CA Debasis Sahoo

The word “Turnover” is widely used terminology. Mostly this terminology used in various act, law, rules and regulations etc. Similarly the word turnover has been widely used in Companies Act,2013. Companies Act,2013, vide section 2(91) define Turnover. Section 2(91) define the meaning of Turnover as

“Turnover” means the aggregate value of the realisation of amount made from the sale, supply or distribution of goods or on account of services rendered, or both, by the company during a financial year;

Let’s have a line by line analysis

Turnover means

  1. aggregate value of the realisation of amount made
  2. from the sale, supply or distribution of goods or on account of services rendered, or both,
  3. by the company
  4. during a financial year;

From the above clause it is clearly understood that turnover of a company is defined on the basis of amount of realization made during the financial year rather than value of goods sold or service rendered during the financial year.

The new definition of turnover under companies act {Section2 (91)} which emphasis on cash basis required calculation of realisation of amount made from the sale of goods or rendering of service during the financial year. It means sales of goods and rendering of service on credit term basis during the year have nothing to do with turnover.

Turnover Definitions in Accounting Standards and Guidance Note

  • Accounting Standards Interpretation (ASI)-29 define turnover for the purpose of Contract revenue as per AS-7 means “The amount of contract revenue recognised as revenue in the statements of the contractors as per the requirement of AS-7”
  • Guidance Note on Terms Used in Financial Statements: Sales Turnover means “ The aggregate amount for which sales are effected or services..”

The above terminology are based on mercantile basis of accounting.

Use of turnover in Companies Act,2013:

  • Annual Return of the Company:Companies (Management and Administration) Rules, 2014 prescribe Form No MGT 7 regarding annual return of the company which contain in clause no V: Turnover and net worth of the company (as defined in the Act)
  • Companies Acceptance and Deposit Rule,2014 : define eligible company means company having turnover of not less than Rs. 500 crore or more.
  • Section-135 Corporate Social Responsibility(CSR) : every company having turnover of Rs.1000 crore or more…..etc. shall constitute CSR committee. Etc.

And many more areas where turnover are the main criteria for applicability of certain rules or act.

Now question arises in mind that, whether one company is under compulsion to calculate turnover as prescribed under companies act,2013 in order to evaluate the applicability of certain provision of act to the entity rather than using its “Revenue from operation” as per Schedule-III of Companies Act,2013 { Earlier Revised Schedule-VI of Companies Act,1956} as turnover.

The matter is necessary to be taken care of by MCA for better clarification of meaning of turnover.

(Author may be contacted at [email protected])

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One Comment

  1. Rohit Batra says:

    Dear sir,

    As much i understand from the language of act here realization means amount that have no uncertainty regarding realization, nowhere cash realization is mentioned.

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June 2021