

THE INTRODUCTION:
The company in question has a significant presence in the leasing/ rental business in India. It has a prominent space spread across 1 million square feet and has more than 0.45 million square feet of prime retail space.

THE PROBLEM:
The company seeks detailed computation of its common area facility and related costs and assurance that its common area maintenance (CAM) charges [1] are reasonable and in accordance with the company's CAM policy and the agreements with its space buyers/ retailers. This, in common parlance, is referred to as the CAM Audit.

THE SOLUTION:
An elaborate audit of CAM and related costs was conducted to ensure that pricing is reasonable and in line with the company's concerned policies and relevant buyers/ retailers' agreements. The information was also used for billing tenants/buyers/retail space owners covering elements of resource deployment, upkeep, consumables, utility (air, water, and electricity), etc.
Each cost element of common area maintenance was thoroughly diagnosed as follows:
Cost Element | Explanation | Audit Approach (Check-Points) Deployment Cost |
Deployment Cost | Maintenance agency and outsourced employee costs are directly identified to the common area and segregated based on nature and work area. Deployment cost is mainly segregated into the following areas:
|
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Upkeep Cost | Expenses related to facility maintenance like annual maintenance charges (AMC) of assets, pest control, whitewash expenses, etc. |
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Consumables | Indirect materials utilised for common service operations like plumbing materials, paints, lubricating oil, spares,etc. |
|
Utilities cost | Water, electricity and air conditioning are utilised in the common area of the building. Air-condition area shall mean the area within an entire building which is airconditioned through a centralised airconditioning system, such as Occupied Area, common circulation area, etc., excluding the common services area, which is not air-conditioned and basement parking area. |
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Sinking fund | Created to replace/ upgrade/ add capital goods, including plant & machinery, lifts, pumps, electrical cables, etc |
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Miscellaneous | Charges like insurance, safety audit fees, professional fees, certification charges, testing charges and Mall décor expenses & printing charges |
|

THE RESULTS:
After rigorous deliberations, detailed analysis and continuous communication with the client for over a month, our team at Chandra Wadhwa & Co. presented the following conclusions/ observations:
Redrafting the Costing system per generally accepted cost accounting principles was proposed to secure a true and fair costing mechanism. Thus, cost should primarily be allocated/ identified at the cost centres level and absorbed into the final cost object. For, e.g. as per the earlier system, the G/L expenditure was incorrectly considered as the cost of water. However, following our suggestion, water cost was derived as follows:
Water Purchase cost
Electricity consumed to run pump
Employee cost for person deployed for water pumps
Repair and maintenance of water pump
Other overheads
Recommended to adopt a more meaningful/ refined basis of allocations. Eg. To replace the leasable area with customer footfall, etc.
Revisit assets sinking fund calculation and certify life of assets by a Chartered Engineer:
Consider salvage cost/ replacement cost/ scrap value in sinking fund calculation.
Calculate Assets sinking fund over a total area rather than common area alone.
Exclude expired CAM assets in the calculation of the sinking fund.
Recover advertisement and promotional expenses from occupiers at an ad-hoc nominal rate (e.g. Rs. XX per sq. ft. of super built-up area) instead of using true cost.
CAM charges were undervalued, and the actual increase in cost is ~10% after implementation of relevant suggestions as provided by our team:
Areas | Actual Cost Increase/ (Decrease) |
Deployment cost re-calibrated based on true nature of the job | +03% of Earlier Cost |
Repair and maintenance cost allocation revised based on the principle of cause and effect | +25% of Earlier Cost |
Sinking fund calculation correction | -30% of Earlier Cost |
CAM Charges | +10% of Earlier Cost |

FOOTNOTES:
1. ⌃ CAM charges are costs passed on to commercial property tenants to reimburse the maintenance agency for the expenses associated with maintaining the common area of a property. Generally, common area fees are chargeable based on a tenant's square feet area.
CONTACT US
Reach us if you have any concerns regarding cost management accounting issues in your organization.
SANKALP WADHWA
Partner, Chandra Wadhwa & Co. (Cost Accountants) | B.Com, FCMA, ACA, DISA | Certified SAP-CO Consultant | Executive Program on Management and Finance (IIM, Ahmedabad)
Address: 1305 & 1306, Vijaya Building, 17, Barakhamba Road, New Delhi - 110001, India Mail: sankalp.wadhwa@cwcindia.in
Tel: +91-8800018190, +91-7503703599.
Website: www.cwcindia.in