Configuring Appropriation of Net Income

Under German commercial law, the annual financial statements of a corporation or of a (commercial) partnership as defined in Section 264a HGB (German Commercial Code) allow two variants for presenting the net income for the year in equity.

In the context of the e-balance sheet (E-Bilanz), both presentations are relevant, because they lead to different requirements for the taxonomy items used. If the balance sheet is prepared with partial or full appropriation of the net income (Variant 2), you must configure and enter the Appropriation of net income report element in Tax Balance. This chapter describes how to proceed.

Two variants are available for presenting the net income for the year in equity, each of which requires different taxonomy items:

According to the prevailing opinion, the equity items net income/net loss for the year and net retained profits/net accumulated loss must not be changed for tax purposes, because they are items under commercial law. The tax surplus/deficit (Section 60 (2) EStDV) is therefore reported in the balance sheet item Equity, tax adjustment item (bs.eqLiab.equity.netIncome.taxBalanceGenerally), irrespective of the legal form and irrespective of how the net income for the year is presented. In Tax Balance, this procedure is preset in the Tax Balance Sheet Settings workspace.

The following sections describe the settings to be taken into account if the balance sheet is prepared with appropriation of the net income for the year (Variant 2). They assume that a commercial balance sheet with a tax reconciliation is submitted.

In the GCD master data, you specify whether the balance sheet reports the net retained profits/net accumulated loss and whether the appropriation of net income is submitted as a separate report element.

To do this, open the tax balance sheet you want to edit and, under GCD Master Data | Report Elements, set the Income statement ends with net retained profits / accumulated loss option (genInfo.report.id.incomeStatementendswithBalProfit) to Yes.

If you use the core and supplementary taxonomy, also set the Appropriation of net income entry (genInfo.report.id.reportElement.reportElements.EV) to Yes. If the balance sheet was prepared in accordance with Section 268 (1) HGB, the tax authorities require a statement of appropriation of net income.

All other report elements of the GCD Master Data are described in the article Managing GCD Master Data.

In the Company | Tax Balance Sheet Settings | Taxonomy items workspace, you specify how the net retained profits/net accumulated loss are transferred between the report elements and which taxonomy items are used for this. If you use the core and supplementary taxonomy, the following options are relevant for the appropriation of net income:

If the Income statement ends with net retained profits / accumulated loss option (genInfo.report.id.incomeStatementendswithBalProfit) is set to Yes in the GCD master data, the following conditions apply to the Balance sheet and Statement of changes in capital accounts report elements (see the technical guide to the e-balance sheet, section B.9.1.1):

The Appropriation of net income report element (incomeUse) starts with the net income/net loss for the year (incomeUse.gainLoss.netIncome) as the starting figure and leads via several arithmetically linked sub-items to the net retained profits/net accumulated loss (incomeUse.gainLoss).

In practice, the statement of appropriation of net income can only rarely be entered exclusively on the basis of the accounts imported from the trial balance (Summen- und Saldenliste). Therefore, under Company | GAAP Reports | Accounts, create manual accounts if required and then assign them to the taxonomy items of the appropriation of net income. You can choose the account number and description freely.

How to create and assign accounts manually is described under Maintaining GAAP Reports.

If you use special taxonomies (for example taxonomies for banks or insurance companies), the Appropriation of net income report element (incomeUse) must not be announced.

If the item Income statement ends with net retained profits / accumulated loss (genInfo.report.id.incomeStatementendswithBalProfit) is set to Yes, the corresponding P&L item for the net retained profits/net accumulated loss must be reported with a value instead (see the technical guide to the e-balance sheet, section B.9.1.1):

If the item Income statement ends with net retained profits / accumulated loss (genInfo.report.id.incomeStatementendswithBalProfit) is set to Yes in the GCD master data, ERiC performs the following checks when the e-balance sheet is submitted (see the technical guide to the e-balance sheet, section B.14.3.2.3.4.2):

Check 1

Balance sheet → Equity, net retained profits/net accumulated loss (balance sheet) for corporations (bs.eqLiab.equity.profitLoss) or for partnerships (bs.eqLiab.equity.profitLossPartnershipsHGBs264c)
= Appropriation of net income → Net retained profits/net accumulated loss (P&L) (incomeUse.gainLoss)

This check ensures that the net retained profits/net accumulated loss submitted in the statement of appropriation of net income (incomeUse.gainLoss) match the balance sheet item of the same name, net retained profits/net accumulated loss (bs.eqLiab.equity.profitLoss for a KapG, bs.eqLiab.equity.profitLossPartnershipsHGBs264c for a PersG).

Check 2

Appropriation of net income → Net retained profits/net accumulated loss (P&L); Net income/net loss for the financial year, appropriation of net profit (incomeUse.gainLoss.netIncome) + Balance sheet → Equity, tax adjustment item, reconciliation difference tax accounts to financial statements in current year (bs.eqLiab.equity.netIncome.taxBalanceGenerally.transferDiffTaxAccounts)
= Income statement → Net income/net loss for the financial year (is.netIncome or ismi.netIncome)

This check ensures that the sum of the net income/net loss for the year from the statement of appropriation of net income (incomeUse.gainLoss.netIncome) and the tax surplus/deficit from the balance sheet (bs.eqLiab.equity.netIncome.taxBalanceGenerally.transferDiffTaxAccounts) matches the net income/net loss for the year in the income statement (is.netIncome) after the tax reconciliation has been processed.