CAS-8

COST ACCOUNTING STANDARD ON COST OF UTILITIES

The following is the COST ACCOUNTING STANDARD – 8 (CAS-8) issued by the Council of
The Institute of Cost Accountants of India on “COST OF UTILITIES”, for comments. In this
Standard, the standard portions have been set in bold italic type. This standard should be
read in the context of the background material which has been set in normal type.

1. Introduction
1.1 This standard deals with the principles and methods of determining the cost of utilities.
1.2 This standard deals with the principles and methods of classification,
measurement and assignment of cost of utilities, for determination of the cost
of product or service, and the presentation and disclosure in cost statements.

2. Objective
The objective of this standard is to bring uniformity and consistency in the
principles and methods of determining the cost of utilities with reasonable
accuracy.

3. Scope
3.1 This standard shall be applied to cost statements which require classification,
measurement, assignment, presentation and disclosure of cost of utilities
including those requiring attestation.
3.2 For determining the cost of production to arrive at an assessable value of
excisable utilities used for captive consumption, Cost Accounting Standard 4
on Cost of Production for Captive Consumption (CAS 4) shall apply.
3.3 This standard shall not be applicable to the organizations primarily engaged in
generation and sale of utilities.
3.4 This standard does not cover issues related to the ascertainment and treatment
of carbon credits, which shall be dealt with in a separate standard.

4. Definitions
The following terms are being used in this standard with the meaning specified.
4.1 Abnormal cost: An unusual or atypical cost whose occurrence is usually irregular
and unexpected and/ or due to some abnormal situation of the production or
operation.1

1
Adapted from CAS 1 paragraph 6.5.19
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4.2 Committed Cost: The cost of maintaining stand-by utilities shall be the committed
cost.
4.3 Cost Object: An activity, contract, cost centre, customer, process, product,
project, service or any other object for which costs are ascertained.
4.4 Imputed Costs: Notional cost, not involving cash outlay, computed for any
purpose.
4.5 Interest and Finance charges: Interest and Financing Charges are interest
and other costs incurred by an entity in connection with the financing
arrangements.
Examples are:
1. Interest and commitment charges on bank borrowings, other short term and
long term borrowings:
2. Financing Charges in respect of finance leases and other similar
arrangements: and
3. Exchange differences arising from foreign currency borrowings to the extent
they are regarded as an adjustment to the interest costs.
The terms Interest and financing charges, finance costs, and borrowing costs are
used interchangeably.
4.6 Normal capacity: Normal Capacity is the production achieved or achievable on
an average over a number of periods or seasons under normal circumstances
taking into account the loss of capacity resulting from planned maintenance.3
In case of any standby utility the normal capacity will be the same as actual production
of the utility.
The normal capacity of a utility meant for captive consumption would be based on the
normal capacity for the production facility of the end product of the consuming unit.
4.7 Standard Cost: A predetermined cost of a product or service based on technical
specifications and efficient operating conditions.
Standard costs are used as scale of reference to compare the actual costs with the
standard cost with a view to determine the variances, if any, and analyse the causes
of variances and take proper measure to control them. Standard costs are also used
for estimation.
4.8 Stand-by utilities: Any utility created as backup against any failure of the main
source of utilities.
4.9 Utilities: Significant inputs such as power, steam, water, compressed air and
the like which are used for manufacturing process but do not form part of the
final product.
2
Adapted from CIMA Terminology
3
Adapted from CAS 2 paragraph 4.4
 Cost of Utilities

5. Principles of measurement
5.1 Each type of utility shall be treated as a distinct cost object.
5.2 Cost of utilities purchased shall be measured at cost of purchase including
duties and taxes, transportation cost, insurance and other expenditure directly
attributable to procurement (net of trade discounts, rebates, taxes and duties
refundable or to be credited) that can be quantified with reasonable accuracy at
the time of acquisition.
5.3.1 Cost of self generated utilities for own consumption shall comprise direct
material cost, direct employee cost, direct expenses and factory overheads.
5.3.2 In case of Utilities generated for the purpose of inter unit transfers, the
distribution cost incurred for such transfers shall be added to the cost of utilities
determined as per paragraph 5.3.1.
5.3.3 Cost of Utilities generated for the inter company transfers shall comprise direct
material cost, direct employee cost, direct expenses, factory overheads,
distribution cost and share of administrative overheads.
5.3.4 Cost of Utilities generated for the sale to outside parties shall comprise direct
material cost, direct employee cost, direct expenses, factory overheads,
distribution cost, share of administrative overheads and marketing overheads.
The sale value of such utilities will also include the margin.
5.4 Finance costs incurred in connection with the utilities shall not form part of
cost of utilities.
5.5 The cost of utilities shall include the cost of distribution of such utilities.
The cost of distribution will consist of the cost of delivery of utilities up to the point of
consumption.
5.6 Cost of utilities shall not include imputed costs.
5.7 Where cost of utilities is accounted at standard cost, the price variances related
to utilities shall be treated as part of cost of utilities and the portion of usage
variances due to normal reasons shall be treated as part of cost of utilities.
Usage variances due to abnormal reasons shall be treated as part of abnormal
cost.
5.8 Any Subsidy/Grant/Incentive or any such payment received/receivable with
respect to any cost of utilities shall be reduced for ascertainment of the cost to
which such amounts are related.
 CAS - 8

5.9 The cost of production and distribution of utilities shall be determined based
on the normal capacity or actual capacity utilization whichever is higher and
unabsorbed cost, if any, shall be treated as abnormal cost4. Cost of a Stand-by
Utility shall include the committed costs of maintaining such a utility.
5.10 Any abnormal cost where it is material and quantifiable shall not form part of
the cost of utilities.
5.11 Penalties, damages paid to statutory authorities or other third parties shall not
form part of the cost of utilities.
5.12 Credits/recoveries relating to the utilities including cost of utilities provided to
outside parties, material and quantifiable, shall be deducted from the total cost
of utility to arrive at the net cost of utility.
5.13 Any change in the cost accounting principles applied for the measurement of
the cost of utilities should be made only if, it is required by law or for compliance
with the requirements of a cost accounting standard, or a change would result
in a more appropriate preparation or presentation of cost statements of an
organisation.

6. Assignment of costs
6.1 While assigning cost of utilities, traceability to a cost object in an economically
feasible manner shall be the guiding principle.
6.2 Where the cost of utilities is not directly traceable to cost object, it shall be
assigned on the most appropriate basis.
6.3 The most appropriate basis of distribution of cost of a utility to the departments
consuming services is to be derived from usage parameters.

7. Presentation
7.1 Utilities costs shall be presented as a separate cost head for each type of utility
in the cost statement, if material.
7.2 Where separate cost statements are prepared for utilities, cost of utilities shall
be classified as purchased or generated. Such statement shall also include cost
of utilities consumed along with quantitative information by individual consuming
units, inter unit transfers, inter company transfers and sale to outside parties
wherever applicable.

4
Adapted from paragraph 5.7 of CAS 3
 Cost of Utilities

8. Disclosures
8.1 The cost statements shall disclose the following:
1. The basis of distribution of Cost of Utility to the consuming centres.
2. The cost of purchase, production, distribution, marketing and price with
reference to sales to outside parties.
3. Where cost of utilities is disclosed at standard cost, the price and usage
variances.
4. The cost and price of Utility received from/supplied to related parties5.
5. The cost and price of Utility received from/supplied as inter unit transfers
and inter company transfers
6. Cost of utilities incurred in foreign exchange.
7. Any Subsidy/Grant/Incentive and any such payment reduced from Cost of
utilities.
8. Credits/recoveries relating to the Cost of utilities.
9. Any abnormal cost excluded from Cost of utilities.
10. Penalties and damages paid etc excluded from cost of utilities.
8.2 Any change in the cost accounting principles and methods applied for the
measurement and assignment of the Cost of utilities during the period covered
by the cost statement which has a material effect on the Cost of utilities. Where
the effect of such change is not ascertainable wholly or partly the fact shall be
indicated.
8.3 Disclosures shall be made only where material, significant and quantifiable.
8.4 Disclosures shall be made in the body of the Cost Statement or as a foot note or
as a separate schedule.

5
Related party as per the applicable legal requirements relating to the cost statement as on the date of the statement