Cost Accounting Standard 5

Cost Accounting Standard 5

COST ACCOUNTING STANDARD 
 ON DETERMINATION OF 
 AVERAGE (EQUALIZED) COST OF  TRANSPORTATION  
The following is the text of the Cost Accounting Standard 5 (CAS-5) issued by the Council 
of the Institute of Cost & Works Accountants of India on “Determination of  Average 
(Equalized) Cost of Transportation”. This standard deals with the determination of average 
transportation cost of a product.  In this standard  the standard portions  have been set in bold 
italic type. These are to be read in the context of the background material which has been set 
in the normal type. 
1. Introduction: 
1.1 The cost accounting principles for tracing/identifying an element of cost, its 
allocation/apportionment to a product or service are well established.  Transportation 
cost is an important element of cost for procurement of materials for production and  
for distribution of product for sale. Therefore, Cost Accounting Records should present 
transportation cost separately from the other cost of inward materials or cost of sales of 
finished goods. The  Finance Act 2003  also specifies the certification requirement of 
transportation cost  for claiming  deduction while arriving at the  assessable value of 
excisable goods cleared for home consumption/ export. There is a need to standardize 
the record keeping of expenses relating to transportation and computation of 
transportation cost. 
2.      Objective 
2.1 To bring uniformity in the application of principles and methods used in the 
determination of averaged/equalized transportation cost. 
2.2 To prescribe the system to be followed for maintenance of records  for collection of  
cost of transportation, its allocation/apportionment  to cost centres, locations or  
products.  
For example, transportation cost needs to be apportioned among excisable, exempted, 
non-excisable and other goods for arriving at the average of transportation cost of 
each class of goods. 
2.3 To provide transparency in the determination of cost of transportation. 
3.   Scope
3.1 This standard should  be applied for calculation of cost of transportation  required 
under any statute or regulations or for any other purpose.  For example, this standard 
can be used  for  : 
(a) determination of average transportation cost for claiming the deduction for 
arriving at the assessable value of excisable goods  
(b) Insurance claim valuation 
(c) Working out claim for freight subsidy under Fertilizer Industry Coordination 
Committee  (d) Administered price mechanism of freight cost element  
(e) Determination of  inward freight costs included or to be included in the cost of 
purchases attributable to the acquisition. 
(f) Computation of freight included in the value of  inventory for accounting on 
inventory or valuation of stock hypothecated with Banks / Financial Institution, 
etc. 
  
 4.   Definitions 
The following terms are used in this standard with the meaning specified : 
4.1 Cost of Transportation comprises of the cost of freight, cartage, transit insurance and 
cost  of operating fleet and other incidental charges whether incurred internally or 
paid to an outside agency for transportation of  goods but does not include detention 
and demurrage charges. 
    
Explanation : 
Cost of transportation is classified as inward transportation cost and  outward  
transportation Cost. 
4.2 Inward Transportation cost is the transportation expenses incurred in connection with 
materials /goods received at  factory or place  of use or sale/removal.  
4.3 Outward Transportation cost is the transportation expenses incurred in  connection 
with  the sale or delivery   of materials or goods  from factory or depot or any other 
place from where goods are sold /removed 
4.4 Freight is the charges paid or payable to an outside agency for transporting materials/ 
goods from one place to another place. 
4.5 Cartage is the expenses incurred for movement of goods covering short distance for 
further transportation for delivery to customer or storage. 
4.6 Transit insurance cost is the amount of premium to be paid to cover the risk of  loss 
/damage to the goods  in transit. 
4.7 Depot is the bounded premises /place  managed internally or by an agent, including 
consignment agent and C & F agent, franchisee  for  storing of  materials/goods for 
further dispatch including the premises of Consignment Agent and C&F Agent for the 
purpose . 
Depot includes warehouses, go-downs, storage yards, stock yards etc.
4.8 Equalized transportation cost means average transportation cost incurred during a 
specified period. 
4.9 Equalized freight  means average freight. 5. Maintenance of  records for ascertaining Transportation Cost 
5.1 Proper records shall be maintained for recording the actual  cost of transportation  
showing each element of cost such as  freight,  cartage, transit insurance and others 
after adjustment for recovery of transportation cost.  Abnormal costs relating to 
transportation, if any,  are to be identified and recorded for exclusion of 
computation of average transportation cost. 
5.2 In case of a manufacturer having his own transport  fleet, proper records shall be 
maintained to determine the actual operating cost of vehicles showing  details of  
various elements of cost, such as salaries and wages of driver, cleaners and others, 
cost of fuel, lubricant grease, amortized cost of tyres and  battery, repairs and 
maintenance,  depreciation of the vehicles, distance covered and trips made, goods 
hauled and transported to the depot. 
5.3 In case of hired transport charges incurred for despatch of goods, complete details 
shall be recorded as to date of despatch, type of transport used, description of the 
goods, destination of buyer, name of consignee, challan number,  quantity of goods 
in terms of weight or volume, distance involved, amount paid, etc. 
5.4 Records shall be maintained separately for inward and outward transportation cost 
specifying the details particulars of goods despatched,  name of supplier / recipient, 
amount of freight  etc. 
5.5 Separate records shall be maintained for identification of transportation cost 
towards inward movement of material (procurement) and transportation cost of 
outward movement of goods removed /sold  for both home consumption and export. 
5.6 Records for transportation cost from factory to depot and thereafter shall be 
maintained separately. 
5.7 Records for transportation cost for carrying any material / product to job-workers 
place and back should be maintained separately so as include the same in  the 
transaction value of the product. 
5.8 Records for transportation cost for goods involved exclusively for trading activities 
shall be maintained separately and the same will not be included for claiming any 
deduction for for calculating assessable value excisable goods cleared for home 
consumption. 
5.9 Records of transportation cost directly allocable to a particular category of products 
should be maintained separately so that allocation in appendix –3 can be made. 5.10 For common transportation cost,  both for own fleet or hired ones, proper records 
for basis of apportionment should be maintained. 
5.11 Records for transportation cost for exempted goods, excisable goods cleared for 
export  shall be maintained separately. 
5.12 Separate records of  cost for mode of transportation other than road like ship, air  
etc are to be maintained in appendix –2 which will  be included in total cost of 
transportation.   6.  Treatment of cost: 
6.1 Inward transportation costs shall form the part of  the cost of procurement of 
materials which are to be identified for proper allocation/ apportionment to the 
materials / products. 
6.2 Outward transportation cost shall form the part of  the cost of sale and shall be  
allocated / apportioned  to the materials and goods  on a suitable basis.   
Explanation : 
Outward transportation cost of a product from factory to depot or any location of sale 
shall be included in the cost of sale of the goods available for sale. 
6.3The following basis may be used, in order of priority, for apportionment of outward 
transportation cost depending upon the nature of products, unit of measurement 
followed and type of transport used : 
i) Weight  
ii) Volume of goods 
iii) Tonne-Km 
iv) Unit / Equivalent unit 
v) Value of goods  
vi) Percentage of usage of space  
Once a basis of apportionment is adopted , the same should be followed consistently.  
6.4 For determining the transportation cost per unit, distance shall be factored in to arrive 
at weighted average cost. 
6.5 Abnormal and non  recurring cost  shall not be a part of transportation cost. 
Explanation  
Penalty, detention charges, demurrage and  cost related to abnormal break down will 
not be included in transportation cost. 
   
7. Cost Sheet 
The cost sheets shall be prepared and presented in a form  as per Appendices 1,2 and 3 or 
as near thereto.  Appendix 1 and Appendix 2 show the details of information to be 
maintained for compilation of transport cost for own fleet and hired transportation charges 
respectively.  Appendix 1 is applicable where the organization is having its own fleet. 
The directly allocable cost of own fleet ( outward)   shall be identified against  different 
categories of products as shown in Appendix 3 and same shall be indicated there. 
Similarly, total common cost of own fleet ( outward) shall be apportioned to different 
categories of products as shown in Appendix 3 on a basis which should be specified. The 
basis of apportionment may be adopted depending on the nature of product as indicated in 
para 6.3. Similar approach shall  also be applied for hired outward transport charges. More columns may be required to be shown in Appendix 3 specifying different types of 
transactions. For example:  Sale on specific rate basis, sale of waste, scrap, return from 
customer,  goods sent for job work,  goods received after job work etc. 
Unit of Measurement (UM) may vary depending upon the nature of the product. For 
example, Number, MT, Meter, Litre etc. 
Proper records shall be maintained to show separately the Transportation Cost relating to 
sending of jobs to job contractors/convertors and receipt back of processed jobs/converted 
materials. 
An enterprise shall be required to maintain cost records and other books of account in a 
manner which would facilitate preparation and verification of cost of transportation  and 
other related charges and its apportioning to various products.  
8. Transaction value : 
‘Transaction value’ shall have the meaning assigned to it in Section 4 of The Central 
Excise Act, 1944 or Section 14 of The Customs Act , 1962 or as defined in any other Act  or 
Regulations as the case may be. 
9. The standard will be operative  from the date of issue. 
Finalized by CASB-WTO Committee on 20July2005 and circulated to the Council at its meeting on 21 July 2005  (1
st
draft was published in June 2002 journal)Appendix 1 
Name of the Manufacturer: 
Address of the Manufacturer: 
Statement of Operating Cost of own Fleet for the period……. 
Sl No  
A QUANTITATIVE INFORMATION 
A1 Number of Vehicles 
A2 Number of trips 
A3 Goods Transported – inward (UM)  
A4.  Goods transported – outward   (UM)  
A5. Goods transported – inward – Km  
A6.  Goods transported – outward – Km  
A7. Total Goods transported  inward – basis of apportionment ( Specify)  
A8. Total Goods transported  outward – basis of apportionment ( Specify)  
A9 Total ( A7+A8) 
B COST INFORMATION  (Rs) 
 Cost of Operation 
Variable Cost 
B1. Salaries & Wages of Drivers, Cleaners and others  
B2.  Fuel & Lubricants 
B3.   Consumables  
B4.   Amortized cost of Tyre, Tube & Battery  
B5.  Spares  
B6. Repair & Maintenance  
B7. Other Variable Cost ( specify) 
B8. Total Variable Cost ( B1 to B7) 
Fixed Cost 
B9. Insurance 
B10. Licence Fee, Permit Fee and Taxes 
B11. Depreciation 
B12. Other Fixed Costs ( Specify) 
B13. Total Fixed Cost  ( B9 to B12) 
B14. Total Operating Cost (B8+B13) 
C  APPORTIONMENT  ( Basis to be specified) - usage  
C1. Inward Transport Cost ( B14 *A7/ A9) 
C2. Outward Transport Cost (B14 *A8/A9) 
C3. Transit insurance for inward movement 
C4. Transit insurance for outward movement 
C5. Total transportation cost for inward movement (C1+C3)  
C6. Total transportation cost for outward movement (C2+C4)  
Note : 
1. Cost of Battery, and Tyres and Tubes shall to be amortised over its useful life. 
2. Asset Register shall be maintained for determination of depreciation and amortization cost.  
3. Separate Cost Sheet shall be prepared for different types of vehicles. Appendix 2 
Name of the Manufacturer: 
Address of the Manufacturer: 
Statement of Hired Outward Transportation Cost   for the period ending……. 
A Quantitative Information 
A1 Quantity of goods transported – outward  (UM) 
B COST INFORMATION )  (Rs) 
B1 Hired Transport Charges 
B2 Transit Insurance 
B3 Other ( specify) 
B4 Total  Transportation cost  ( B1 to B3) Name of the Manufacturer:             Appendix -3 
Address of the Manufacturer: 
Statement of apportionment of Outward Transportation Cost  to different goods and Determination of Averaged Outward Transport Cost  for the  period ending……. 
A Quantitative Information  Total Excisable goods Specific 
Rated 
goods 
Goods 
cleared for 
Export  
Exempted 
goods 
Goods 
Cleared  
on MRP 
Basis 
Goods 
cleared 
from 
factory to 
customer 
Goods 
cleared  
from 
Depot to 
Customer 
Others     
( specify) 
  Productgroup 1 
Product 
group 2 
Product  
group 3 
       
A1  Goods transported Outwards( UM  *)            
A2 Goods Transported  Outward ( KM)            
B Outward Transport Cost  ( Rs)             
B1 Directly allocated  own fleet  
transportation cost (Rs) 
           
B2 Basis of Apportionment  of own fleet 
cost       ( Specify) 
           
B3 Common own fleet  transport cost  to be 
apportioned   
           
B4 Directly allocated  hired transportation   
charges (Rs) 
           
B5 Basis of Apportionment of hired 
transportation cost  ( Specify) 
           
B6 Common hired transport charges  to be 
apportioned   
           
B7 Total Transport Cost  
 ( B1+ B3+B4+B6) 
           
B8 Averaged transport cost per unit   ( Rs) 
(B7/A1)   
           
   * UM is the Unit of measurement  
         Seal and signature of Company’s authorized  representative 
  
I /We, have verified above data and calculation in the appendix 1,  2 and  3  on test check basis with reference to the books of account, cost accounting records and other records. Based on the 
information and explanations given to me/us, and on the basis of generally accepted cost accounting principles and practices followed by the industry, I /We certify that the above cost data reflect 
true and fair view of averaged transport cost. 
Date  : 
Place  : 
                    Seal & Signature of Cost Accountant
Membership No.