Depreciation on current assets

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In accounting, the depreciation of current assets refers to the accounting entry of the loss in value of items in current assets . In contrast to fixed assets, current assets are not subject to scheduled depreciation. However, unscheduled depreciation may be necessary. These depreciations are the result of the principle of prudence applicable under commercial law .

According to the Commercial Code , all traders are obliged to write down the current assets with a lower value in the balance sheet, which results from a stock exchange or market price on the balance sheet date . This depreciation obligation leads to the consideration of unrealized losses in the commercial balance sheet . Under tax law , on the other hand, a partial depreciation of the current assets is only permitted in the event of an expected permanent decrease in value .

Commercial law

According to German commercial law are assets of current assets in the balance with its acquisition , or the manufacturing costs (to be set § 253 1 sentence 1. HGB ) - in each case reduced by the determined according to paragraph 4, the same procedure depreciation .

Obligation to write off

The depreciation must be carried out (depreciation obligation) in order to carry the assets with a lower value, which results from the stock exchange or market price on the balance sheet date . This determination of the strict lower of cost or market principle leads to unrealized losses being taken into account in the valuation.

When determining the value, a long storage period or a change in fashionable taste ( slow-moving goods ) may require depreciation if the expected sales proceeds do not reach the cost price plus the average entrepreneur's profit. It is a prerequisite that the impairment can be substantiated with representative records.

Appraisal

To determine the fair value, depending on the type of asset, the (purchase) price on the procurement market or the (sales) price on the sales market must be assumed:

  • In the evaluation of raw materials , consumables and supplies is the replacement cost parked
  • The price of the procurement market is also decisive for semi-finished and finished products , provided that external procurement is possible
  • For those products that cannot be obtained from third parties, however, the value must be derived from the sales market
  • For all merchandise and excess stock, a lower price on the procurement market as well as on the sales market is to be used in accordance with the double relevance

The exchange price is the price determined on the exchange if the corresponding transactions were carried out there. The market price is the price that was achieved at a trading venue for goods of a comparable class of average type and quality at a specific point in time. The price determined in this way is the initial value which, with surcharges for ancillary acquisition costs and discounts for price reductions, represents the balance sheet value.

example

In the sanitary industry, goods can be considered particularly heavy or unsaleable if the item has not been traded for two years. The same applies if the economic good has a delivery range of more than 24 months. If, with a stock of 5,000 pieces, a cost of only 500 pieces per year can be achieved, then this product is considered a potential slow-moving goods. Because of the cost rate for the storage of the stored assets, the cost of the stored merchandise is higher the longer it remains unsold. In addition, there is a possible need for devaluation for quality losses and changes in taste.

Tax law

For current assets , only partial value depreciation is permitted for tax purposes , since the value of the current assets does not generally decrease over time and, by definition, not through use, which means that there is no planned loss of value. A prerequisite for tax depreciation is an expected permanent decrease in value , which can occur, for example, due to damage or new technologies. Seasonal fluctuations in the sales market are therefore usually not a reason for depreciation.

The different legal treatment means that merchants often no unit balance can set up, but first, a trade balance and one for tax purposes, tax accounting need to create.

Legal status and changes due to the Balance Sheet Modernization Act

This article takes into account the changes made by the BilMoG . Previously, under commercial law, impairments in value could be retained in subsequent years if the value had risen again. This is no longer possible in the new version of Section 253 (5) HGB. In addition, based on reasonable commercial judgment, depreciation due to fluctuations in value may no longer be carried out.

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