Major maintenance provision (voorziening groot onderhoud)

What does major maintenance provision (voorziening groot onderhoud) mean?

Under conditions, a provision for major maintenance spreads the costs of periodic major maintenance through the annual accounts.

The treatment depends on the permitted method chosen and the nature of the asset. A future plan alone is not enough to book a liability arbitrarily.

How does it work?

The legal basis is the second sentence of art. 2:374(1) DCC: a provision may be formed against expenditure in a following financial year that originates partly before the end of the financial year, in order to spread costs evenly. RJ 212 permits two treatments: include the costs of major maintenance in the carrying amount of the asset, or run them through a maintenance provision. The third possibility, charging directly to the result, has been deleted from the Richtlijn, also in the RJk volume.

If you choose the provision, you build it up per maintenance component, from the estimated amount and the period between two rounds of work. At the time of the maintenance the full amount should have been built up; if the actual costs differ, the difference goes to the profit and loss account. Replacing a major component is not major maintenance but an investment that is capitalised (Ten Geleide RJ volume).

Example

A BV owns a business premises whose exterior painting costs € 40,000 every five years. It chooses a maintenance provision and adds 40,000 / 5 = € 8,000 per year. After four years there is € 32,000. In year five the painting costs € 43,000: that year’s addition brings the provision to € 40,000, which is used in full; the remaining € 3,000 is a cost of year five. Then the build-up starts again, now with 43,000 / 5 = € 8,600 per year.

In the annual accounts

Provision on the liabilities side and cost in the P&L; policy in the notes.

Difference from the component approach

With the component approach, the expenditure for major maintenance is capitalised at the moment it is incurred and then depreciated until the next round: the cost follows the expenditure. With the provision, the cost precedes the expenditure. Over the whole cycle the result is the same, the balance sheet is not.

Common mistakes

• Reserving for ordinary daily maintenance
• Changing method every year without explanation

What to watch for

• Prepare a multi-year maintenance plan per building or installation with amounts and years.
• For tax there is a separate equalisation reserve for periodic maintenance of business assets; the commercial and tax positions can therefore differ.
• Micro and small entities have the same choice (RJk volume, chapter B2); medium-sized and large entities explain the provision separately and state which part is long-term (art. 2:374(3) DCC).

Legal basis and sources

art. 2:374 DCC; RJ 212

• Dutch Civil Code, Book 2, article 374
• Dutch Accounting Standards Board (Raad voor de Jaarverslaggeving)
• Dutch Accounting Standards Board: Ten Geleides to the volumes
• Belastingdienst: tax reserves

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