Value adjustment
In accounting, value adjustments are adjustment items on the liabilities side of the balance sheet that adjust the book value of an asset item to its lower actual value . They represent an indirect value adjustment (indirect depreciation ) because the impairment that has occurred is not shown directly in the asset item .
Germany
General
Write- downs are mostly made for current assets , while direct depreciation is common for fixed assets . In contrast to direct depreciation, the historical book value ( acquisition or production costs ) of the asset items to be adjusted is shown and the corresponding adjustment is posted on the liabilities side . Value adjustments serve to implement the (strict) lowest value principle because they reflect the lower actual value of an asset on the balance sheet date . As with all loss anticipations permitted under commercial law, the value adjustment also serves to preserve capital, whereby an accrual calculation of profit is dispensed with. It is therefore comparable to a provision for uncertain liabilities, the cause of which is also in the year of origin. Indirect depreciation in the form of value adjustments is generally not permitted for corporations . This results directly from the structure of Section 266 (3) HGB , in which no position is provided for value adjustments on the liabilities side of the balance sheet . For this reason, value adjustments may only be used by all other legal forms in the context of indirect depreciation.
Allowances in current assets
In the current assets, write-downs concentrate in particular on trade receivables, stocks and other assets.
The large number of receivables and items in stock is exempt from the principle of individual valuation ( Section 252 (1) No. 3 HGB) because the individual determination of the values and risks of an individual valuation object appears impossible, difficult or unreasonable and only several combined assets or Debts give an accurate balance sheet; it corresponds to the principles of proper bookkeeping to create a general value adjustment for a larger amount of receivables or general provisions for guarantee risks. The principle of balance sheet clarity is adhered to.
Fundamentally, money claims are shown in the trade balance sheet at their nominal value. However, if the partial value of a claim is lower than its nominal value because it is doubtful whether the claim will be met in the amount of the nominal value (risk of default), the lower partial value must be recognized instead of the nominal value by means of a corresponding value adjustment. Receivables are therefore to be valued at the amount estimated by the value adjustment. The value adjustment of receivables does not preclude the fact that they have been (partially) fulfilled after the day on which the balance sheet was drawn up and that the creditor continues to deliver to the debtor.
General allowances
Main article: General allowance
Since the entire inventory of trade accounts receivable is used as the basis for valuation when calculating the general valuation allowance, the principle of individual valuation ( Section 252 (3) HGB) has been broken. An individual valuation of large amounts of receivables would be too time-consuming, so that the BFH followed the concept of “materiality” in the accounting and recognized the general value adjustment. The ECJ also considers a general risk assessment for claims to be permissible. However, this group rating is subject to the following restrictions:
- Accounts receivable that have already been individually adjusted are to be separated out,
- Claims with offsetting options are also to be excluded,
- Accounts receivable are to be deducted,
- insured claims are only to be taken into account with their retention ,
- a value adjustment is only to be made on the net amount of the claim excluding sales tax.
These criteria (“intact net receivables”) are to be taken into account for the entire receivables portfolio and form the basis of assessment for the general bad debt allowance. Since 1995, a non-took up border under applicable in the German tax authorities audits (tax audit) as far as the general allowance 1% does not exceed the tax base. The use of higher values requires evidence of corresponding empirical values in previous financial years. According to IAS 39.58, general value adjustments are not permitted.
Individual value adjustments
Main article: Individual value adjustment
If a certain receivable has a particularly high default risk, an individual value adjustment must be made on this receivable. The claim concerned is then to be removed from the portfolio of general bad debt allowances, provided that it has already been taken into account therein. Doubtful claims are to be stated at their probable value, uncollectible claims are to be written off ( Section 253 (2) HGB); Bad debts should only be valued using the direct write-off method.
The Federal Fiscal Court is of the opinion that the subsequent payment of the claim does not speak against an individual value adjustment. A contrary view would violate the requirement to report unrealized but imminent losses ( Section 252 (1) No. 4 HGB). The fact that a customer continues to receive deliveries despite existing payment difficulties does not make it impermissible to make an individual value adjustment.
If a full loan claim was incorrectly not adjusted in value in the year in which the loan was granted and if the value adjustment is made up in a subsequent assessment period based on the principle of the formal balance sheet relationship ( balance sheet continuity ), the recovery in the subsequent assessment period can lead to a hidden profit distribution .
Switzerland
In the income statement of an AG, losses in financial expenses are referred to as value adjustments.
Individual evidence
- ↑ BFH judgment of October 15, 1997 BStBl. II 1998, p. 249
- ↑ BFH judgment of August 20, 2003 BStBl. II 2003, p. 941
- ↑ BFH judgment of July 16, 1981 BStBl. II 81, p. 766
- ↑ ECJ, judgment of January 7, 2003, BStBl II 2004, p. 144 margin no. 119
- ↑ BFH judgment of August 20, 2003 BStBl. 2003 II, p. 941
- ↑ BFH judgment of 8 October 2008, DB 2009, 317
