Meaning of Reserves 2

Meaning of Reserves 2

The provisions, on the other hand, belong to borrowed capital . They represent an expense for you that affects your annual profit as it is reduced by it. You do not set up provisions on the basis of a legal requirement, but because you know very well that you will soon have to make a payment for which you have to put money aside.

So you set up the provisions to cover future liabilities , although you have not yet received an invoice for it. The provision can therefore be an estimated amount because you do not yet know the amount of the liability, or a specific, agreed amount. As soon as the invoice is received, you can pay it by dissolving the provision.

Who has to create legal reserves?

In terms of accounting, you then have to release the provision. You may still have money left over, or the provision may have been too low. We come to the postings at the end of the article. You usually set up provisions for taxes , but you are not allowed to set up them for all types of taxes, for example for trade tax or corporation tax . Besides, you can make them for pension payments .

The statutory reserves must be created by all stock corporations and limited partnerships . For this purpose, the AG must use 5% of the annual surplus every year. This must be done until the reserve is at least 10% of the share capital. The corporations are also likely to determine a higher percentage in their articles of association.

Special item with a reserve portion

Previously (until 2009) it was stipulated in § 247 (3) HBG that “liability items that are permissible for the purposes of taxes on income” may be set aside and are to be shown as “special items with a reserve portion”. This means that no provisions need to be set up. Paragraph 3, however, has been omitted.

With the new BilMoG (Accounting Law Modernization Act), however, the provision was changed just like some other parts of the HGB (e.g. Section 273 HGB, which said that the special item may only be formed if tax law so requires). For the transitional period, Art. 67 (3) EGHGB allowed the special items with reserves that were formed before the BilMoG came into force.

From a tax law perspective, you can continue to set up such provisions, but not under commercial law. Therefore, you can only apply such special items to certain taxes. This also means that this reserve, i.e. the amount of money, cannot be taxed. Taxation only takes place when you dissolve the special item.

Creation and formation of reserves

The reserves are always created when the equity is tied up for a specific purpose in order to cover or secure future risks or acquisitions. They are always formed from your generated profits .

Book and calculate reserves correctly

There are different types of reserves, which are created either voluntarily or in accordance with legal requirements. After that you also have to calculate it:

  • According to legal requirements : Stock corporations must set 5% of their annual net income as legal reserve. This must be done until 10% of the share capital has been reached ( Section 150 AktG ).
  • The capital reserves according to § 272 Paragraph 2 No. 1 to 4 HGB : include shares, bonds, preference shares or other additional payments. You can note that the AG must use a certain percentage as a reserve (as described above), but the GmbH and the UG can freely dispose of the capital reserves).
  • Revenue reserves, also in accordance with Section 272 (3) of the German Commercial Code : “These include statutory reserves or reserves based on the articles of association or articles of association and other revenue reserves.”
  • Other reserves : These include voluntary reserves.

Book reserves – where to?

The calculated reserves are also posted in accordance with the law. The structure of the balance sheet is specified in Section 266 of the German Commercial Code . This is how you can easily see where to make the bookings:

The reserves belong in the balance sheet on the liabilities side under equity. Below and below the subscribed capital you have to show the capital reserve and the retained earnings. It will look like that:

  • Equity
  • Subscribed capital
  • Capital reserve
  • Retained earnings
  • legal reserve
  • Reserve for shares in a controlling or majority-owned company
  • statutory reserves
  • other retained earnings


In order to keep an optimal overview of your numbers, you should work with accounting software. This leaves more time for your business!

The different types of reserves – summary

Some reserves have already been mentioned in the course of the article. They all belong to equity. You have to differentiate here:

  • hidden reserves and open reserves
  • tax reserves
  • Special item with a reserve portion.

Let’s take a closer look at these reserves and a few special cases:

Reserves 2