+ | Expenditure for transfer to operational condition

+ | Acquisition costs

+ | subsequent acquisition costs

– | Cost reductions

= | Cost of acquisition

+ | Manufacturing costs

+ | Special costs of production

+ | Material overheads

+ | Manufacturing overheads

+ | Depreciation of the value of fixed assets caused by the production

= | Lower production cost

+ | reasonable, proportionate general management costs (optional)

+ | adequate expenses for social establishments (optional)

+ | corresponding expenses for voluntary social benefits (optional)

+ | Appropriate expenses for occupational pension benefits (optional)

+ | Interest on debt capital used to produce the asset (optional)

= | Production cost cap

The valuation provisions of the Commercial Code (HGB) represent the core element of the regulations for the preparation of trade balances. On the one hand, a distinction is made between the access assessment and the usually subsequent follow-up assessment. In the case of access assessment, either acquisition or production costs are used. Acquisition costs include both purchase price and purchase price reductions in access valuation. In addition, all ancillary costs including all costs necessary for the transfer of the property to the operational state shall be included. Furthermore, there is an even greater number of different types of costs in the production costs. Here a distinction is made between different individual and general production costs. In addition, other costs, such as general administrative costs, may be included in the calculation of manufacturing costs. Since these can be used optionally in some cases, a distinction is made between a production cost lower limit and a production cost upper limit. Both acquisition and production costs shall be activated as part of the access assessment.

1st Assessment Regulations for Access Assessment – Introduction

When accounting, many special features have to be considered. Apart from the question of whether a company is liable for accounting and, if necessary, whether an asset is even eligible for inclusion in the trade balance, the focus is usually on specific bookings. Therefore, we would now like to deal with the general valuation provisions of the HGB with regard to the accounting of assets. On the other hand, the valuation rules for debt are reserved for a separate follow-up article.

2. differentiation access assessment and follow-up assessment

First of all, we have to distinguish between the access and follow-up assessment. The access assessment is the one with which an economic asset is included in the balance sheet. However, as we know, the value of an economic asset can change over time. Therefore, in addition to the initial access assessment, a follow-up assessment may also be required. The relevant valuation rules exist for both processes. Thus, according to § 253 (1) sentence 1 HGB, the acquisition or production costs are decisive for the access assessment. On the other hand, very different aspects are involved in the follow-up assessment. They are specific and serve to present actual assets so that the trade balance can perform its task. Probably the most famous follow-up valuation is of course the usual linear depreciation for wear (AfA). In addition, there are also many other follow-up evaluation options.

Access assessment: recognition of acquisition costs

First of all, we would like to point out that the evaluation regulations for access assessment are geared towards the acquisition or production costs. For this pair of terms we find in § 255 HGB a corresponding definition.

In § 255 paragraph 1 HGB, the legislature defines the acquisition costs. These costs are those related to the acquisition of an asset and are necessary to bring the asset into its operational condition. Consequently, in addition to the purchase price, the acquisition costs also include costs associated, for example, with the transport or installation of an asset. In addition, acquisition costs (e.g. fees) and subsequent acquisition costs (e.g. for later conversions) can be added. But also purchase price reductions can influence the purchase costs. Thus, the cost valuation rules provide a solid foundation for their structured determination:

It should be noted here that you have to be able to assign all these components, from which you determine the acquisition costs, exclusively to the asset. There must therefore be a firm connection between the respective components and the asset. Otherwise, such expenses fall under different aspects and must therefore be included separately in the balance sheet.

Furthermore, only actual expenses are to be recognised. Thus, if an entity is eligible for VAT deduction, it is clear that the cost approach is based on net amounts; VAT is neutralised by the deduction of VAT, so that it is not an expense. On the other hand, in the case of companies which have not been deducted, such as the private rental of dwellings, VAT is an expense. Consequently, the acquisition costs are then calculated on the basis of the gross amounts.

4th Access Assessment: Approaching Manufacturing Costs

4.1. Access assessment: legal bases for manufacturing costs

But also for determining the production costs, the evaluation regulations provide a detailed scheme. According to § 255 paragraph 2 HGB, this includes all expenses for consumed goods and services to the production costs of a property produced in this way itself. This also applies to the extension or substantial improvement of such self-produced property.

In detail, the valuation provisions of § 255 (2) HGB stipulate that, in particular, the material costs, the production costs and the special costs of production are part of the production costs. In addition, “reasonable parts of the overheads of materials, overheads of manufacture and the depreciation of the value of fixed assets, insofar as they are caused by the manufacture” should also be taken into account. Therefore, these aspects must also be included in the calculation of production costs. In addition, however, there are also some other points on which you have the right to vote. Thus, one may optionally “reasonable parts of the costs of general administration as well as reasonable expenses for social facilities of the company, for voluntary social benefits and for occupational pensions” if these were incurred during the period of production of the asset. Also optional are borrowing costs incurred during the period of production in connection with the production of the asset (§ 255 (3) HGB).

This results in the following scheme for determining the cost of production in the trade balance:

4.2. Access assessment: explanatory notes on individual and overhead costs

By way of introduction, it should be mentioned that the individual aspects used to determine the production costs are closely related to the cost accounting. Nevertheless, an explanation of the individual points using suitable examples is certainly useful here.

4.2.1. Individual manufacturing costs

First of all, the material costs are of course the expenses for the consumed goods. For example, in the production of a bookcase made of wood, this applies in particular to wood. Furthermore, we understand by manufacturing costs the costs incurred by the employees involved in manufacturing. For example, license fees are counted among the special costs of production. Thus, these are costs that are indirectly linked to the production, but directly relate to the asset produced. These three costs are individual manufacturing costs.

4.2.2. Overheads of production

Furthermore, the overheads of the manufacturing costs constitute general expenses which, although also indirectly related to the manufacturing, have no direct relation to the asset, such as freight costs, storage costs and personnel costs associated with the storage.

4.2.3. further approaches to manufacturing costs

Furthermore, there is less need to explain the loss of value of the fixed assets caused by the production. This summarizes the depreciation incurred in the course of the production of an asset on fixed assets related to the production. For example, a power-dependent depreciation for the machines used for production can be added here.

Five other items in these valuation rules are, unlike the points mentioned above, optionally attributable to production costs. There is therefore no obligation to activate it. Therefore, general administrative costs can be determined at an appropriate level, such as those incurred at management level. Thus, part of the managing director’s salaries are also included in the production costs. The same applies to social establishments (e.g. company kindergartens), voluntary social benefits (e.g. company celebrations) and contributions to company pension schemes. Therefore, it is also appropriate to take them into account in the production costs. Finally, interest accrued on loans used for the production of the asset should be mentioned. However, the interest is only applicable over the manufacturing period. For other borrowing costs, however, there is an activation ban.

5th Assessment Regulations for Access Assessment – Conclusion

So, as we can see, the general valuation rules for asset accounting access assessment are a complex framework. It should always be remembered that the main purpose of a trade balance is to provide information. But another aspect of the intellectual superstructure of the HGB, namely creditor protection, plays a prominent role here. That is why the valuation rules also contain provisions which go hand in hand with the attenuated or even the strict lowest-value principle. But the revaluation is also a regulation that serves this creditor protection. Only well-informed creditors or other business partners can assess the risk of a business relationship. For example, if a company that wants to do business with lacks liquidity, this can have serious consequences.