Small companies in particular often do not have the necessary experience when it comes to provisions for deferred maintenance. What are the different conditions for setting up maintenance provisions?? Practical tips and practical examples make the subject clear.
In addition to sufficient knowledge of the facts and reasonable preparation, a systematic approach is also necessary when setting up the provision for deferred maintenance. the legal basis for the provision for deferred maintenance is § 249 HGB abs. 1 S. 2 nr. 1. The content of the provision must be interpreted, the amount of the provision must be calculated correctly. For this purpose, it is necessary to know the effects of the formation and to deal with the operations in the audit, to the extent that the correctness of the calculations from the accounting is doubted.
Practical note: obligation to form provisions
The creation of the provision for deferred maintenance is not an option. the accountant must form this liability item in the balance sheet. However, there is room for interpretation in terms of content and height, which must be documented accordingly.
§ Section 249 of the German Commercial Code (HGB) stipulates that provisions must be recognized for uncertain liabilities and for anticipated losses from pending transactions. In addition, explicit reference is made to the formation of provisions for "maintenance expenses not incurred in the fiscal year which will be made good within three months in the following fiscal year". This obligation to establish a provision for deferred maintenance applies to both the commercial and the tax balance sheets.
Internal obligation and external obligation
Only the maintenance expense arising from the internal obligation is deferred. If the company has an obligation to third parties to carry out maintenance, this is recognized as a provision for contingent liabilities. In this case, the rule that maintenance must be completed within the first three months does not apply.
Examples of such external obligations are
- Obligations to a tenant, to bring the rental object into a usable condition (z. B. Repair of a defective heating system in rented office premises),
- Obligations to repair damage, incurred by a third party as a result of the company’s activities (z. B. Paint damage to neighbor’s vehicles due to a filter defect in the exhaust system),
- Obligation to the municipality, to compensate for road damage caused by the use of the road as an access route for trucks.
In addition to the provision for deferred maintenance, there is only a second type of expense, which is recognized as an expense provision in the intercompany relationship in accordance with § 149 para. 1 no. 1 must be set up: expenses for the removal of overburden. Further provisions for expenses are not permitted (§ 149 abs. 2 HGB).
Distinction between maintenance and repair expenses and conservation expenses
The provision is formed only for maintenance expenses. The expenses for regular maintenance and upkeep work are to be distinguished from this. These must not be posted to the provision.
This means that the postponed inspection of the truck is not included in the calculation, nor is the regular inspection of the production plant. Irregular maintenance work that z.B. be scheduled depending on the load, but are among the measures that must be taken into account in the provision.
The amounts that have to be capitalized as a result of maintenance are also not included in the provision. Extensive conservation measures and value-enhancing maintenance must be capitalized. These are therefore not costs, and a provision may not be recognized for these amounts.
Practical tip: documentation as prevention for audits
Some time after the completion of the activity, it is no longer fully understandable why capitalization has or has not taken place. This makes it all the more difficult to recognize and argue for this limit on the provision. Detailed documentation is necessary in order to be able to argue correctly in the event of a subsequent audit.
Prerequisite: maintenance actually necessary in the fiscal year
A further prerequisite for the provision is the requirement that the maintenance has become necessary in the fiscal year and should also have been carried out then. The deferral is made for various reasons, most of which are of a technical or organizational nature.
Practical examples of maintenance provisions
- the truck in the fleet had an accident in december of the past fiscal year, the damage to which should have been repaired in the short term. However, as the truck was needed for urgent deliveries, the repair is postponed to January.
- The hole that suddenly appeared in the tar surface of the company courtyard could not be repaired in december because the weather was too bad. This was made up for in february.
- The lathe in the production department could no longer execute certain programs. The repair had to be carried out by the manufacturer of the machine. However, we did not have any capacity available in december. It was not until the end of january that the fault could be rectified by a fitter from the manufacturer.
- For the repair of the roller door, a new control system was necessary. This was ordered immediately but could only be delivered with a lead time of 8 weeks. Accordingly, the repair was not carried out until march.
Points of contention: possibility of catching up, three-month period and dissolution
It is disputed whether maintenance that arose before the beginning of the fiscal year may be included in the provision for the fiscal year. According to prevailing opinion, there should be a catch-up prohibition here. The situation is different if the measure was already started in the fiscal year but not yet completed. Costs already incurred are booked normally. Costs for the part of the work that has not yet been carried out belong in the reserve.
In principle, it should not be difficult to find an organizational reason for postponing a repair. There is hardly any discussion about this with the auditor.
Three-month period for the period between the occurrence of the necessity and the end of the year
There is no rule for the period between the occurrence of the need for maintenance and the end of the year. However, it is difficult to justify if maintenance is necessary in January but not yet completed in December. This leads to discussions with the auditor.
An important deadline is the time by which the maintenance must be made up in the new year. Here, a period of three months must be observed. Thus, if it is foreseeable from the outset that the repair of the vehicle, building or machine will not be completed by the end of the third month, the corresponding maintenance must not be taken into account. This deadline is applied very carefully by the auditors.
- The maintenance measure must be successfully completed by the end of the three-month period.
- It must be probable that the deadline will be met when the provision is made for each individual measure.
- If the deadline is exceeded, the tax authorities will assume that the balance sheet has already been corrected.
Reversal of the provision when the reason no longer exists
According to the HGB, provisions may only be reversed if the reason for the provision no longer exists.
In the case of the provision for deferred maintenance, this is the case if
- The measure has been carried out or
- No longer necessary, z.B. Because the defective machine was sold.
If the maintenance is not carried out until after the three-month period has expired, the provision has been calculated incorrectly and must be corrected. If the balance sheet is not submitted with the tax return until after the deadline, the tax authorities assume that the balance sheet has already been corrected. The provision for deferred maintenance is reduced by the measures which, contrary to initial planning, could not be completed on time.