October 30, 2016 admin

Legal Reserve

Liabilities and Net Worth

NON US⁄Dealer Development Only LEGAL RESERVE NET WORTH ACCOUNT
2860

ACCOUNT EXPLANATION
Cumulated balance of legal reserve. (Corporate life time up to date.)

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

*LGSM = Ley General de Sociedades Mercantiles (Corporations General Law).
TRANSACTIONS
  Jrnl. Dr. Cr.
  Legal reserve increase declared by Board of Directors, after their Annual Meeting CD
    Estimated Legal Reserve 9925
      Legal Reserve   2860
             
  Legal Reserve Capitalization CD    
    Legal Reserve   2860  
      Common Stock     2801
COMMENTS
  • This account should be used only by dealers operating as a corporation in Mexico.
  • Reserve should be supported by the minutes of the Board of Directors meeting, as well as capitalization.
  • Corporations have legal, accounting and tax requirements related 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 limit of 20% of Capital Stock. The balance for this account can go further if Board of Directors decides to.
  • A supporting schedule should be prepared for control and management review.