They are a special category that serious companies use, the small ones ignoring them. In fact, the provisions should be used by all companies, insofar as there is an obligation to establish them. In fact, companies juggle them to the extent that they may or may not want to reduce their profits at some point. The most used provisions are those of good execution and those constituted for receivables from clients, both provided in art. 22 Fiscal Code (CF).
Provisions for performance guarantees granted to customers
It is constituted quarterly only for the delivered goods, the executed works and the services provided during the respective quarter for which a guarantee is granted in the following periods, at the level of the quotas provided in the concluded contracts or at the level of the guarantee percentages provided in the executed works or services provided.
For construction works that require guarantees of good execution, according to the provisions of the concluded contracts, such provisions are established quarterly, within the quotas provided in contracts, provided that the income reflects the value of the works executed and confirmed by the beneficiary based on the work situations.
This means that when signing a contract with a client for a construction or a repair of a construction, the guarantees granted to the respective clients will be taken into account. These must be included in the contract, just as the contract also includes their recovery period. The contracting company is obliged to establish a provision for works of good execution, which leads to the decrease of the provider’s profit with the respective amounts. At the same time, when the guarantees are recovered, the provider’s profit will increase, as the provision will be transferred to income.
The registration at income of the provisions constituted for the guarantees of good execution is made as the expenses are made with the remedies or at the expiration of the guarantee period registered in the contract.
The same provisions apply in the case of provisions for guarantees of good execution of external contracts, granted under the law of producers and service providers, in case of complex exports, proportionally to the share of participation in their realization, provided that they are found separately in the concluded contracts or in the tariff of the executed works and in the issued invoices.
Complex export means the export of equipment, installations or parts of installations, separately or together with technologies, licenses, know-how, technical assistance, design, construction-assembly, commissioning and reception works, as well as spare parts and the related materials, defined in accordance with the normative acts in force. At the same time, the following activities are considered complex exports:
- geological design-exploration works;
- mining works for mineral deposits;
- construction of electrical networks;
- drilling wells;
- construction of scaffolding, installations and pipelines for transport, storage and distribution of petroleum products and natural gas;
- construction of complete ships;
- achieving objectives in the fields of agriculture, land improvements, hydrotechnical and forestry arrangements, organization of forestry operations;
- other activities, defined in accordance with the normative acts in force.
Provisions for uncollected customers
Receivables from customers represent the amounts owed by internal and external customers for products, semi-finished products, materials, goods, etc. sold, executed works and services provided, based on invoices and not collected in a period exceeding 270 days from the due date. The diminution or cancellation of the provisions is performed by passing them on incomes in case of receivables collection, proportionally with the collected value or its registration on expenses. It is very important to know that invoices not collected for over 270 days must automatically generate provisions, which very few administrators do for their companies. Especially since, more than once, invoices are issued for a purpose other than to be collected. Thus, the situation may arise in which a manager issues invoices, in December, to his friends with companies, in order to be able to report, at the end of the year, a high profit, on the basis of which to collect a higher commission. And at the beginning of January, those invoices are canceled by issuing cancellation invoices or, simply, friends also issue invoices to the company run by the manager, with similar amounts and there is a compensation.
In the case of receivables in foreign currency, the provision is deductible at the level of the value influenced by the favorable or unfavorable exchange rate differences that appear on the occasion of their valuation. The value of the provisions for receivables from customers is taken into account when determining the taxable profit in the quarter in which the conditions provided in art. 22 of the Fiscal Code and cannot exceed their value, registered in the accounting in the current fiscal year or in the previous years. The percentages provided in art. 22 para. (1) letter c) of the Fiscal Code, applied on the receivables registered starting with the fiscal years 2004, 2005 and, respectively, 2006, are not recalculated. The expenses representing the losses from the uncertain or in dispute uncollected receivables, registered on the occasion of their removal from the records, are deductible for the part covered by the provision constituted according to art. 22 of the Fiscal Code.