Vegetable Ghee and Cooking Oil Companies (Cost Accounting Records) Order, 1990
1st November, 1990
In exercise of the powers conferred by Sections 230 and 506 of the Companies Ordinance, 1984 (XLVII of 1984), read with the Finance Division Notification No. S.R.O. 698(1)/86, dated the 2nd July, 1986, the Corporate Law Authority is pleased to make the following Order, the same having been previously published as required by the said section 506, namely:-
1. Short title, extent and commencement. — (1) This order may be called the Vegetable Ghee and Cooking Oil Companies (Cost Accounting Records) Order, 1990.
(2) It extends to the whole of Pakistan.
(3) It shall come into force on such date as the Corporate Law Authority may, by Notification in the official Gazette, appoint.
2. Application.–This Order shall apply to every company engaged production, processing or manufacturing of,–
(a) vegetable ghee, cooking oil, margarine bakery shortening and allied products; and
(b) in addition to vegetable ghee and cooking oil, any other product such as refined hard oil, margarine or any such product using the same plant or machinery, partly or fully.
3. 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 Schedules I and II to this Order.
(2) Where a company is manufacturing any other product in addition to those referred to in paragraph 2, 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 the products referred to in that paragraph.
(3) 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 the sales of each of the product referred to in paragraph 2 during a financial year.
(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 such-paragraphs (1) and (3) in the same manner as they are liable to maintain financial accounts required under Section 233 of the said Ordinance.
4. Penalty.–If a company contravenes the provisions of paragraph 3 the company and every officer thereof who is in default, including the person referred to in sub-paragraph (4) of paragraph 3, shall be punishable under sub-section (7) of Section 230 of the Companies Ordinance, 1984.
(See Paragraph (3))
I. Production material: (Raw edible oils, chemicals and vitamins) (a) Record of each item of production material in stock, required or actually used for producing, processing or manufacturing any of the products referred to in paragraph 2 shall he maintained. It shall show the quantity and cost of every receipt and issue made from the stock. All issues and production materials shall be reconciled with the figure shown in proforma ‘B’ of Schedule II, or in any form as near thereto as possible. Any losses/surpluses arising as a result of physical verification of inventories and adjustment thereof shall be clearly indicated in the cost records.
(b) Record of purchase/supply contracts entered into/with local and foreign suppliers will be maintained showing the rate at which the various quantities of materials are to be purchased. They record shall indicate principal features of each contract, particularly, conditions relating to the quality, price and period of delivery, discount for transit loss and terms of payment including cash discounts, if any, and compensation, the supplier shall pay for delay in delivery and non-delivery. The records shall also show the deliveries received against each contract of material supply. The supply contracts shall also indicate the conditions relating to rebate for quality variations of FFA (fee fatty acids), colour and moisture in case of raw edible oils; and in case of other materials usual quality standards shall be specified in the supply contracts for the purpose of rebates.
(c) Where arrangements exist for production of any of the production materials by the facilities owned by the company, separate records showing the cost of manufacture of such materials indicating the break-up of raw materials consumed and conversion cost shall be maintained the records shall also indicate the basis which such materials are priced for transfer to the manufacture or processing of vegetable ghee/cooking oil.
(d) The cost, in addition to the basic price of the materials shown in the records shall also include all other direct charges incidental to the procurement of production materials upto the works.
(e) Any abnormal wastage of material whether in transit, storage of for any other reasons, shall be recorded separately indicating the stage at which such losses occur. 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) Difference between the quantity of raw edible oils introduced into the process and the yield obtained, commonly referred to as the process loss’ or ‘refining loss’, includes waste materials (by products) called ‘visible loss’ which is part of TEM (total fatty matter) and a small quantity of ‘invisible loss’. Realisable value of the by-products, extracted from the oil, shall be credited to the cost of oil.
(g) Realisable value of the used chemicals recovered shall be credited to the cost of such materials to arrive at the net cost of chemicals consumption.
(h) By-products, such as oxygen or carbon-dioxide and nitrogen, as the case may be, obtained from the generation of hydrogen, by different process, shall also be credited to the respective process cost centres to determine the net cost of hydrogen available for use.
(i) the records shall be maintained in such details as may enable the company to compile the cost data in Annexures A-1 and A-2 of proforma ‘A’ of Schedule II or in any form as near thereto as practicable.
II. Direct Labour: (a) Adequate Record shall be maintained to show the attendance of workers employed by the company whether on regular, temporary, or piece-rate basis or on contractual basis. Proper record shall also be maintained in respect of payment made for overtime work and other production incentives given to the workers and payments to any contractor for the work performed.
(b) Fair and reasonable allocation shall be made for wages paid to such indirect labour as has been utilized in more than one department, between the various manufacturing departments or cost centres 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 cot of the items referred to in paragraph 2. Any wages being expenditure on additions to plant, machinery or other fixed assets shall be allocated to the relevant capital heads in the accounts.
(c) In case of wages and salaries being allocated on a basis other than actual, reconciliation of wages and salaries to the actuals and the treatment of variances, if any, in determining the cost of the products shall also be indicated in the cost records.
III. Steam: (a) Adequate records shall be maintained to ascertain the cost of steam produced and charged to different processes. The cost of steam may be determined on an estimated basis if it is not possible to determine the actual cost. In case the cost of steam is allocated to different processes on any basis other than actual cost, reconciliation of the actual cost of steam produced and the treatment of variances, if any, in determining the cost of items referred to in Paragraph 2, shall be indicated in the cost records.
(b) The record shall be maintained in such details as may enable the company to compile the cost date in Annexure A-3 of proforma ‘A’ of Schedule II or in any form as near thereto as practicable.
IV. Hydrogen: Adequate records shall be maintained to ascertain the cost of hydrogen produced and charged to vegetable ghee and cooking oil production as well as that sold.
V. Water: Appropriate record shall be maintained to determined the cost of water used by the company. The expenditure on water shall be allocated to boiler house and oil processing on estimated basis which shall be used consistently from year to year and indicated in the cost records.
VI. Electric Power: (a) Adequate records, showing quantity and cost of electric power purchased, with fixed charges and duties incurred thereon, shall be maintained. The cost of electric power shall be kept separately for each item. The consumption shall be calculated on a reasonable basis and applied consistently.
(b) Where electric power is generated by the company itself or by its wholly owned subsidiary, separate records, shall be maintained in such details as may enable the company to compile cost date in Annexure A-4 or proforma ‘A’ of Schedule II or in any form as near thereto as practicable.
(c) The records shall be so maintained as to enable the assessment of consumption of power by the different departments or manufacturing units or cost centres. Allocation of the cost of electric power shall be on the basis of actual consumption, if separate meters are installed or on the basis of technical estimates in the absence of metes. In the case of fixed charges or fuel adjustment surcharges claimed by KESC or WAPDA; irrespective of the actual powers 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/period cost and treated accordingly. Cost of power consumed in and chargeable to non-manufacturing departments, if significant, shall be shown separately.
VII. Consumable Stores. (a) Record of each item of consumable stores shall be maintained to show the receipts, issues and balances, both in quantities and values, required or actually used for the manufacture of items referred to in paragraph 2.
(b) Cost of consumable stores shall include all direct charges incidental to procurement of each item upto works, the cost of such stores consumed shall be charged to relevant cost centres on the basis of actual consumption. The items issued for capital expenditures, such as additions to plant and machinery, shall be shown under relevant heads.
(c) Wastage of consumable stores, whether in transmit, storage or at any point, shall be qualified and shown separately. Method or dealing with such losses in costing shall also be indicated in the cost records.
VIII. Repairs and maintenance: Adequate records showing expenditure incurred on workshop facilities for repairs and maintenance of plant and machinery shall be maintained. Details or cost determination and their basis of allocation of repairs and maintenance expenditure to different departments or manufacturing units of cost centres shall be indicated. Cost of works of capital nature of heavy repairs and maintenance cost, benefit or which is likely to be spread over a period longer than one financial year, shall be shown separately.
IX. Packing: (a) Adequate records shall be maintained showing the cost of packing materials and direct wages and other expenses incurred in respect of different items packed. Where such expenses are not capable of being charged directly against individual items, basis of appointing he expenses shall be clearly indicated in the cost records and applied consistently.
(b) where the tin containers are fabricated by the company itself or wholly or partly fabricated by the outside in Fabrications for the company or wholly or partly manufactured in tin Containers are purchased from the market, separate record shall be maintained for each lot of tin containers under each category.
(c) In care the tin containers are wholly or partly manufactured/ fabricated by the company itself the records shall be maintained in such details as may enable the company to compile the cost date in the form of Annexure A.5 of proforma ‘A’ of Schedule II.
X. Chilling. Appropriate record of cost incurred in connection with refrigeration facilities provided for chilling of items referred to in paragraph 2 shall be maintained in sufficient details as may enable the company to compile the cost data in Annexure A.6 of proforma ‘A’ of Schedule II.
XI. Depreciation. (a) Adequate records shall be maintained showing values and other particulars of the fixed assets in respect of which depreciation is to be provided. The records shall inter alias indicate the cost of each item of asset, the date of its acquisition and the rate of depiction.
(b) Basis on which description is calculated and allocated to the various departments and products shall be clearly indicated in the records.
(c) Amount of description chargeable to the different departments, manufacturing units or cost centres, for the financial year shall be in accordance with the provisions of clause ‘F’ of Part II of the Fourth Schedule to the Companies Ordinance, 1984 and shall relate to the plant and machinery and other fixed assets utilized in such departments or units or cost centres. The method once adopted shall be applied consistently.
XII. Insurance. (a) Record shall be maintained showing the insurance premia paid for the various risks covered on the assets and other interests other company.
(b) Method of allocating insurance cost to the various cost centres shall be indicated in the cost records and followed consistently.
XIII. Other fixed overheads: Adequate records showing the amounts comprising the manufacturing overhead expenses and details of apportionment thereof to the various departments or manufacturing units or cost centres, shall be maintained, the factory overheads shall include among other items, indict labour cost alongwith its share of labour related costs such as fringe benefits, other labour and staff welfare expenses, and establishment expenses of manufacturing of items referred to in paragraph 2.
XIV. Administration, selling and distribution: Adequate records shall be maintained showing the items comprising administration, selling and distribution expenses and apportionment thereof to the different products and the basis of allocation of overhead cost shall be indicated in the records.
XV. By-product: Adequate records shall be maintained showing the quantity of by-products obtained and the basis of pricing adopted for giving credit thereof to the main product. Any subsequent use of the by-products, such as soap stock being converted into laundry soap, and other products like glycerin, etc., shall also be recorded and reconciled.
XVI. Work-in-process and finished goods inventories. Records of work-in-process inventories at each materials stage of process and finished goods inventories, physically checked and verified at the close of the financial period, duly reconciled with the books of accounts, shall be maintained. 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 proforma ‘A’ of Schedule II. The method adopted shall be consistently followed, Treatment of difference, if any, on physical verification of stocks with book balances, shall also be indicated in the records.
XVII. Statistical statements and other records. (a) Statistical statements and other records such as yield statement. TFM (total fatty matter), recovery and other by-products statement details relating to chemical and energy consumption, tinplate yield and scrap records and relevant data shall be maintained in such details as many enable the company to comply with the requirements of this Schedule and Schedule II and to enable the cost auditor to report and perform his duties under Section 258 of the Companies Ordinance, 1984.
(b) Companies may develop appropriate standards for use as a basis to evaluate performance properly.
XVIII. Reconciliation of cost and financial accounts. (a) The cost records shall be periodically reconciled with the financial accounts to ensure accuracy. Variations, if any, shall be clearly indicated and explained.
(b) The reconciliation shall be done in such manner that the profitability of the products, as per cost statements, is correctly judged and reconciled with the overall profits of the company from all its activities.
(c) Adequate cost records shall be maintained in a manner so that the cost statements as required in Schedule II (proforma ‘A’ and annexures) can be complied and the cost auditor is able to verify the statements with the records.