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Step 1 

Capture revenue and cost from the books of account that is from general 

ledger and allocate them to Products, Network elements and Support 

Functions/Department.  

Step 2 

Attribute the cost of support functions/departments to profit centres  

(i.e products) and other cost centres (i.e. network elements). These 

costs would have to be attributed using appropriate cost drivers.  

The cost of support functions would have to be allocated to the profit 

centres or other cost centres depending upon whether such costs are: 

Directly attributable 

Indirectly attributable    

Un attributable 

Step 3 

After undertaking the above two steps, the cost for each network 

element would be available. The cost for each network element would 

include direct cost incurred for operation and maintenance of the 

respective network elements and also the allocated cost of support 

function.  

The next step is to apportion the network element cost to various 

products, which should also include the return on capital employed.  

The cost of each network element is to be attributed to products based 

on a causation effect i.e. cost is directly allocated to the products for 

which the network element is used, for example international gateway 

will be allocated directly to ILD calls, similarly SMS server cost is 

directly allocable to SMS charges.  In case the network element is 

used for more than one service then the cost of network element is to 

be attributed to various products based on an appropriate cost driver, 

which primarily will be usage based such as usage in minutes, number 

of connections, number of circuits or bandwidth, etc.   

Step 4 

This step involves aggregating costs of various services / products for 

preparation of profit and loss statements. 

Indu Liberhan 

Principal Advisor (FA &IFA) 

                                                                       F. No.: 414 7/99 FA