilizers, intermediary products and by-products. Expenses incurred on quality control built-in within a certain department shall be charged as direct departmental expense.


When more than one product arises from a process, the cost shall be allocated to the different products on some reasonable basis which shall be consistently applied during the relevant period. The basis on which such joint costs are allocated to the different products arising from a process shall be indicated in the cost records.


The costs incurred in an intermediary process will be transferred proportionate to the quantity transferred to the next process.


The method of valuation of work-in-process and the finished goods inventories shall be indicated in the cost records so as to reveal the cost elements which have been taken into account in such computation. The cost elements shall be related to the items referred to in the relevant Cost Statement. The costing method adopted shall be consistently followed. Treatment of differences, if any, on physical verification of stocks with book balances, shall also be indicated in the cost records.


Adequate records shall be maintained showing all the receipts, issues and balances both in quantities and cost of various packing materials such as strips, ampoules, vials, bottles, cartons, boxes, labels, and literature for each item separately. Adequate records shall also be maintained for wages and other expenses incurred in respect of different size of packs adopted for marketing of formulations separately. The details of various packing materials actually used and spoiled shall be maintained in respect of each formulation. Where any formulation is repacked due to defective packing, details of such repacking for each pack shall be determined if repacking cost is significant. In case any packing materials are produced by the company, proper record showing the cost and manufacture of such items shall be maintained. In case of export packing, separate records and additional packing cost shall be maintained.


Detailed and adequate cost statements shall be prepared for each type of fertilizer product, intermediary product and by-product separately, as required vide Annexure III.


(a)        When the company maintains cost records on any basis other than actual, such as standard costing, the records shall indicate the procedure followed by the company in working out the actual cost of product under such system. The method followed for adjusting the cost variances in determining the actual cost of the product shall be indicated clearly in the cost records. The cost variances shall be shown against the relevant heads in the respective Cost Statement.

(b)        The reasons for variances in respect of materials shall inter-alia be furnished separately for major materials. Variance analysis shall be made quarterly during the financial year and also at the year-end. The reasons for variances shall be given in the cost records.


Administrative expenses may be split up on the basis of total factory cost of each salable product and/or cost of imported fertilizers if sold by the company or any other basis adopted by the company. Such basis shall be clearly indicated in the cost records.


(a)        Selling and distribution expenses in respect of fertilizer shall be apportioned to different final products and salable by-products and Intermediary-products on the basis of sales revenue or some other equitable basis which shall be indicated in the cost records and shall be followed consistently.

(b)        If imported fertilizers are also sold by the Company, selling expenses shall be allocated on the basis of sales revenue or any other acceptable basis that the company may adopt. However, the basis of allocation shall be consistently followed.


Companies may develop appropriate standards for use as a basis to evaluate performance. Alternately formats/procedures adopted by the industry in general should be maintained.


(a)        The cost records shall be periodically reconciled with the financial accounts to ensure accuracy if integrated accounts are not maintained. Variations, if any, shall be clearly indicated and explained.

(b)        The reconciliation shall be done in such a manner that the profitability of the different products, as per cost statements, is correctly judged and reconciled with the overall profits of the company from all of its activities.

(c)        Adequate cost records shall be maintained in a manner that the cost statements can be compiled.

See the Schedules in Gazette of Pakistan at pages 2994-3002