E3--E4 (Finance) E4...

25 March 2011 1

E3E3--E4 (Finance) E4 (Finance)

Cost Accounting

Records

For internal circulation of BSNL only

25 March 2011 2

WELCOME

• This is a presentation for the E3-E4 (Finance)

• Module for the Topic: Cost Accounting reocrds

• Eligibility: Those who have got the Upgradation from E3

to E4.

• This presentation is last updated on 15-3-2011.

• You can also visit the Digital library of BSNL to see this

topic.


25 March 2011 3

Accounting

• Is the process of identifying, measuring and

communicating economic information to permit

informed judgments and decisions by users of

the information.


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Cost Accounting - introduction

– Main Branches of Accounting :

• Financial Accounting

• Cost Accounting

• Management Accounting


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Financial Accounting

• Financial Accounting is the process of

recording, classifying, summarizing the

transactions of financial nature in a systematic

manner for interpreting the results thereof.


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Cost Accounting

• Cost Accounting is the process of recording

analyzing and classifying expenditure for the

purpose of ascertaining cost of product or

service , ascertainment of profitability,

operational planning and cost control.


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Management Accounting

• Management Accounting is the presentation of

Accounting information in such a way as to

assist the management in taking decisions and

creating policies.


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What is Cost ?

A cost is a sacrifice of resources.


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Cost Vs. Expense

Costs Balance Sheet Statement of Profit / Loss

Revenue

deduct ( - )

Period Expensing of

Capitalized Cost

Costs Expensed

As Incurred

= Operating Income

AssetsCapitalized

Costs

Non-capitalized

Costs


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Cost

Object

Direct

Cost

Indirect

Cost

Cost

Assignment

Cost Tracing

Cost Allocation

Cost Accounting

Cost

Accumulation

Materials /

Merchandise

Labour

Capital

Overhead


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Advantages of Cost Accounting

• Ascertainment of Cost

• Exact cost per unit

• Identification of Profitable and Non-profitable activities

• Contraction or elimination of less profitable and

expansion of profitable activities

• Determination of selling price

• Saves from loss due to injudicious fixation of prices


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• Calculation of tender price or quotation price

• Reliable basis for competitive quotation

• Comparison of costs

• Different periods, different volumes, different

departments

• Control of costs

• Material , labour, optimum utilisation of capacity


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• Planning and decision making.

• Manufacture or buy decision

• Selection of profitable product

• Operate or shut down decisions

• Selection of profitable method of production

• Pricing of the product.


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Costing methods

• TOOLS/ METHODS: There are several

methods like job costing, standard costing,

machine hour costing, margin costing etc.

• The method adopted in BSNL is activity based

costing (ABC).


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Cost Accounting Records

(Telecommunications) Rules, 2002

1. Short title and commencement :

• Effective from 2003-04 Cost Accounting Rules

have been extended to companies engaged in

Telecommunication activities also vide the

Ministry of Finance and Company Affairs

(Department of Company Affairs) notification

dated 8th October 2002


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2.Application :

• These rules shall apply to every company engaged in the

processing of any one or more of the telecommunication

activities.

� Basic Telephony – (a) Telephone access (b) local call (c)

STD (d) ISD

� Cellular mobile

� Telex

� Telegraphy

� Voice mail / Audiotex service


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• Internet operations including gateway service / E-mail

• Packet switched public data network

• Wireless in local loop service

• Public mobile radio trunk service

• Very small aperture terminal service

• Global mobile personnel communication services

• Leased circuits

• Internet ports

• National long distance operator

• Internet telephony

• Radio paging

• Any other telecom service for commercial use


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3. Maintenance of Cost Records:

• Company shall maintain on regular basis -

• Books of account relating to the utilisation of

materials, labour and other items of cost.

• Proformae

• It shall be completed within 90 days from the

close of financial year.


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Books of Accounts

• Assets

• Costs

• Materials and supplies

• Salaries and wages

• Service department expenses

• Utilities

• Repair and maintenance

• Royalty and technical know-how fees

• Research and development expenses

• Human resource development cost

• Interest and borrowing cost

• Expenses for interconnection

• overheads


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Books of Accounts

• Activity

• Statistical / technical records

• Captive consumption

• Reconciliation of cost and financial accounts

• Variance analysis

• Related party transactions


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4. Penalty:

• If a company contravenes the provisions of Rule 3, the

company and every officer thereof who is in default, shall

be punishable under Sec. 642(2) read with Sec. 209(5) &

209(7) of the Companies Act.


25 March 2011 22

Nodal authorities

• Nodal authority Activities

1. Corporate Office ILD, NLD

2. Data Networks internet including

gateway & e-mail,

Internet telephony

& internet ports

3. TCO Calcutta Telegraphs and

Telex

4. Territorial circles Basic services,

CMTS, WLL,

Circuits etc


25 March 2011 23

Support functions in BSNL

• Telecom Factory

• Telecom Stores

• Training Centers

• Quality Assurance circle

• Technical and Development Circle

• CPAO (ITI Bills)

• NCES

• IT Circle


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Service Products / Activities

• Basic Telephony

• National Long Distance Service

• International Long Distance Service

• Cellular Mobile Telephone Service

• Telex

• Telegraph

• WLL

• Leased Circuit

• Internet Services (Including Internet telephony, ports)

• PSPDN

• VSAT

• Value added Services


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Cost Centers

• Operation Cost Centers :

SSAs, Units of Metro Districts, Units of

Maintenance Regions, Units of Data Network

• Service Cost Centers :

Administrative Offices, Factories, Stores,

NCES, Training Centers, Project Organization /

REP / Task Force, Civil & Electrical Wings,

CPAO(ITI Bills), IT center T&D, QA, TCO etc.,


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Proformae

• A – Capital Cost

• B – Operation Cost

• C – I – Statistics

• C II – Service Cost

• D – Allocation of Cost and

Revenue


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Proforma Items of Cost Responsibility

A

B

C

D

Asset Register All Cost Centre

Operation Cost Operation cost Centres

Service Costs Service Cost Centres

Consolidation Operation Cost Centres

All Proforma

AtoDConsolidation Telecom Circles

Cost Accounting Records for BSNL


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Assets

Operation Cost Centres (OCC) Service Cost Centres(SCC)

Operation Assets(OA) Service Assets (SA)

Proforma- A

Asset Register Maintenance


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FILLING OF PROFORMA A

• Present asset register may be retained and

service product code from 1-12 & 99 may be

filled as the case may be against each item

• Use of each asset has to be critically

reviewed and exclusive asset and common

asset has to be identified

• Only operation assets should be allotted

service product code. No product code is

allotted to service assets.


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• Value of commonly used OA shall be posted with code

99 and it is then apportioned to one or more service

product in the ratio of total value of all exclusively posted

assets

• Value of SA in operation cost centre should not be

apportioned to different service products but the total

should be posted in a separate proforma A

• Assets belonging to Service cost centre need not be

apportioned into different service product


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• The depreciation of operation assets and service assets

calculated as companies act will be utilised for cost

accounting purpose

Depreciation on assets of

cost centres

proforma Treatment in cost

accounts

Operation assets B Depreciation

Service Assets in OCC B Administrative

overheads

Service Assets in SCC C Depreciation


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FILLING OF PROFORMA B

• Employee cost- all expenses booked in employee

remunerations schedule to be posted against respective

service product

• Utilities-power/fuel from respective administrative

expenses schedule

• Stores & spares- stores issued for maintenance against

respective product

• Repair and maintenance-employee wages on

maintenance), AMC & other direct expenses.

• Other direct expenses- all other expenses other than those

included in other sub heads


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FILLING OF PROFORMA B (CONT)

• RRT- RENT RATE AND TAXES.

• INSURANCE- INSURANCE PAID ON ASSETS

• ROYALTY & TECHNICAL KNOWHOW

• OTHER OVERHEADS

• ADMN OVERHEAD DEPRECIATION OF SERVICE

ASSET OF OP. COST CENTRE,

• INSURANCE

• GENL EXPENSES

• SUB TOTAL


25 March 2011 34

•

Depreciation – of operation cost centre from proforma "

A”

Licence fee – transferred from circle office. Other

charges- interconnection , port charges, leased linecharges, spectrum royalty, spectrum licence fee, DOT

charges, others.

Note:

Expenditures shown are to be first posted in column 3 of

proforma B from the schedules/account heads shownabove and then apportioned to respective service

products in the ratio of exclusive operation asset.


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PROFORMA C• Material cost

• Employee cost

• Utilities = power / fuel

• Repair & maintenance

• Depreciation-service asset depreciation.

• Other direct expenses,

• RRT

• Insurance,

• Royalty etc.

• Admn. Overhead

• Marketing expenses

• Interest etc.


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–-Proforma C for marketing expenses has to be maintained

separately.

-Commission/discount is to be treated as marketing

expenses.

- Marketing expenses at the circle to be apportioned to the

service products in the ratio of revenue of service

products.

PROFORMA C (CONTD)


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PROFORMA D

• To be maintained by SSAs

• Cost of operation from proforma B to be posted

against each service product.

• Cost of services from proforma C to be posted

in the ratio of asset value to each service

product.

• Marketing expenses also to be similarly posted

• Revenue information to be collected service

product wise and posted in respective columns.


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Proforma D (Cont)

• REVENUE:

• Income as per Financial Records- *****

• Income as per Cost Records *****

Difference …… A

Difference may be due to :

• 1. Income on sale of assets not included in Cost records

*****

• 2. Misc Income not included in Cost records *****

• 3. Other reasons if any (Pl. specify) *****

TOTAL B

“ A” SHOULD BE EQUAL TO “B”


25 March 2011 39

Proforma D (Cont)

• EXPENDITURE

• Expenditure as per financial records ****

• Expenditure as per cost records ****

• Difference A

• Difference may be due to

1.Loss on sale of assets not included in cost records ****

2. Loss due to theft and pilferage ****

3. Write off losses ****

4. Penalties if any paid ****

5. Others (please specify) ****

TOTAL B

“A” SHOULD BE EQUAL TO “B”


25 March 2011 40

Proforma D (cont)

• Margin against each product will be shown in

proforma D

• Cost per call

• Cost of per minute use

• Margin per call

• Margin per minute use

• Margin per direct exchange line etc., will also

be shown comparing with last year


25 March 2011 41

BSNL Policy & Procedure

• New Accounting Policy – No. 600-22/2002-03/CA dated 31-

03-2003 (Circular No. 20)

• Cost Accounting System – No.500-142/2003-CA-1/BSNL

dated 18-05-2004 (Circular No. 23)

• Cost Accounting Manual – Circular No. 23A dated 4-6-2004

• Appointment of Cost Accountant – No.500-142/2003/CA-

I/BSNL/ dated 04 -06-04


25 March 2011 42For internal circulation of BSNL only

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