Reserve capital in accounting: formation and use

What is the authorized reserve capital of an organization?

The domestic accounting system is trying to increasingly focus on international standards in this matter.
Because of this, there is a need to change the financial information that is generated at enterprises in our country. The new rules for accounting for reserves provide for the presence of five accounts.

For statutory:

82 Dedicated to capital with reserves.

Expenses to come:

96 Designation of reserves for expenses for the near future.

For a reserve group of valuation type:

63. Dedicated to reserves that arise due to doubtful debts.
59. In case securities investments depreciate.
14. In case the value of any material assets decreases.

The explanations to the balance sheet and reporting indicate all the information that is necessary to clarify the data. You can read about how to correctly prepare consolidated statements in this article.

Reserve capital is the property of enterprises in which retained earnings are placed.

The same capital is needed when it is necessary to repurchase shares owned by management, pay off bonds, and cover incurred losses. In other words, this is the amount to cover losses in situations where other sources have exhausted themselves. The organization's reserve capital is formed in accordance with the law.

Sources of reserve capital.

Purpose and size of the organization's reserve capital

Reserve capital is used in the following areas:

To buy back shares or pay off purchased bonds.
To transfer money to creditor accounts with investors when the underlying profit is insufficient.
To cover losses that were not provided for.
Capital group payments.
Payments related to interest.
To pay taxes. This is relevant if there is no money, but the deadline is already approaching.
To write off losses.
When writing off debts recognized as bad.

There are several more rules associated with this concept. Only the owners of the company have the right to set the accumulation period and the minimum amount for reserve capital.

It is best to start forming reserve capital during the period when the company has retained earnings. The presence of reserve capital will guarantee that the enterprise will operate uninterruptedly in any situation. And that the interests of third parties will always be respected.

The organization's reserve capital becomes an important mechanism for stabilizing the company's activities. After all, this direction is always associated with certain risks. Deductions to cash reserves are possible only during a period of confirmed absence of losses.

Accounting statements for reserve capital

The transfer of funds to the fund, as well as the expenditure of money from the fund to cover needs and debts, must be reflected in the accounts for uncovered losses, as well as for long-term and short-term loans.

Thus, one of the mandatory conditions for the formation of a joint stock company or joint venture is the formation of the main authorized and reserve capital. There are certain rules for creating a reserve fund, which are regulated by law. The receipt and expenditure of funds from the reserve fund should be reflected in the accounting documentation, as well as budget planning for the next year.

How is reserve capital formed and accounted for?

This type of capital must be at least five percent of the total savings of the enterprise. The reserve capital is formed through annual contributions until the amount stipulated by the charter has been accumulated. The charter of the same company determines exactly what part of the profit each year should be directed to the formation of reserves.

Shareholders make decisions at general meetings - this is the main document by which accountants formulate and record reserve capital. But the organization of such meetings is usually carried out after the end of the year in a financial sense.

What is the organization's charter and how to draw it up, read the link.

Components of capital.

Authorized capital

In the balance sheet, “Capital and reserves” is represented by the authorized capital.

Authorized capital is understood as the amount of contributions of the founders to the development of the company at the very beginning of its formation. The minimum amount of this capital is determined by law and is individual for each open pension fund. There is no maximum size limit. The size of the company's authorized capital is clearly stated in the company's constituent documents when it is registered with the tax authority.

Features of accounting with authorized reserve capital: postings

Accounting for the movement of reserve funds is displayed only on account 82. If profit is used for deductions, the same account is used, only its credit. And the debit of this account in correspondence with number 84 shows the use of funds included in the reserve capital.

There are other rules that must be taken into account:

Account No. 99 “Profits and losses” usually reflects what results the organization conducting business activities has achieved. Not only business activities according to the usual scheme are subject to accounting, but also other groups of expenses and income.
To determine the net amounts for losses and profits for reporting periods, use the balance in account No. 99 “Profits and losses”.
The same account, number 99, is closed when the reporting year ends.

Upon subsequent receipt of income, everything is already formalized after the reporting date. In accounting, there is no need to keep records for the reporting period when the organization only distributes profits. You can learn about the basic rules for preparing accounting entries from this article.

Dates after reporting periods are displayed as usual. This means that on the date the shareholders make a certain decision, any transactions are reflected that assume that profits are only distributed.

Score 82.

How to use the authorized reserve capital account if you need to cover losses?

The use of reserve capital for this purpose is possible only in the event of officially confirmed losses. Only part of it, which is equal to losses, is used to cover expenses.

Let's take a few situations as an example:

A reformation was carried out on the enterprises, after which it turned out that account 84 had a debit balance of 100 thousand rubles. 350 thousand rubles was equal to the amount of reserve capital formed by the reporting date.

Only 100 thousand rubles should be allocated to cover the loss.

Debit is 82, and credit is 84.

Here's what happens next:

The balance of account 84 becomes zero when the posting in the accounting department is completed in full.
250 thousand rubles is the amount of reserve capital. It can be used to pay dividends to those who have preferred shares.
It is unacceptable to pay amounts to those who purchased ordinary shares using funds from these groups.

A right that does not arise solely because of the very fact of having a credit balance on account 84 becomes dividend payments. Separate articles in the rules on joint stock companies say that dividends cannot be paid or declared in the following cases:

In the event that the adoption of such a decision will contribute to a decrease in capital, its inconsistency with reserve funds and statutory indicators.
In the presence of pure reserves, which are no longer sufficient to resolve issues.
When placing shares with privileges, when the par value exceeds the indicators in the charter.

For instructions on calculating net assets, see the link.

Who is obliged to form?

The expenditure of reserve capital for purposes strictly specified by law is most often carried out by companies that are obliged to form this fund in accordance with the requirements of regulations.

The following types of organizations are required to form reserve capital:

Joint-stock company (paragraph 3, clause 1, article 35 of law No. 208-FZ of December 26, 1995).
Unitary enterprise (clause 1 of article 16 of law No. 161-FZ of November 14, 2002).
Certain types of cooperatives. The rule is regulated by Part 1 of Art. 53 of Law No. 215-FZ of December 30, 2004, clause 16, part 3, art. 1 and part 3 of Art. 26 of Law No. 190-FZ of July 18, 2009, as well as paragraphs. 6-7 tbsp. 36 of Law No. 193-FZ of December 8, 1995.

Limited liability companies (abbreviated as LLC) form reserve capital on a voluntary basis (Clause 1, Article 30 of Law No. 14-FZ of 02/08/1998).

A similar rule applies to homeowners’ associations (abbreviated as HOAs), which is stipulated in paragraphs. 5 hours 2 tbsp. 145 and part 3 of Art. 151 of the Housing Code of the Russian Federation.

Formation order

The insurance fund - reserve capital - is created by the company through the formation of reserves. In this case, the organization is guided by the norms of the legislation of the Russian Federation, as well as the provisions of its constituent documentation. This is stipulated in clause 69 of the Accounting Regulations and clause 20 of PBU 4/99.

The organizational and legal form of the company determines the composition of reserve capital, the elements of which can be:

The reserve fund itself is the main component of the reserve capital, formed either mandatory (according to the requirements of the law) or on a voluntary basis (the organization has the right to stipulate the creation of such a fund in its constituent documentation).
A special fund intended for the corporatization of employees of a joint-stock company. The possibility of its formation is provided for in paragraph 2 of Art. 35 of Law No. 208-FZ of December 26, 1995.
Special funds, the funds of which can be used for dividend payments on preferred shares. The possibility of creating such funds in a joint-stock company is stipulated in clause 2 of Art. 42 of Law No. 208-FZ of December 26, 1995.

The company's reserve fund can be formed from the following sources:

Deductions made by an organization from its own net profit.
Contributions purposefully transferred by participants (shareholders) of the company.
Other possible sources.

The reserve fund is replenished by the organization until it reaches the required size specified in its constituent documentation. If the funds of the fund are spent, its value becomes less than the required amount - the reserve fund is replenished again until the required size is reached.

The formation of reserve capital is reflected in the company’s accounting records under the credit of account 82, called “Reserve Capital”.

In this case, the account that corresponds with the credit of account 82, as well as the documentation that is the basis for the formation of proper accounting entries, are determined by the source of formation of this fund (net profit, contributions, other sources).

For example, a joint stock company (JSC) must form a reserve fund exclusively from the net profit received, which is clearly defined in clause 1 of Art. 35 of Law No. 208-FZ of December 26, 1995.

As for LLCs, these organizations create this fund voluntarily, prescribing the appropriate condition in their charter (clause 1, article 30 of Law No. 14-FZ of 02/08/1998).

Amount of contributions to reserve capital

If we are talking about the formation of reserve capital, the corresponding procedure and amounts of deductions are determined by the organizational and legal form of the company:

A joint stock company (JSC) pays annually at least 5% of its net profit. The minimum allowable amount of the reserve fund is 5% of the amount of the authorized capital.
Limited liability company (LLC), homeowners association (HOA). The sources, amounts of contributions and the amount of the reserve fund are determined by the charter of the relevant organization.
Unitary enterprise. Deductions are made from available net profit. The amount of deductions and the size of the fund are provided for by the charter of the enterprise.
For a number of cooperatives, the amounts of contributions are stipulated in their constituent documentation (usually the charter).

Preferred shares as reserve capital: paying off debts

Article 35 of the Law on Joint-Stock Companies specifies the directions in the form of a list where funds contained in the reserve capital are allowed to be directed. For example, it is prohibited to use it to pay dividends.

The fund cannot be used to achieve other goals; the prohibition is expressly stated in the legislation.

At the same time, the legislation mentions that the reserve fund itself is often compiled by several funds, for the formation of which money is deducted from what is called net profit.

Read about the procedure for forming reserves for debts on this page.

Drawing up a reserve fund is the responsibility of management at any enterprise. But management has the right to regulate the formation and use of funds from other funds, depending on the desired policy.

An example of calculating an organization's reserve capital

200 thousand – total profit for the reporting period. 500 thousand rubles are in a special fund. Finally, 350 thousand rubles are equal to the company’s obligations associated with the obligation to pay dividends to those who have preferred shares.

When calculating dividends and preparing a report in the accounting department, such transactions are reflected in compliance with the following rules:

1. Debit 84. Credit 75.

200 thousand rubles - to indicate net profit, which is used to receive dividends by holders of preference shares.

2. Debit 82. Credit 75.

150 thousand rubles - the amount from which the special fund is formed is also used to pay those who purchased this type of shares.

But there is another scheme that is not directly prohibited by current legislation:

3. Using the funds in a special fund, it is possible to pay all dividends associated with those who have a certain number of shares of the preferred group. In the same example, we write off the entire amount of 350 thousand, it is written off from the debit of account 82. For other purposes, payments on ordinary shares, we direct the net profit received for a certain period.

Formation of authorized capital in enterprises of various types.

Reserve capital of an enterprise, its types and sources of formation

The reserve capital of an enterprise can be considered in a broad and narrow sense.

In a broad sense

reserve capital includes all components of capital intended to cover possible future unforeseen losses and losses.
In a narrow sense,
reserve capital is identified as capital that is formed through deductions from net profit and is reflected in the balance sheet item “Reserve capital.” In the economic literature, enterprise reserves are usually classified according to the following criteria:

sources of formation;

way of reporting;

obligatory creation.

According to the sources of formation, reserves are divided into:

capital reserves are formed at the expense of the owners and other persons (recorded under the items “additional invested capital” and “other additional capital”);

reserve capital formed from the net profit of the enterprise (reserve capital in the narrow sense);

reserves created by increasing the company's expenses.

Based on the method of reporting, reserves are divided into open and hidden. Open reserves can be certified in the balance sheet under the items “Additional capital” and “Reserve capital”, and hidden reserves do not appear in the balance sheet in any way (see section 4).

For mandatory creation, mandatory and optional reserves are distinguished. The creation of the former is regulated by current regulations. The latter are formed on the initiative of the enterprise management and its owners. Mandatory reserves include the reserve for doubtful debts and reserve capital. All other reserves, for example the dividend reserve, the reserve for fulfillment of guarantee obligations, are optional.

It is clear that the main purpose of reserves is to ensure the fulfillment of the protective function of the enterprise's own capital. The procedure for implementing this function and the use of various types of reserves to cover losses are shown in Fig. 3.1.

Rice. 3.1. The procedure for implementing the protective function of equity capital

As we see, enterprises can use all types of reserves to cover losses, as well as, under certain circumstances, authorized capital. It is clear that, first of all, retained earnings (if any) should be used to cover losses. Once such income is exhausted, hidden reserves (see Section 4) and reserve capital created from profits should be used for such purposes. In the event of a shortage of these sources, capital reserves (additional capital) can be used to pay off uncovered losses. The last possibility of covering losses is an attempt to obtain a reorganization profit as a result of reducing the authorized capital, which will be discussed below.

Let us consider in more detail the main types of reserves that can be created by enterprises.

According to the legislation of Ukraine, every enterprise founded in the form of a joint-stock company, limited liability company, etc., must have reserve (insurance) capital formed. The size of this capital is regulated by the constituent documents, but it cannot be less than 25% of the authorized capital of the enterprise. For joint stock companies, the minimum amount of reserve capital must be 15% of the share capital. The amount of annual contributions to reserve capital is also provided for by the constituent documents, but cannot be less than 5% of the net profit of the enterprise. For comparison: in Germany, a minimum limit has been established for the total volume of reserves: capital and those created from profits. According to the Joint Stock Companies Act (AktG), German companies must allocate a twentieth of their net profit to form mandatory reserves. Such deductions must be made until the volume of total reserves reaches 10% of the company’s nominal capital[36]. A similar procedure for the formation of reserves is in effect in Switzerland, with one difference that the minimum amount of required reserves is 20% of nominal capital. It is interesting that the creation of required reserves by limited liability companies is, as a rule, not regulated by the laws of developed countries. This is the responsibility of the participants.

Therefore, reserve capital ( in the narrow sense

) is the amount of reserves formed from net profit in the amounts established by the constituent documents of the enterprise and regulations. Reserve capital can be used for the following main purposes:

covering losses of a business entity;

payment of debts in the event of liquidation of the enterprise;

payment of dividends (if the amount of reserves exceeds the minimum acceptable level);

other purposes provided for by law or constituent documents.

Until the minimum required amount of reserves is formed, they can only be used to cover losses. Information on the movement of reserve capital is contained in the Statement of Owner's Capital of the enterprise. The same report reflects the dynamics of capital reserves.

In the so-called capital reserves, that is, reserves that are created at the expense of the capital of the owners (or other persons), additional capital belongs. The source of formation of these reserves is not the economic activity of the enterprise. The concept of “Additional capital” appeared in domestic economic practice relatively recently. According to the definition given in accounting standards, additional capital is the amount of increase in the property of the enterprise, which arose as a result of revaluation (indexation), non-current assets received free of charge and from share premium. Domestic regulations do not establish any restrictions regarding the size of capital reserves.

A distinction is made between additional invested capital and other additional capital. Additional invested capital

characterizes the amount of share premium (the difference between the sale and par value of the initially placed shares) received as a result of the sale by joint-stock companies of their own corporate rights. Other additional capital includes the following components:

other invested capital;

revaluation (depreciation) of non-current assets;

the cost of freely received non-current assets.

Up to other additional capital

belongs to other capital invested by the founders of enterprises (except for joint-stock companies), which exceeds the authorized capital previously contributed by such founders without making a decision to change the size of the authorized capital. In our opinion, additional capital should also include capital income in the form of the difference between the nominal value of repurchased and canceled corporate rights and the repurchase price. The nature of this income is the same as share premium. In addition, it is advisable to include additional capital in the amount of excess of the issue rate of convertible bonds over their nominal value.

The additional valuation (depreciation) of non-current assets includes the amount of revaluation (depreciation) of assets, which is carried out in cases provided for by law. Note that the revaluation of current assets can be considered as additional capital of the enterprise; it is reflected in the corresponding positions of the Statement of Financial Results.

The value of non-current assets received free of charge includes the value of non-current assets received free of charge by the enterprise from other persons. It is considered additional capital i is reduced by the amount of accrued depreciation, the amount of which is recognized as income simultaneously with its accrual. Note that free current assets received are considered as income of the enterprise and cannot be additional capital.

Example 3.4

The company received free of charge a fixed asset with an initial cost of 100 thousand UAH, as well as semi-finished products with an initial cost of 15 thousand UAH. The annual depreciation amount for these fixed assets was UAH 5 thousand. Which financial statement items should reflect the changes that result from these transactions?

Other additional capital is increased by the amount of the difference between the initial cost of fixed assets and their depreciation. Other income increases by the amount of depreciation of non-current assets received free of charge and by the entire amount of current assets received free of charge. The corresponding cost items are also increased by the amount of accrued depreciation.

Additional invested capital and other additional capital can mainly be used in the following main areas:

Firstly

, to cover balance sheet losses, provided that all other sources have been used for these purposes;

Secondly

, to increase the authorized or share capital;

Thirdly

, to cover the difference between the actual cost of the withdrawn capital, which is being cancelled, and its par value.

The main restrictions regarding the use of additional capital include the prohibition of its use to increase the authorized capital, the redemption of one’s own corporate rights, if the balance sheet reflects uncovered losses and the inadmissibility of its distribution for the purpose of paying dividends in cash.

Among the mandatory reserves that must be created at the enterprise is the reserve for doubtful debts , which is formed in order to cover possible losses of the enterprise as a result of the debtor’s failure to repay doubtful or bad receivables. The accrual of the reserve amount is reflected as part of other operating expenses. Since as a result of the formation of a reserve for doubtful debts, the net profit of the enterprise decreases, this indirectly affects the amount of equity capital.

The amount of the enterprise's receivables is reflected in the statements at net realizable value, which corresponds to the difference between the amount of current receivables for goods (works, services) and the reserve for doubtful debts. The amount of the reserve for doubtful debts can be determined using two methods: based on the solvency of individual debtors or based on the classification of receivables. In the first case, the amount of the reserve is determined based on an analysis of the actual non-payment of receivables in previous periods. If the reserve is created on the basis of the classification of receivables, the receivables are grouped according to the period of their non-payment with the establishment of a doubtfulness coefficient for each group, which is determined by the enterprise based on the actual amount of bad receivables for products (goods, works, services) for previous reporting periods. As the period for non-payment of receivables increases, the doubtfulness ratio increases . The amount of the reserve for doubtful debts is determined as the sum of the products of current receivables for products (goods, works, services of the corresponding group) by the doubtfulness coefficients of the corresponding group.

If current receivables not related to the sale of products (goods, works, services) are recognized as uncollectible, then such debt is written off from the balance sheet with losses reflected as other operating expenses. If the debtor has reimbursed the debtor for the amount of debt previously recognized as bad and written off from the reserve for doubtful debts, the amount of the debt must be restored to the reserve for doubtful debts while simultaneously reflecting this amount as part of the income of the reporting period.

In addition to the mandatory reservation of amounts, enterprises, at their discretion, can create collateral (reserves) to reimburse future expenses. Detailed information on the procedure for the formation and use of collateral is provided when considering the internal sources of financing of the enterprise (Section 4).

Community bonds when forming the authorized capital and redemption rules

Bonds belong to the group of securities, according to the text of Article 143 of the Civil Code of the Russian Federation.

An addition needs to be made here. Bonds are paid out of the reserve capital only when there are no other sources of payment. Other expenses usually include the amount representing the difference between the redemption cost and the nominal price, in a larger direction.

This situation can arise only if other miscellaneous expenses stop being generated. This requires the complete absence of any actions related to the conduct of business of entrepreneurs.

Recommendations for wiring will look like this:

The amounts used to redeem bonds and transactions on them are displayed in Debit 82 and Credit 66 or 67. But not everyone recognizes this option as correct. The placement of bonds is associated with the formation of a credit balance in the loan and credit accounts. Due to the processing described above, the debt may increase.
Reverse wiring also becomes impossible. For example, Debit 66 (67) and Credit 82. Repayment of debt due to borrowed funds cannot be the reason why reserve capital is increased.

How is it formed?

Reserve accounting is quite simple - debit the retained profit for the amount that should be sent to the reserve account, then credit the reserve account for the same amount. When the transaction that created the reserve has been completed, the entry should be reversed to transfer the balance back to the retained earnings account.

The reserve position does not have to be presented separately on the balance sheet, but can be aggregated into a retained revenue position.

The term "reserve" is not defined in accordance with generally accepted accounting principles except as it applies to oil and gas reserves.