Correctly directing retained earnings to the formation of a reserve fund is not such a difficult task as it might seem, although it requires some care when preparing documentation. It is necessary to direct deductions every year until the fund is equal in size to the declared in the constituent documentation. For AO, the standard amount of annual deductions is 5% of net profit or more. Thus, the main source of the formation of the reserve fund is the funds received by the enterprise.
Fund formation features
In the classic case, a reserve fund is formed in order to have a reserve in case of an accident, restoration, rescue work or other similar, provoked by natural disasters, emergency situations.
Often unforeseen expenses are not limited to the listed list. The procedure for the formation and use of the reserve fund involves the allocation of funding for the organization of various events that are not included in the fiscal year plans, but are necessary for holding. It is the reserve fund that is the main opportunity to pay expenses that are not prescribed by laws, budget decisions, not specified in executive orders.
Many or few?
From the current standards it follows that the formation of a reserve fund in the Russian Federation is possible without upper limits. This rule applies to the budgets of entities, and to the accumulation of municipalities. The absence of restrictions is expressly stated in the Budget Code.
If the formation and use of the reserve fund is organized in accordance with the law, then the profit is distributed with strict restrictions. In particular, it is impossible to make a reserve fund of more than a quarter of the authorized capital, nor can it be less than 10% of this value.
How much to give?
About how much to allocate money to the fund at a time, a decision is made together. They gather all the shareholders of the company, the course of the event is recorded in detail, and based on the results they make a decision, then declared by internal order. The document accurately indicates how large the deductions should be, as well as what is the procedure for the formation of the reserve fund as a whole.
It will be necessary to allocate money in the amount established during the general meeting every year until the accumulation in the fund reaches the mark indicated in the constituent papers. In 1997, a law was passed declaring that the formation of the funds of the reserve fund is carried out only after payment of all income taxes. From then to this day, this rule has remained unchanged.
Why and why?
Why is the formation of a reserve fund of the enterprise necessary? The main idea is to create such a volume of reserve funds that can cover the unplanned losses of AO. In addition, it is from the Russian Federation that the necessary amount can be allocated to pay dividends, for which the main profit of the company was not enough. If dividends have been paid and the company still has money, you can send them to the formation of another reserve fund.
Most often, an additional reserve fund is formed specifically to provide the company with supplies in case equipment needs to be replaced. In order to predict what size of such a fund will help to get out without losses in an emergency, at the same time not to save too much money, they use the extrapolation method. It consists in forecasting needs based on prevailing trends.The procedure for the formation of a reserve fund for the replacement of equipment is established by internal documents.
Profit and reserves
To predict how large the need for reserve money will be, it is necessary to apply mathematical methods. In this case, the replacement of worn-out equipment, as well as the possibility of sudden breakdowns, are taken into account. There are several complicated methods for calculating the correct formation of a reserve fund.
Company management (or a meeting of shareholders) has enough power to channel the firm's financial reserves into decentralized reserve funds. At the same time, the postings of the formation of the reserve fund are limited by the amount of the authorized capital and profit. The expenditure component of any budget always involves the creation of a reserve. In fact, it becomes a separate part, which can only be controlled by those who have been given special powers. Inside the organization, these are declared in internal documents and statutory documentation, and if it comes to the formation of a state reserve fund, then the authority and responsibility are vested in the executive branch or local government.
Addiction and independence
The formation of reserve funds is related to how much higher wages must be paid at the enterprise. Consequently, the size of the reserve depends on production capacity. The reserve is used as a reserve in case, at the time of the advance payment, the necessary amount of money does not appear on the accounts of the company on the accounts of the company. If the company has temporary financial problems or production is suspended, it is the formation of the reserve fund that helps to avoid the loss of workers. This is most relevant in production with a pronounced seasonal effect, as well as during the delivery of the manufactured product.
The federal law No. 208, adopted in 1995, tells about the amount of deductions to the reserve. It is devoted to the features of the functioning of joint-stock companies, and aspects of the correct formation of the reserve fund are also mentioned there.
Banks and insurers
If we are talking about the banking structure, then the size of the reserve and the features of the deduction of funds are prescribed in the internal regulations of the financial organization. If the documentation regulates that it is possible to transfer company funds withdrawn from net profit to various structures, then it is allowed to transfer money to the reserve fund when unused annual balances are revealed. In addition, they calculate how big net profit for previous years is, on the basis of this a decision is made on deductions in the current reporting period.
If we talk about insurance companies, then one of the main indicators is the net rate. It is at the expense of it that insurance companies can have no doubt that the insurance indemnity will be paid in full if an event fixed in the contract occurs. Enough funds are allocated to the reserve fund so that the insurance company can calculate for all operations.
Reserves: what are they?
When a company makes some profit, first of all, it is necessary to pay interest on credit programs, as well as pay membership fees and share savings. The money remaining after these operations can be sent to reserve funds. These are different, they are formed taking into account the specifics of the organization, the authority responsible for creating the fund.
One of the most important reserve funds in any company is created to have financial reserves in case it is necessary to cover losses incurred due to delays in loan payments or written off loans. To form this reserve, money is deducted from credit interest, contributions of members of the company and mutual savings. You can withdraw a certain amount from loans written off and repaid earlier.When calculating the size of the required financial stock, you need to read how large the receivables of the organization are, and take a certain percentage from it. How big it is is indicated in the accounting policies approved by the head or shareholders meeting.
Features of the use of the reserve
Financial reserves formed in case of credit delinquency are necessary in order to minimize losses associated with write-offs of loans. Write off such loans for which the delay is 90 days or more. The reserve and its value relative to accounts receivable allow us to talk about the amount of reservation.
Typically, accounting policies prescribe the standards, the observance of which guarantees the financial stability of the company. Typically, redundancy is maintained at 8%. Where to get the money for deduction to the reserve is decided by the heads of the organization, the management team. All information is recorded by internal official documents, and is also reflected in the reporting for the year, interim. Studying the balance sheet, you can find in it information about the accumulated reserve and the postings by which funds were transferred to it, in assets. The reserve as a whole and the overdue debt are indicated separately. It is also mandatory to indicate how large the conditionally debited debt is.
Specificity of calculations
The described calculation method does not allow to establish a single reserve fund for all years of the company’s existence. The size of the reserve is floating, determined by how many delinquencies have accumulated in a particular time period. A reserve is formed, taking into account how large the written-off loans for which the delay has exceeded three months. For the calculation, they take the amount of those loans for which a judicial decision on compensation was issued.
A correct assessment of the reserve fund is required for reporting. From it, conclusions can be drawn about how much gross, net, are relative to receivables.
Liabilities and reservations
Another indispensable reserve in any modern enterprise is reserves formed to fulfill obligations. It is about personal savings of unit holders. Such a reserve is needed to cover shortfalls formed during write-offs and loan delinquencies. The sources for the formation of the reserve, as in the case described above, are the contributions of the holders of shares, membership fees and the net profit of the enterprise.
A reserve for securing liabilities allows you to set a loss limit for an individual savings portfolio. The reserve is usually formed at a five percent level relative to the personal investments of participants in the enterprise. For the calculation, the indicators for the last accounting year are taken. The parameters necessary for calculating the maximum reserve amount are reflected in the accounting documentation in the “Reserves, capitals” column.
Features of the reserve for obligations
To cover the losses provoked by overdue loans, it is necessary to form a fairly elastic reserve. Arrears are grouped based on periods of debt, and save money to recover possible losses if you need to write off any more loans in the future.
Fulfillment of obligations requires the creation of a static reserve. Its value is calculated by analyzing how large at the end of reporting savings portfolios. The formation of the reserve is determined by the value of such a portfolio, closely related to the quality of the debit. With the growth of the reserve in case of non-repayment of receivables, it is also necessary to increase the volume of stocks to fulfill personal obligations.
Quality and quantity
In order for personal savings to be as liquid as possible, the meeting of shareholders or the managing staff of the company may decide on special standards for the reserve fund.In this way, the amount of annual compensation for the use of funds is adjusted, and other amounts that will have to be spent on paying for contracts concluded earlier than the deadline are assigned.
Forming the reserves of the enterprise, necessarily take into account the so-called dormant share accumulations. They include capitalization, transferred to sleeping status in accordance with the official internal order for the enterprise, signed by the general director. Shareholders have the right to write an application to be included in active members of the management team. Then mutual savings are transferred from reserve to capitalization. In order to control the volumes of sleeping reserves, they are taken into account in the financial statements in the column “Reserves, capitals”.
Mutual financial support
Another very important section of reserves formed from the company's cash reserves is mutual assistance. Such a reserve is created if the board of JSC issues an appropriate order. They spend money on credit products, the development of new ideas, the provision of mutual assistance services, the return on which can only be in the long term.
When issuing an order for the execution of which a reserve is formed, they immediately indicate how large the reserve can be. Limit the limit of transferred amounts and the terms by which potentially promising loan products should be placed. They also prescribe the maximum duration of the expectation of financial return and the resources through which losses can be compensated, if any, overtake the company when participating in a loss-making campaign.