Fictitious profit

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Under a fictitious gains ( English fictitious gain ) at company a profit understood by the between procurement and replacement of spent means of production , raw materials , consumables and supplies occurred inflation has emerged. The opposite is the apparent loss .

General

The fictitious profit is a profit that is not generated by the actual operational purpose and commercial activities of a company, but is only due to external inflationary price increases. Due to the price development, a distinction must be made between the real value and the nominal value of a monetary unit . Then the fictitious profit is part of the real value analysis, in which the price development is taken into account. If the acquisition costs increase while the sales price remains the same, an apparent profit arises in the amount of the difference between acquisition costs and the increased replacement costs of the same item. This fictitious profit is therefore not a real profit, because it ultimately only consists of the positive difference between the acquisition costs of the used goods and the acquisition costs of the re-acquired goods. If there is an annual deficit , there is a fictitious profit if this loss would be even greater if the corresponding acquisition costs were offset.

Business aspects

Fictitious profits occur with inflation and especially with hyperinflation . The profit is then made up - when considering the real value - of real profit and apparent profit or of real profit and apparent loss or of real loss and apparent profit. Fictitious profits endanger the necessary nominal capital maintenance because they lead to a devaluation of equity . This nominal capital maintenance is not achieved with the distribution of fictitious profits.

The apparent profit is therefore the positive difference between the profit with nominal capital preservation and the profit with real capital preservation:

.

The net asset gain is obtained by subtracting the apparent profit from the nominal profit:

.
example

The raw material copper required for production in a company cost 18 monetary units (MU) / 100 kg when it was procured on May 10 of each year. Before its production-related consumption on July 20 of the same year, copper now cost 22 MU / 100 kg when it was replaced due to inflation. The sales process resulted in a sales price of 25 MU based on the old acquisition costs.

This results in

Acquisition cost of copper 18 GE
Replacement price for copper 22 GE
Selling price product 25 GE
Nominal profit 7 GE (25-18)
substance-oriented profit 3 GE (25-22)
Fictitious profit 4 GE (7-3)

A nominal profit of 7 MU is achieved, but a substance-oriented profit of only 3 MU, so that a fictitious profit of 4 MU is included in the profit. Such a fictitious profit must not be treated like a real - substance-oriented - profit, so it should neither be taxed nor distributed. If the fictitious profit is distributed anyway, it is actually a distribution of real capital .

Emergence

In the event of a decrease in value, your own funds ( cash in hand , bank balances , securities ) and receivables ( debtors ) lose their value, as do the corresponding liabilities . This results in fictitious profits on the one hand and fictitious losses on the other. If the company keeps these balance sheet items in balance in terms of quantity and maturity , then fictitious profit and fictitious loss offset each other. What remains are fictitious profits / losses only for inventory and property, plant and equipment .

Fictitious profits arise not only from the divergence of procurement and sales prices, but also from technical progress and changes in demand . Companies must always apply new production processes, use the most modern machines and use the most productive raw materials. The prices of the previous and modern replacement goods usually do not match, so that this also results in fictitious profits. Changes in demand affect the changed purchasing behavior of customers, so that fictitious profits arise when adapting to this demand.

taxation

The problem with fictitious profits is that, like “real” profits , they are subject to taxation and distribution because they cannot be identified from the profit and loss account . The nominal value principle dominating in tax law also requires the taxation of fictitious profits. In accordance with Section 244 of the German Commercial Code (HGB), commercial law also assumes the euro as the face value of money ( nominalism : euro 2002 = euro 2017) and does not take currency devaluation into account. As a result, depreciation is only permitted from the acquisition cost and not from the higher replacement value (nominal capital preservation).

However, tax law allows for current assets to take inflation-related price changes into account. It is the consumption sequence method of the LIFO method , which tends to be suitable for preventing false profits in the event of continuously rising prices. There is no apparent profit if the production takes place exclusively from the procurement of the current financial year and the original opening inventory is not attacked. According to § 256 HGB, this method is also permitted in the commercial balance sheet.

history

The starting point for the problem of fictitious profits was German inflation from 1914 to 1923 . The business economist Erwin Geldmacher was the first to point out in a newspaper article in October 1920 the failure of the traditional nominal value calculation in the taxation of companies. In 1923 he called for a ban on the distribution of fictitious profits. He was followed by his Cologne university colleague Ernst Walb . Both sparked a broad discussion about the entire subject, because Walter Mahlberg and Eugen Schmalenbach also commented on this within a very short time. Schmalenbach pointed out that the companies suffered a loss of assets as a result of the fictitious profits. Loss of substance occurs when the sales prices are below the replacement prices of the input goods. The problem of fictitious profits still found in 1921 entrance into the organic balance theory of Fritz Schmidt .

In 1955, the legislature introduced a so-called price increase reserve ( Section 74 EStDV ) to alleviate the disclosure of fictitious profits , but it was abolished in 1989. In doing so, an expense item was allowed to partially eliminate the apparent profit , which could be transferred to the reserve limited to 4 years (from 1957: 6 years) . It could be formed if the stock exchange or market price on the balance sheet date was more than 10% higher than that on the previous balance sheet date.

Individual evidence

  1. ↑ a b Horst Eckardt: The maintenance of the substance of industrial companies . 1963, p. 41 ( limited preview in Google Book search).
  2. ^ Gerhard Gotzen: The treatment of realized and unrealized gains and losses in the balance sheet . 1963, p. 188 .
  3. ↑ Aribert Peeckel: Sham profits and iron inventory . 1970, p. 23 .
  4. ↑ Horst Eckardt: The maintenance of the substance of industrial companies . 1963, p. 48 .
  5. ↑ Horst Eckardt: The maintenance of the substance of industrial companies . 1963, p. 50 .
  6. ↑ Klaus von Wysocki : Preparation and examination of the annual financial statements according to the commercial code . 2005, p. 157 .
  7. ↑ Erwin Geldmacher: balance sheet concerns . In: Industry and trade newspaper . October 1920, p. 364 .
  8. ^ Erwin Geldmacher: Economic unrest and balance sheet . tape 1 , 1923, pp. 52 .
  9. ↑ Ernst Walb: The problem of the apparent profits . S. 14 (1921/1922).
  10. ^ Walter Mahlberg: Balance sheet technology and valuation with fluctuating currency . 1921, p. 36 .
  11. ↑ Eugen Schmalenbach: The tax treatment of sham profits . 1922, p. 9 .
  12. ^ Dieter Lindenlaub: Mechanical engineering company in the German inflation 1919–1923 . 1985, p. 58 ( limited preview in Google Book search).