Fundamentally, a distinction is made between expenses and school deferrals.
School deferrals
The formation of school accruals (also “liability accruals”) is based on uncertain legal obligations towards third parties.
The school deferrals include in particular
- Pension provisions
- Tax provisions
- Provisions for warranties provided without a legal obligation
- Provisions for contingent losses
Expense provisions
According to sportingology.com, an expense provision is based on voluntary commitments by your company. The possible types are named in Section 249, Paragraph 1, Clause 2 of the German Commercial Code. Provisions for maintenance, for removal of spoil and for warranties without any legal obligation.
Expense provisions
- you are only allowed to form on the basis of an event that caused a cost risk in the financial year in which the provision was created.
- are only permitted in the commercial balance sheet, but not in the tax balance sheet. You can only claim a tax-reducing expense after the actual invoice amount has been incurred.
The amount of a liability provision is to be determined “according to prudent business judgment” (Section 253, Paragraph 1, Clause 2 of the German Commercial Code).
Reasons for restitution
Pension provisions
Pension provisions cover your company’s obligations towards your employees from the company pension scheme. If you give your employees an immediate and mandatory pension commitment, there is a provision obligation (obligation to passivate) according to § 249 paragraph 1 HGB.
Tax provisions
Tax provisions are set up for tax claims that arise in the course of your financial year, but the exact amount has not yet been determined.
Other provisions
Provisions for impending losses from pending transactions (“impending loss provisions”)
The obligation to pass on impending losses results from Section 249 (1) sentence 1 of the German Commercial Code (HGB). The surplus of one’s own performance over the value of the consideration is to be booked as a provision. Provisions for pending losses are recognized in the commercial balance sheet, but not in the tax balance sheet.
Litigation cost provisions
A provision for litigation costs must only be set up in the event of a pending court case in which your company is involved as a plaintiff or defendant. They may only be dissolved again when the risk of litigation costs has ceased due to a final decision.
Maintenance provisions
A provision for maintenance that has not been carried out or planned is the most common case group of an expense provision. Maintenance provisions must be set up for maintenance that was neglected in the current financial year and which will be carried out in the first three months of the following financial year.
You may not include costs for maintenance that you will probably not be able to carry out within the three-month period as a provision in the balance sheet. With the establishment of a three-month catch-up period, the legislature prevents the possibility of excessive and distorting the formation of maintenance provisions.
It is not permitted to set up a maintenance provision if your company had knowledge of necessary maintenance or repair work prior to the current financial year (catch-up ban).
Provision for overburden disposal
You must also set up a provision for overburden removal that was not carried out in the financial year, provided that it is made up for within the following financial year.
Provisions for warranties (goodwill provisions)
The passivation of a goodwill provision serves to remedy defects in the company’s own deliveries and services. You may only set up a provision for warranties for services provided for reasons of goodwill (without legal obligation).
Provisions for guarantee obligations
A provision for warranty obligations covers the risks that may arise in the future due to contractual or statutory warranty obligations, free rework, reduction claims, replacement deliveries and claims for damages. A guarantee provision can be set up for individual guarantee cases, but also as a lump-sum provision – on the basis of a probability of occurrence known from the past.
Provisions for the retention of business records
The Federal Fiscal Court decided in 2002 that provisions should be set up for future costs for the storage of business documents. The amount of the provision to be accounted for is based on the costs that are likely to arise for the storage of business documents in accordance with the price relationships on the balance sheet date.