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 Cost sheet Format

What is cost sheet: Cost Sheet is A statement which provides breakup of costs for a particular accounting period or for particular product.

First of we will look at the classification of Cost: Manufacturing

Basically cost of product  can classify in to  three elements

a) Materials b) Labor c) Expenses

Other way of classification of the cost

(1)    Product costs = costs of manufacturing our products; or

(2)   Period costs =costs other than product costs that are charged to, debited

(1)  The classification of Product costs

Direct costs

Indirect Costs

(2) The classification of Period Costs:

Administration Costs

Finance Costs

Basic format of cost sheet is as follow 

                                                                   COST SHEET – FORMAT

Particulars	Amount	Amount
Opening Stock of Raw Material Add: Purchase of Raw materials Add: Purchase Expenses Less: Closing stock of Raw Materials           Raw Materials Consumed Direct Wages (Labor) Direct Charges	*** *** *** *** *** *** ***
Prime cost (1)		***
Add :- Factory Over Heads: Factory Rent Factory Power Indirect Material Indirect Wages                                                  Supervisor Salary Drawing Office Salary Factory Insurance Factory Asset Depreciation	*** *** *** *** *** *** *** ***
Works cost Incurred		***
Add: Opening Stock of WIP Less: Closing Stock of WIP	*** ***
Works cost (2)		***
Add:- Administration Over Heads:- Office Rent Asset Depreciation General Charges Audit Fees Bank Charges Counting house Salary Other Office Expenses	*** *** *** *** *** *** ***
Cost of Production (3)		***
Add: Opening stock of Finished Goods Less: Closing stock of Finished Goods	*** ***
Cost of Goods Sold		***
Add:- Selling and Distribution OH:- Sales man Commission Sales man salary Traveling Expenses Advertisement Delivery man expenses Sales Tax Bad Debts	*** *** *** *** *** *** ***
Cost of Sales (5)		***
Profit (balancing figure)		***
Sales		***

 

 

 

 

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TDS means Tax Deducted at sources.TDS is indirect Tax. It is managed by the Central Board of Direct taxes (CBDT).It is way of collection of taxes at the time of making the specific nature payment to the other person and deducted amount is remitted to the Government Account

The person who deduct the TDS at the time of making the payment is called as the Deductor and the other person whose payment is getting deducted is called the Deductee.

TDS types and rate

TDS is calculated on the basis of threshold limit, means if any time that limits are crossed the TDS will be deducted from future income/payments.TDS percentage may vary from 1% to 30%.

TDS rate Chart for the Financial year 2016-2017/ Assessment Year 2017-2018

Section	Nature of income	When to deduct	TDS Rate (Individual/HUF)	If no PAN then TDS rates
192	Salary	Income tax slab	Slab Rate	30%
192 A	Employer Providend Fund- Premature withdrawal	Rs.50,000	10%	20%
193	Interest on securities	Rs10,000	10%	20%
193	Interest on Debenture	Rs5,000	10%	20%
194	Dividend	N.A.	10%	20%
194A	Interest other than Interest on Securities	Rs10,000	10%	20%
194B	Winning from Lotteries & Puzzles	Rs10,000	30%	30%
194BB	Winning from Hoarse race	Rs10,000	30%	30%
194C	Payment to Contractors-(Aggregate during the Financial Yea)	Rs 15,000	10%	20%
194 D	Payment of insurance commission	Rs 15,000	5%	20%
194DA	Payment  of Life insurance Policy	Rs 1,00,000	1%	20%
194H	Commission & Brokerage	Rs 15,000	5%	20%
194Ib	Rent – Land & Building	Rs 1,80,000	10%	20%
194la	Rent – Plant & Machinery	Rs 1,80,000	2%	20%
194J	Professional Fees & Technical Services	Rs 30,000	10%	20%
194IA	Immovable Property other than Agricultural Land	Rs 50,00,000	1%	20%
19LB	Interest From infrastructure bond	N.A.	5%	20%

 

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https://www.youtube.com/watch?v=WfwjpDdBqr4

https://www.youtube.com/watch?v=WfwjpDdBqr4

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Million Dollar Question: What is Risk? The reason why I refer it as a million dollar question lies in
definition(s) of term ‘Risk’. The term ‘Risk’ has been defined in multiple ways and it can be
accommodated anywhere anytime and in any situation as per requirement. Inspite of having vivid
definition(s) of RISK, in practise every human being is a Risk-Pro. When I say everyone, I mean
EVERYONE irrespective of literacy level or profession.

Let us take a simple illustration. During rainy season, street vendors generally keep a plastic cover to
protect their articles. Why So? Because they know that PROBABILITY of having rain is high and it
could IMPACT their valuable articles. In corporate environment, we will complicate the same
example by saying “Articles are VULNERABLE to THREAT of rain and hence RISK RESPONSE is required in form of some CONTROL (i.e. plastic cover) to MITIGATE RISK ELEMENT.”
Wow. Now our dear vendor also knows that it is not worth spending Rs. 100/- to purchase a plastic cover to protect his articles costing Rs. 50/-. In our terms: “COST of CONTROL should not exceed COST of RISK”. Now I doubt whether street vendors have ever heard about these terminologies in their life, but pretty much sure that they actually understand RISK and RISK TREATMENT in their daily activities.

Again. What is risk? Let us look into some of the widely accepted definition of risk.

ISO 27005: The potential that a given threat will exploit vulnerabilities of an asset of group of
assets and thereby cause harm to the organisation.

ISO/IEC 73: Risk is the combination of the probability of an event and its consequences.

Dictionary Meaning: a situation involving exposure to danger.

ISO 31000: Risk is the “effect of uncertainty on objectives”

Business Dictionary: A probability or threat of damage, injury, liability, loss, or any other negative
occurrence that is caused by external or internal vulnerabilities, and that may be avoided through
preventive action.

Oxford Dictionary: The probability of something happening multiplied by the resulting cost or benefit if it does.

If you observe, almost every definition speaks directly or indirectly about two terms:
PROBABILITY & IMPACT.

In simplest form, RISK is a product of PROBABILITY and IMPACT.

RISK=PROBABILITY*IMPACT

i.e. RISK=P*I

Both the terms are equally important while determining risk. Let us continue with same plastic
cover example. Probability of raining is very high, let say 1, however articles are water-proof and hence impact is Nil i.e. zero even if it rains heavily.

So risk of rain on articles will be:

RISK=P*I
i.e. RISK=1*0 =0

Please note in real life scenario, quantifying RISK is not an easy task. Probability of arriving at
ACCURATE PROBABILITY is itself questionable in certain scenario. Okay, I know that ACCURATE and PROBABILITY are incompatible with each other (:-

Another approach to understand the risk is to understand the concept of VULNERABILITY and
THREAT. Again there should be presence of both the elements (i.e. V*T) to constitute a risk. A fort without guards is vulnerable to outside attack. However luckily now a days no one is interested to capture a ruined fort and hence threat is nil. Hence risk of attack is nil inspite of high
vulnerability as there is absence threat.

Prime objective of any risk assessment exercise is to identify the risk, understand the risk, quantity the risk (though not possible always) and to threat the risk.

Okay. We do all this exercise. Why? Yes. To protect our precious ASSET. So very first step of risk assessment exercise is to identify the ASSET which we want to protect. This is essence of whole exercise. Why waste time and money on something that is not critical. It must be noted that
usefulness of asset is not always defined by its financial value but other attributes also to be
accounted for. For example, Data Leakage Prevention Policy (DLPP) aims to protect DATA whose
value can be negligible in absence of privacy laws. DATA is considered valuable because of
relevant regulations. Assets can be tangible or intangible. Many organisations consider their
‘REPUTATION’ as supreme asset.

Following is structured process to carry out risk assessment exercise:
(a) Identify the assets.

(b) Identify vulnerabilities/threats

(c) Perform impact analysis. Define risk indicator. Remember, R = P*I. It can be quantified or
qualified (High/Medium/Low).

(d) Apply controls through appropriate risk treatment.

(e) Still some vulnerabilities present? Yes. If this acceptable? No. Then apply some more
controls. But always ensure COST of CONTROL not to exceed COST of RISK. I would never pay
one hundred and fifty crore rupees for insurance premium to protect my bungalow worth
Rs. One hundred crore. (No. I don’t have 100 crore bungalow. But hope you got the point)

(f) Okay, now risk is acceptable? Yes. Then live happily with it. Let them reside with us. It is
known as RESIDUAL risk.

Risk assessment is iterative exercise. Above cycle to be repeated at regular interval to address
new vulnerabilities. Continual risk assessment (CRA) is also critical to ensure that existing control
are effective.
Let us understand how above steps are performed to address IT Risks in an organisation:

Identification of Assets:

ISACA’s RISK IT framework defines IT risk as follow:

IT risk is business risk – specifically, the business risk associated with the use, ownership,
operation, involvement, influence and adoption of IT within an Enterprise. It consists of IT related
events that could potentially impact the business.

In order to analyse the IT Risks, prime requirement for an IS auditor is to understand the business
environment. IS auditor is required to gather information about industry and relevant regulatory
statutes. Knowledge of business will help an IS auditor to understand which IT assets contributes to
the business and extent of dependence on technology to process and deliver business information.
This in turn helps him to identify critical IT assets. Risk assessment is then carried out to ensure
confidentiality, integrity and availability (CIA triad) of identified mission critical IT assets.

Threat Analysis:

So now we have identified our TREASURE (ASSET). We must also be aware of who else is interested in our treasure. Our enemy could be earthquake, fire, hackers, malware, system failure, criminals and many other unknown forces. We need to list down each threat that can have impact on assets.

Now assign probability or frequency of occurrence. I know that is not an easy job, but that is what we
are paid for. Probability can also be expressed as a ranking i.e. High, Medium, Low or on a numeric scale i.e. 1 to 10.

Vulnerability Analysis:

Take a magnifying glass and examine our mission critical asset to identify presence of any black
spot. Black spot indicates weakness. Vulnerability can be in form of weak coding, missing anti-virus,
weak access control and other related factors. It is advisable to list down each vulnerability and
corresponding proposed control. Vulnerability to be ranked on the basis of criticality.

Impact Analysis:

Through earlier steps we have identified our Assets, our ENEMIES (Threat Analysis) and our own WEAKNESS (Vulnerability Analysis). Impact Analysis helps us to understand what will happen if all three of them shake hands.

Impact can be measured in terms of QUALITATIVE or QUANTITATIVE. For better risk treatment, it is advisable to quantify the impact. But as discussed earlier, it is a tough job. Most common method to quantify risk is to calculate single loss expectancy (SLE) and annual loss expectancy (ALE).

SLE=Asset Value*Exposure Factor
Exposure factor can be defined as expected percentage of loss if a threat is realized.

ALE=SLE*Annualized Rate of Occurrence (ARO).
ARO can be defined as estimated frequency of specific threat within a year.

However in absence of precise measurement, impact can also be classified as high/medium/low or some other indicators can also be used. When we speak of Information System, impact can be loss of confidentiality, loss of integrity or loss of availability. Prime purpose of classifying the impact is to prioritize risk treatment for high impact risk.

Risk Treatmetn:

Time to build GREAT WALL OF CHINA. Once potential impact has been identified through
qualitative or quantitative analysis, next step is to decide how to eliminate or reduce the impact i.e.
how to treat the RISK. There are generally four approaches for risk treatment. They are

(i)Risk Mitigation
(ii)Risk Transfer
(iii)Risk Avoidance
(iv)Risk Acceptance

It must be noted that risk treatment is purely based on perception. For same risk, different
treatment can be applied depending upon how one perceives the risk.
Let us take an example to understand above approaches.

Meteorological department has indicated heavy rain and we need to attend ISA classes. Risk of rain can be treated in any of the following way:

-Majority of the students will be well prepared and will arrange for Umbrella or Raincoat to protect
them from Rain. (risk mitigation)

-Some courageous students will not bother to carry Umbrella/Raincoat. (risk acceptance ).
‘
-I am pretty much sure there will be some students like me who will avoid going to classes (risk avoidance).

In an organisation level, it is not always possible to mitigate all the RISK. RISK Free Business is an
illusion. Though objective of risk treatment is to bring greatest possible reduction in RISK. IS auditor
need to understand the IT RISK and corresponding controls.
There are different standardized methodology specifically designed for RISK Assessment of
Information Technology Systems like SP-800-30 document developed by NIST, FRAP (Facilitated RISK
Analysis Process) and OCTAVE (Operationally Critical Threat, Asset and Vulnerability Evaluation).
Though each methodology is developed for specific purpose they have same basic core components
that we already discussed above i.e. identify vulnerabilities and threats and calculate risk values.

Please do write in case of any concerns/query/suggestions.

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