Value increase principle
The value increase principle is a term from accounting ( business administration ). It states that those risks and losses must also be taken into account in the annual financial statements that have arisen up to the reporting date, but only become known after this date until the annual financial statements are drawn up. As one of the principles of prudence , the valuation principle is one of the principles of proper accounting .
The increase in value principle is regulated in Section 252, Paragraph 1, No. 4 of the German Commercial Code. According to this, all foreseeable risks and losses that have arisen up to the balance sheet date must be taken into account, even if they only become known after the balance sheet date but before the annual financial statements are prepared. The new information must clarify the situation that already existed on the balance sheet date. The fact that established the value must have occurred by the balance sheet date, the increase in value can occur in the period up to the preparation of the annual financial statements.
If the reason for the value and the increase in value lie between the balance sheet date and the preparation of the annual financial statements, this is attributable to the new financial year.
example
A claim arises in December; the reporting date is December 31. On February 11th, we learn that the debtor has already filed for bankruptcy on December 20th and the claim appears to be irrecoverable. The annual financial statements for the past year will be prepared on February 28th. Thus, the information on February 11th about the debtor's bankruptcy reveals that the claim was already uncollectible on December 31st of the past year. Therefore, the uncollectibility of the claim must be taken into account when preparing the annual financial statements. It would look different if the claim had only arisen in January of the current year, or if the debtor had only become insolvent in January. Then the value-establishing fact would already be in the new financial year and should therefore be dealt with in this. Here one could at most undertake a depreciation based on a reasonable commercial assessment .
