Hidden Reserves in Brief

Learn how hidden reserves are cleverly formed through deliberate under- and overvaluations in accounting.

2012

Hidden reserves are created in external income statements by overvaluing the expenses or undervaluing the income. The formation of hidden reserves can be carried out using various methods.

Hidden reserves are created using the following two methods:

Undervaluation of Assets

Cash in foreign currency: Exchange rate too lowBooking entry: Operating expense/Cash
Inventory: Valued below costBooking entry: Sales revenue/Debtors
Machinery, vehicles, furniture: Depreciation higher than actual loss in valueBooking entry: Depreciation/Furniture

Overvaluation of Liabilities

Provisions: More provisions than necessaryBooking entry: Warranty expense/Provisions
Creditors in foreign currency: Exchange rate too highBooking entry: Goods expense/Creditors

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