13th February, 2001
No. S.R.O.97(1)/2001, dated 13th February, 2001.-In exercise of the powers conferred by clause (e) of sub-section (1) of section 230 of the Companies Ordinance, 1984 (XLVII of 1984), and clause (o) of sub-section (4) of section 20 of the Securities and Exchange Commission Act, 1997 (XLII of 1997), the Securities and Exchange Commission of Pakistan is pleased to make the following Order, namely:-

1. Short title, application and commencement.-(1) This Order may be called the Sugar Industry (Cost Accounting Records) Order, 2001,

(2) This Order shall apply to every company engaged in production of sugar in any form except liquid sugar.

(3) It shall come into force at once.

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 Schedules I, II and III to this Order.

(2) The cost accounting records referred to sub-para (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 white sugar separately during a financial year.

(3) Where a company is manufacturing any other product in addition to sugar, the particulars relating to the utilization of materials, labour and other items of cost in so far as they are applicable to such other product, shall not be included in the cost of sugar.

(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-paragraphs (1) to (3), in the same manner as they are liable to maintain books, of financial accounts required under section 230 of the said Ordinance.

3. Penalty.-If a company contravenes the provisions of this Order, such company and every officer thereof referred to in sub-paragraph (4) of paragraph 2, shall be punishable under sub-section (7) of section 230 of the Companies Ordinance, 1984 (XLVII of 1984).

SCHEDULE I
See paragraph 2(1)

I. Material

(i) Direct material.-

(a) Adequate records shall be maintained showing separately the quantity and cost of sugar-cane procured at the factory gate or other collection centres. Where sugar cane is grown in farms owned or taken on lease by a company, detailed records shall be maintained in a suitable proforma so as to enable computation of the cost of such sugar cane. The rate fixed by the Government from year to year adopted for pricing the sugar cane supplied by the sugar mill cane growers to the sugar mill shall be indicated in the cost records.
(b) Where beet is used as raw material for the production of sugar, separate records shall be maintained on the lines similar to sugar-cane.
(c) A separate proforma shall be maintained to record sugar-cane and beet procurement expenses along with other rotated expenses. These expenses shall be separately determined.
(d) All issues of material shall be reconciled with figures shown in Annexures to Schedule III to this order, or in any other form as near thereto as possible. Any losses or surpluses arising as a result of physical verification of inventories and adjustments thereof shall be clearly indicated in the cost records.
(e) Record of purchase and supply through indent by suppliers shall be maintained showing the rates at which the various quantities of material are to be acquired. The records shall indicate principal features of each indent particularly conditions relating to quantity, quality, price, period of delivery and discounts.
(f) If the quantity and value of material consumed in a company are determined on any basis other than actuals for example at standards, the method adopted shall be mentioned in cost records and followed consistently. The over-all reconciliation of such quantities and values of material with the actuals shall be made at the end of the financial year explaining the reasons for variances. The treatment of such variances in determining the cost of items referred to in para 2 shall be indicated in the cost records.
(g) the records shall be maintained in such detail as may enable the company to readily provide data required in the various Annexures to Schedule III, to this Order in a verifiable state.

(ii) Process material:
Adequate records shall be maintained to show the receipts, issues and balances, both in quantities and costs of each item of the process material such as lime, sulphur, super phosphate, caustic soda, filter cloth and other chemicals. The cost shall include all direct charges up to works, wherever specifically incurred. The issues of material shall properly be identified with the departments or cost centres.

(iii) Consumable stores, small tools, machinery spares, etc:

(a) Adequate records shall be maintained to show the receipts, issues and balances, both in quantities and cost of each item of consumable stores, small tools and machinery spares. The costs shown shall include the direct charges up to works, wherever specifically incurred.
(b) In case of small tools, the costs of which are insignificant, the company may maintain such records for the main groups of such items.
(c) The cost of issues of consumable stores, small tools and machinery spares, shall be charged to the relevant heads of accounts such as repairs to plant and machinery, or repairs to building. Material consumed on capital works such as addition to buildings, plant and machinery and other assets shall be shown under the relevant capital heads.

(iv) Wastages, spoilages, rejections or losses, etc:
Adequate records shall be maintained showing the quantity and cost of wastages, spoilages, rejections and losses of sugar-cane and other raw material, process material, consumable stores, small tools and machinery spares, whether in transit, storage, or for any other reasons. The method followed for adjusting the above losses as well as the income derived from the disposal of scrap, if any, in determining the cost of the product shall be disclosed in such details as may enable the company to arrive at the net cost of white sugar produced.

II. EXCISE DUTY AND SALES TAX
Adequate records of excise duty and sales tax paid and the rebate claimed or earned in case of allowance for excess production or export of sugar shall be maintained along with the record of white sugar manufactured. Calculation for rebate shall be worked out through formula prescribed by the Government. The working of the adjustment or claim, if any, shall also be shown.

III. SALARIES AND WAGES

(a) Adequate record shall be maintained to show the attendance of workers employed by the company whether on regular, seasonal, 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 contribution and any welfare expenses shall also be included in the labour or factory overhead cost of beneficiary cost center or department. This will be done in a manner that labour cost is available for each cost center or department and for each product whether by-product or main product so that different Annexures of Schedule III to this Order, are filled properly and easily.

(b) Fair and reasonable allocation shall be made for wages paid to such direct labour as has been utilized in more than one department, between the various 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 cost of the items referred to in para 2. Any wages paid for additions to plant and machinery or other capitalized assets, shall be capitalized and excluded from the cost statements of white sugar produced.

(c) Benefits paid to the employees other than covered in clause (a) above shall be worked out separately and shown in the cost statement department-wise.

IV. SERVICE/DEPARTMENTS

Adequate records shall be maintained to indicate the expenses incurred for each services department or cost centre. In the case of multi-product companies, these expenses shall be apportioned to other service and production departments on an equitable basis. Where these service departments serve products other than white bagged sugar, suitable basis shall be worked out so that the share apportioned to white bagged sugar is worked out and applied consistently.

V. UTILITIES

(i) Steam.-Adequate records showing the quantity and cost of steam raised and consumed shall be maintained in such detail as may enable the company to fill up the necessary particulars in Annexure 7 to Schedule II to this Order. The cost of steam consumed by the sugar mill and other units of the company shall be calculated on a reasonable basis and applied consistently. The cost of steam should be allocated to electric power house, white bagged sugar and other users including staff colony and office building, etc. Basis adopted for valuation of steam at different pressures shall also be indicated in the records.

(ii) Electric Power.-Adequate record of cost of electric power generated by the company and purchased shall be kept in such details as may enable the company to furnish the necessary cost data as in Annexure 8 to Schedule III to this Order. The records shall be so maintained as to enable assessment of consumption of power by different departments or production units or cost centres. Allocation of 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 separate meters. In the case of fixed charges or fuel adjustment surcharge claimed by the utility company, irrespective of the actual power consumed and if the amount payable as per actual consumptions 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 other factory expenses statement [Annexure 9 of Schedule III]. Cost of power consumed in and chargeable to non-production departments, if significant, shall be shown separately. Record shall also be kept for any electric power sold to out-side agencies.
Note.-In case of self generation, quantity and reasons for under utilization shall be specified and the relevant cost shall be treated as fixed or period cost.

VI. REPAIRS AND MAINTENANCE

Adequate records showing the expenditure incurred on workshop facilities for repairs and maintenance of buildings, civil works, offices and plant and machinery in different departments and cost centres shall be maintained on regular basis. Details of costs incurred and the basis of allocation of repairs and maintenance expenditure to different departments or production units shall be indicated. Cost of work of capital nature, heavy repairs and overhaul cost, benefit of which is likely to spread over a period longer than the 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 shall 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.

VII. DEPRECIATION

(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.

(c) Amount of depreciation chargeable to different departments, production units or cost centres, for the financial year shall be in accordance with the provisions of clause (F) of Part III 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.

VIII. INSURANCE

(a) The record shall be maintained showing the insurance premia paid for the various risks covered on the assets and other into rests of the company.

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

IX. OTHER OVERHEADS

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 shall be maintained. If products other than white bagged sugar are, also being produced in the factory, adequate basis shall be developed to apportion the overhead cost equitably.

X. BY-PRODUCTS

Detailed records shall be maintained for each item of by-product showing the production, disposal and balance both in quantity and value. The basis adopted for valuation of the by-products shall be equitable and consistent. Records indicating the actual sales realization of by-products shall also be maintained.

XI. WHITE SUGAR TRANSFERRED FOR SELF USE

Adequate records shall be maintained showing the quantity and cost of white sugar transferred to other unite of the company for self- consumption. The rate at which such transfers are affected shall be disclosed in the cost records.

XII. WORK-IN-PROCESS AND FINISHED GOODS STOCK

The method of valuation of work-in-process and finished goods stock shall be indicated in the cost records so as to reveal the cost elements that have been taken into account in such computation. The cost element shall relate to the items referred to in the relevant Annexures to Schedule III to this Order. 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.

XIII. ADJUSTMENT OF COST VARIANCE

Where the company maintains cost records on any basis other than actuals, such as standard costing, the records shall indicate the procedures followed by the company in working out the actual cost of the product under such systems. 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 reasons for the variances shall be indicated in detail in the cost records.

XIV. INTER-COMPANY TRANSACTIONS

In respect of supplies made or services rendered by the company to its holding company or a subsidiary or a company in the same group or company in which a director of the company is also a director in such companies and vice versa, records shall be maintained showing contracts entered into, agreements or understandings reached, in respect of –

(a) purchase and sale of raw material and process material;

(b) utilization of plant facilities;

(c) supply of utilities; and

(d) administrative, technical, managerial and other consultancy services.
These records shall indicate the basis followed to arrive at the rates charged between them so as to enable determination of the reasonableness of the rate charged or paid for such services.

XV. RECONCILIATION OF COST AND FINANCIAL ACCOUNTS

(a) If integrated accounts are not maintained, 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 a manner that the profitability of each product produced and sold 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 so that the cost statements may be properly compiled.

XVI. STATISTICAL RECORDS

(a) Data such as the duration of crushing period, the quantity of each grade of white sugar produced, mill stoppages during the season indicating the reasons, quantity of by-products obtained, percentage of sugar balance, baggasse, press-mud, molasses and sugars shall be kept in detail.

(b) The data maintained in the cost records shall be reconciled with the periodical returns submitted by the company to the excise and other authorities.

(c) Companies may develop an appropriate standard for use as a basis to evaluate performance properly.