1. Cost Records Maintenance Demystified: A Comprehensive Guide

    Maintaining cost records is a labyrinth of questions for accounting and compliance professionals. The intricacies involve turnover criteria, applicability, rule references, exemption limits, and the actual process of record maintenance. This guide aims to shed light on the applicability nuances and the step-by-step process of maintaining cost records, as per the guidelines set by the Companies Act.

    I. Cost Records Maintenance – Applicability Criteria

    According to Section 148 of the Companies Act, the Central Government has the authority to prescribe the maintenance of Cost Records for companies involved in producing goods or services. The Companies (Cost Records and Audit) Rules, 2014, issued by the Central Government, contain two tables: Table A for the Regulated Sector and Table B for the Non-Regulated Sector. If a company’s overall turnover from all products and services is Rs.35 Crores or more and it falls under the industries listed in these tables, cost records must be maintained.

    Exemption from Cost Records Maintenance: Companies classified as micro or small enterprises, as per the turnover criteria under section 7(9) of the Micro, Small and Medium Enterprises Development Act, 2006, are exempt.

    Applicability of Cost Records Maintenance (Know Yourself Exercise):

    1. Is the company producing goods or providing services listed in Table A or B?
    2. Is the company’s turnover Rs.35 Crore or more in the immediately preceding financial year?
    3. Is the company a micro or small enterprise as per the MSMED Act, 2006?

    If the answers to the first two questions are yes, and the answer to the third question is no, the provisions are applicable.

    II. How to Maintain Cost Records

    Rule 5 of Companies (Cost Records and Audit) Rules, 2014, addresses the maintenance of Cost Records. Key points include:

    • Every applicable company, along with its units and branches, must maintain Cost Records in Form CRA – 1.
    • Cost Records should be maintained regularly.
    • These records should provide the company with control over its operations and costs, offering necessary data.

    Meaning of Cost Records: As per Rule 2(e) of the rules, “Cost Records” refers to books of account related to the utilization of materials, labor, and other cost items applicable to the production of goods or provision of services, as provided in section 148 of the Companies Act.

    Format of Cost Records: CRA-1 doesn’t specify a format but outlines principles for different cost elements. It includes the costs to be included in the records, aiming to enable the preparation of Cost Sheets for each product.

    Format of Cost Sheet: The format is provided in the rules, covering items such as materials consumed, utilities, direct employee cost, direct expenses, and more.

    Meaning of Utilities: In a manufacturing company, utilities like power, water, steam, etc., are consumed. The cost sheet for each produced utility should be prepared.

    Profit Reconciliation: Profit as per Cost Records might differ from profit as per financials due to various reasons. A reconciliation is crucial, considering income and expenses not considered in costing.


    Maintaining Cost Records isn’t just a statutory requirement; it’s a strategic tool for cost reduction and resource optimization. This adherence not only ensures legal compliance but also fosters efficient financial management. Understanding and implementing Cost Records Maintenance practices are pivotal for robust financial health.