Reserves Resulting from Retirement Revenue (SAP Library

Reserves Resulting from Retirement Revenue

Purpose

According to the tax legislation in many countries, it is possible to transfer the undisclosed reserves that arise from the sale of assets to replacement assets (refer to Transferred Reserves). The procedure is carried out in the following steps:

You sell assets, and post the resulting gain to the G/L account set up for reserves (allocation of the reserves).

You purchase assets to replace the assets that were sold. You transfer the reserve that was "parked" in the reserve account to the new assets. The reserve then reduces the basis for depreciation for the new assets, or is represented as a value adjustment on the liabilities side (special reserves).

Process Flow

The Asset Accounting system does not yet explicitly support the allocation of reserves from gain on asset sales to a liabilities balance sheet account. You make this allocation of reserves manually in Financial Accounting. Since you are generally not allowed to balance the expense from allocated reserves with gain, the posting is usually a debit to the expense account from allocation of the reserves and a credit to the balance sheet account for allocated (transferable) reserves.