02-21-2009, 08:28 PM
Under the method of absorption costing the fixed overhead cost becomes the part of profit. There are some other costing methods which are also used by the cost accountant. But absorption costing method is allowed for the purpose of determining the tax liability of a business in many countries . Other methods of costing are Direct Costing and Activity Based Costing (ABC). ABC is very rarely used but direct costing is used many countries for effective costing but the profit is adjusted as per absorption method.
In Pakistan CO,1984 is sielent about the method of costing. However legal provisions are available in ITO,2001 about costing method.
Under section 32 of ITO,2001 the companies are restricted to use only accrual basis of accounting and under sub section 5 of section 35 of the ordinance the persons (Here person means as defined in the ordinance) using accrual basis of accounting shall use the Absorption costing method for costing stock in trade.
Regards,
Awais Aftab
In Pakistan CO,1984 is sielent about the method of costing. However legal provisions are available in ITO,2001 about costing method.
Under section 32 of ITO,2001 the companies are restricted to use only accrual basis of accounting and under sub section 5 of section 35 of the ordinance the persons (Here person means as defined in the ordinance) using accrual basis of accounting shall use the Absorption costing method for costing stock in trade.
Regards,
Awais Aftab
