Infrastructure, Educational, Healthcare and Port Services | Cost Accounting - B Com PDF Download

Infrastructure Sector

The construction and reconstruction of structures or infrastructure facilities fall under the category of infrastructure activities. These projects, commonly executed through civil, mechanical, or other engineering branches, play a crucial role in economic development by generating a multiplier effect across different sectors, thereby creating opportunities for investment.

The infrastructure industry contributes a significant share of the country’s GDP and employment.

Features of an infrastructure contract / project are as follows:

• Execution of projects as a contractor / sub-contractor or as a developer. 
• Projects involving design, detailed engineering, procurement, manufacturing/fabrication, installation, commissioning. 
• The contracts / projects are finalised normally through a bidding process and the projects are executed as per client’s requirements at client’s project site. 
• The client normally makes payment based on the progress of work as per the contract. 
• Contracts also normally stipulate work / quality certification by a client nominated third party consultant. 
• Contracts also lay down performance guarantee conditions, warranty / defect liability period, liquidated damages for schedule delay, price variation clause if any, client’s obligations during construction period, method to be followed for any change in scope of work, claim management, force-majeure clause, arbitration etc. 
• The duration of a project may vary from project to project for different industries. Normally the projects are of long duration (more than 12 months) and revenue is recognised generally based on Indian Accounting Standard (Ind AS-11) notified by Government of India, Ministry of Corporate Affairs.

Cost Management in Infrastructure Sector

To ensure consistency and uniformity in handling different cost components, it is advisable for companies to establish a cost accounting policy that will be employed to calculate the project's expenses.

• Identification of cost centres / cost objects (projects) and cost drivers. 
• Accounting for material cost, stores at store yards, employee cost, and other relevant cost components. 
• Accounting, allocation and absorption of Overheads 
• Accounting for Depreciation / Amortization, Transfer in and transfer out of equipment from the site. 
• Accounting for scarps, wastage etc. 
• Basis for Inventory Valuation 
• Methodology for valuation of Inter-Unit / Inter Company and Related Party transactions. 
• Treatment of abnormal and non-recurring costs including classification of other non cost item.

Education Sector

Education imparts knowledge and skills while also shaping values and attitudes. It plays a crucial role in the advancement of a civilized society, serving as the backbone of a nation and a key indicator of its growth and development. The global shift towards a knowledge-based economy has underscored the significance of education in all its forms, including elementary, secondary, higher, vocational, and adult education, as a primary driver of economic and business development.

Education not only drives technological innovation but also facilitates the assimilation of advanced technology for the benefit of humanity. The widely accepted notion is that knowledge capital holds the key to economic development. India, in particular, has emerged as a knowledge-based economy, with human capital being a major strength. However, this has brought attention to the significant shortcomings in India's education delivery infrastructure, especially in higher education.

Investments in all levels of education yield social rates of return that far exceed the long-term opportunity cost of capital. Despite the difficulty in accurately measuring the social rate of return, financial return on investment (ROI) becomes a crucial factor in sustaining and enhancing investments in the education sector.

Cost Management in Education Sector

In the present day, colleges and universities' senior leadership is focused on enhancing transparency in their services, operations, and finances for stakeholders and the public. Higher education institutions are increasingly interested in bolstering risk management by implementing better controls over their organizational systems, policies, and procedures, while also emphasizing the importance of accountability among professionals.

In these institutions, the management information system, performance management, and cost review play a crucial role in collaboration with administrators, management, and boards. Their objective is to establish robust controls over cost spending, leading to various benefits in terms of organizational performance and cost efficiencies.

The role of the cost/finance controller is significant in helping Higher Educational Institutions address internal management and system threats and weaknesses. Furthermore, they can identify and capitalize on strengths and visible opportunities, thus expanding and optimizing various areas.

The Management of Higher Educational Institutions shall undertake the following review to evaluate and improve the effectiveness of risk management, cost control and governance processes:

• Systems evaluation – assessing the control systems in place within a specific area, to support the achievement of the areas objectives;
• Stock evaluation – undertake stock take of library books, IT equipment, laboratory equipment, stationary, college furniture etc. 
• Compliance evaluation – assessing compliance against an agreed set of standards, e.g. UGC norms, AICTE norms ; 
• Contract evaluation and cost review– auditing procurement projects and capital programmes, assessing compliance with best practice (policies and procedures), cost reviews for expenditure on institution infrastructure, staff payroll, administration etc.; 
• Thematic work reviews – to be undertaken across a number of departments, identifying areas of good practice and producing an overall report for all areas of Institution with respect to budgetary controls, spending analysis, achieving value for money etc.; 
• Revenue assurance – undertaking assurance review to confirm that departments have appropriate controls in place for fee collections, timely deposits, etc.; 
• Grant reviews – to ensure that the grants are used for the intended purpose.

Healthcare Sector

Enhancing the standard of living and health status of the population is a crucial goal for the government. To achieve this, the government strives to offer accessible, affordable, awareness-raising, and high-quality healthcare services to its citizens. This objective remains a top priority in Indian planning, with continuous efforts being made by the government.

The 12th five-year plans (2012-17) specifically emphasize the establishment of a universal healthcare infrastructure, the promotion of research and development (R&D), and the implementation of robust regulations in the health sector. India's healthcare system exhibits diverse treatment ownership patterns, with various systems of medicine such as Allopathy, Homoeopathy, Ayurvedic, Unani, and Siddha coexisting.

The ultimate aim of a healthcare delivery system is to "Touch & Enrich a Billion Lives by creating a specific set of values," which includes patient-centricity, ownership, and integrity towards patients. The success of healthcare objectives is measured by the patient outcomes achieved per unit of expenditure, emphasizing the quality of health rather than the quantity or volume of services provided.

Cost Management can be a useful tool for management in Health Care Sector to

• Estimate the reasonable cost of Health care resources used in patient care.
• Performance measurement of all the Cost & Revenue drivers. 
• Lower health care cost without compromising on quality of services rendered or extended.
• Define the Health care delivery value chain. 
• Determine the fees or tariffs for goods and services. 
• Estimate the capacity of each resources and comparison with actual utilization. 
• Authorise, modify or discontinue a programme or activity. 
• Manage materials & its storage and associated costs in terms of consumables, drugs, etc.

Cost Management in Health Care Sector

• Break down the revenue streams from different services 
• Break down the costs to different cost centers & map costs to activities 
• Match the revenues with costs using the activity links 
• Remove non cost items like discretionary costs, sunk costs 
• Remove non operating revenues like interest received, miscellaneous income 
• Add risk premium to cover inherent risks in the project 
• Identify and quantify cost drivers 
• Match cost pools with suitable cost drivers
• Decide on suitable allocation keys and apportion costs to objects 
• Compare cost of each service group with revenues generated and arrive at profitability

Port Sector

The ports industry in India is categorized into "Major Ports" and "Non-Major Ports," which fall under the authority of the Central Government and State Governments, respectively. The legal framework overseeing this sector includes the Indian Ports Act of 1908 and the Major Port Trusts Act of 1963. Major Ports, falling under the jurisdiction of the Central Government, operate in accordance with policies and directives from the Ministry of Shipping of the Government of India. On the other hand, Minor Ports, under the jurisdiction of the State Government, adhere to policies and directives from the respective State Government's nodal departments/agencies.

To regulate tariffs in major ports and establish uniform and transparent norms for fixing tariffs and prescribing the quality of service for port authorities/terminal operators, the Tariff Authority for Major Ports (TAMP) has been established. The functioning and role of TAMP are currently under revision to ensure consistent and transparent standards in these aspects.

The Management of Port Sector shall undertake the following review to evaluate and improve the effectiveness of risk management, cost control and governance process;

• To ensure that the internal control are in place as set by the management for the attainment of the objective of the business, 
• Management need to review that the internal control are in place in relation to revenue collection and its proper accounting, 
• To ensure that the grant if issued by the government must be used for the specific purpose for which it is granted, 
• To ensure that the contract enter with the various client is operating in order and its adherence are in place as this is incidental with the revenue of the entity.