## Treatment of Special Items in the Cost Sheet
Certain items need careful handling — some are excluded from cost, some reduce cost. Learn the rule for each.
### 1. Abnormal costs — EXCLUDE
Any abnormal cost, where it is material and quantifiable, shall not form part of cost of production / acquisition / supply of goods / provision of service.
- Examples: cost arising out of a pandemic (e.g. COVID-19); cost relating to employees due to a sudden lockdown.
### 2. Subsidy / Grant / Incentives — REDUCE from cost
Any such amount received or receivable is deducted from the cost object to which it pertains (it lowers the relevant cost).
### 3. Penalty, fine, damages and demurrage — EXCLUDE
These do not form part of cost.
### 4. Interest and other finance costs — EXCLUDE
Interest (and any payment in the nature of interest) for the use of non-equity funds, plus the incidental cost of arranging those funds, is not included in the cost of production.
### Summary table
| Item | Treatment in cost sheet |
|---|---|
| Abnormal cost (material & quantifiable) | Excluded |
| Subsidy / grant / incentive | Reduced from related cost object |
| Penalty, fine, damages, demurrage | Excluded |
| Interest & finance cost | Excluded |
> Doubt Buster: Conversion Cost = Direct Labour + Direct Expenses + Production Overheads.