Increase Legal Reserves – Ford Online Accounting Manual

Adjustments to Income

NON US	INCREASE LEGAL RESERVES	ADDITIONS TO INCOME ACCOUNT
		9925

Year end, legal reserve increase calculation for current year.

Mandatory accrual in Mexico – Article 20 of LGSM=5% of After Tax Profit, up to 20% of Capital Stock.

			Jrnl.	Dr.	Cr.

Increase Legal Reserve increase at year end			CD
	Increase legal Reserve			9925
		Legal Reserve			2860

This account should be used only by dealers operating as a corporation in Mexico.
Reserve declarations should be supported by the minutes of the Board of Directors meeting.
Corporations have legal, accounting and tax requirements relating to profit distribution and retention, accounting advise and legal and tax counsel should be obtained regarding these requirements.
Compute 5% on After Tax Net Profit for each year, legal requirement establish obligation up to the limit of 20% of Capital stock. The balance for this account can go further based on Board of Directors decision.
A supporting schedule should be prepared for control and management review.