AAP Tax Law
Companies Act, 2013 / Producer Companies / Chapter XXIA

Section 378ZE: Books of Account of a Producer Company

Section 378ZE of the Companies Act, 2013 sets out the accounting records that every Producer Company must keep and links the preparation of its balance sheet and profit and loss account to section 129.

At a glance: A Producer Company must maintain proper books of account at its registered office covering money received and spent, sales and purchases, instruments of liability, assets and liabilities, and relevant production costs.

Meaning and legal background

A Producer Company is a company registered under the special provisions in Chapter XXIA of the Companies Act, 2013, which deals with producer-related objects, membership, governance and finances. Section 378ZE, titled "Books of account", was inserted through section 52 of the Companies (Amendment) Act, 2020, with effect from 11 February 2021. It prescribes specific accounting obligations in addition to the generally applicable legal framework.

Section 378ZE(1): Records to be maintained

Every Producer Company must keep proper books of account at its registered office relating to the following five categories:

Clause (a): Money received and spent

Records must show all sums of money received and expended and the purposes of the corresponding receipts and payments. These include member payments, sales receipts, operating expenditure and other transactions.

Clause (b): Sales and purchases of goods

The books must record all sales and purchases of goods by the Producer Company. Supporting records may include invoices, purchase records, sales registers and relevant transaction documents.

Clause (c): Instruments of liability

The company must record instruments of liability executed by it or on its behalf, such as relevant agreements or instruments evidencing borrowing and other financial obligations.

Clause (d): Assets and liabilities

Books must reflect the company's assets and liabilities, including property, receivables, amounts payable, borrowings and other obligations.

Clause (e): Materials, labour and other costs

Where the Producer Company is engaged in production, processing or manufacturing, it must also maintain particulars of the utilisation of materials, labour and other cost items. These records help explain production expenditure and cost allocation.

Section 378ZE(2): Balance sheet and profit and loss account

The balance sheet and profit and loss accounts of a Producer Company must be prepared, as far as may be, in accordance with section 129 of the Companies Act, 2013. Section 129 addresses the presentation of financial statements, including the requirement to give a true and fair view, compliance with applicable accounting standards and the prescribed form, subject to statutory qualifications and exceptions.

The words "as far as may be" do not dispense with the need to prepare financial statements. They indicate that section 129 applies in the context of the special statutory structure of Producer Companies.

Practical accounting checklist

  • Maintain complete, traceable records of all receipts and payments.
  • Keep sales and purchase documents organised and reconciled with the ledgers.
  • Record instruments creating or evidencing liabilities.
  • Reconcile balances of assets, borrowings, payables and receivables.
  • Track raw materials, labour and overhead costs where production or processing is undertaken.
  • Prepare financial statements with reference to section 129 and applicable accounting standards.
  • Also consider the generally applicable requirements of section 128 regarding books of account, including retention, accessibility and any applicable rules on electronic books and record-keeping.

Related provisions

Section 128 provides the general framework for books of account and relevant papers. Section 129 governs financial statements. Within Chapter XXIA, section 378ZF deals with internal audit and section 378ZG sets out particular duties of the auditor. These provisions should be read together when assessing a Producer Company's accounting compliance.

Frequently asked questions

What books must a Producer Company maintain?

It must maintain records of receipts and expenditure, purchases and sales, instruments of liability, assets and liabilities, and, where applicable, production and processing costs under section 378ZE(1).

Where must the books of account be kept?

Section 378ZE(1) specifies the registered office of the Producer Company. Other generally applicable Companies Act requirements should also be considered.

Which rules apply to financial statements?

Under section 378ZE(2), the balance sheet and profit and loss accounts are to be prepared, as far as may be, in accordance with section 129 of the Companies Act, 2013.

Official legal references