COST ACCOUNTING STANDARD-7 EMPLOYEE COST

 COST ACCOUNTING STANDARD-7 EMPLOYEE COST

1. Introduction:

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

2. Objective:

The objective of CAS-7 is to bring uniformity and consistency in the principles and methods of determining the employee cost with reasonable accuracy.

3. Scope: 

This standard should be applied to cost statements which require classification measurement, assignment, presentation and disclosure of employee costs including those requiring attestation. 4. Important Definitions in CAS-7: The following terms are being used in this standard with the meaning specified. 

1] Abnormal Cost: 

An unusual cost which does not occur regularly and is always unexpected due to some abnormal situation of the production or operation is known as abnormal cost. 

2] Abnormal Idle Time: 

An unusual occurrence which is irregular and unexpected or due to some abnormal situations is known as abnormal idle time. 

3] Administrative Overheads: 

It is the cost of all activities relating to general management and administration of an entity. 

4] Cost Object: 

It is an activity, contract, cost centre, customer, process, product, project service or any other object for which costs are ascertained. 

5] Direct Employee Cost: 

It is the employee cost, which can be attributed to a Cost object in economically feasible way. 

6] Distribution Overheads: 

Distribution overheads, also known as distribution costs. It is the cost incurred in handling a product or service from the time it is ready for dispatch delivery until it reaches the ultimate consumer including the units receiving the product service in an inter-unit transfer. The cost of any non-manufacturing operations such as packing, repacking, labelling, etc. at an intermediate storage location is the part of distribution cost. 

7] Employee Cost: 

Employee Benefits paid or payable in all forms of consideration give for the service rendered by employees is known as employee cost. It is explained as follows: 

1] Contract employees include employees directly engaged by the employer on contract basis but does not include employees of any contractor engaged in the organisation. 

2] Compensation paid to employees for the past period on account of any dispute /court orders shall not form part of Employee Cost. 

3] Short provisions of prior period made up in current period shall not form part of the employee cost in the current period. Employee cost includes payment made in cash or kind. Eg-Employee Cost Salaries, wages, allowances and bonus / incentives, Contribution to provident and other funds, Employee welfare etc. Employee Cost as future benefits includes Gratuity, Leave encashment, Voluntary retirement schemes, other retirement/separation benefits etc. The benefits include paid holidays, leave without pay, medical benefits, free or subsidized food, housing, education to children, conveyance leave travel etc.

8] Idle Time:

It is the time for which employees are paid for no work.

9] Indirect Employee Cost:

This is the cost which cannot be directly attributed to a particular cost object.

10] Marketing Overheads:

It comprises of selling and distribution overheads.

11] Overtime Amount:

This is the extra amount payable apart from the normal wages and salaries for the extra working hours.

12] Production Overheads:

It is the indirect cost involved in the production of a product or in rendering service.

13] Selling Overheads:

These are he expenses related to sale of products or services and includes all indirect expenses incurred in selling the products or services.

5. Principles of Measurement:

Employee cost shall be ascertained considering the gross pay including all allowances payable along with the cost of the employer for all the benefits provided. Bonus payable as a statutory

minimum or on a sharing of surplus shall be treated as part of employee cost. Remuneration payable to executive directors on the board and other officers of a corporate body under statute should be considered as employee cost. The cost of free or subsidized housing, education, conveyance, canteen, health and any other similar benefits should be treated as employee cost.

Employee cost should not include the imputed cost, penalty, damage paid to statutory authorities, abnormal cost etc.

6. Assignment of Costs: 

Where the Employee services are traceable to a cost object, such Employees cost shall be assigned to the cost object on the basis such as time consumed or number of employees engaged etc or similar identifiable measure. While determining whether a particular Employee cost is chargeable to a separate cost object, the principle of materiality shall be adhered to. Where the Employee costs are not directly traceable to the cost object, these may be assigned on suitable basis like estimates of time based on time study. Recruitment costs, training cost and other such costs shall be treated as overheads and dealt with accordingly. Overtime premium shall be assigned directly to the cost object or treated as overheads depending on the economic feasibility and the specific circumstance requiring such overtime. 7. Presentation This segment deals with the presentation of cost statements governed by the standard. Direct Employee costs shall be presented as a separate cost head in the cost statement. Employee costs shall be presented in cost statements as a part of overheads relating to respective functions eg manufacturing administration, marketing etc. The cost statement shall furnish the resources consumed on account of Employee cost, category wise such as wags salaries to permanent temporary, part time and contract employees piece rate payment, overtime payments etc.

8. Disclosures:

The following information should be disclosed in the cost statements dealing with the employee cost. The disclosures may be made in the body of cost statement or as a footnote or as a separate schedule.

• Employee cost attributable to capital works or jobs.
• Separation cost payable to employees.
• Abnormal costs.
• Penalties and damages excluded from employees cost.
• Employee cost incurred in foreign exchange.
• Any subsidy, grant, incentive reduced from employee cost.
• Any change in cost accounting principle and methods applied for the measurement and assignment of employee cost.