The valuation of the receivables in the balance sheet is carried out in accordance with Section 253, Paragraph 1 of the German Commercial Code (HGB) and in accordance with IFRS, in principle at acquisition cost, although trade receivables are not acquired but have a certain nominal value.
If the nominal amount exceeds the value to be assigned to the receivables on the balance sheet date, then according to Section 253 (3) sentence 2 HGB, this lower value must be written off. The commercial law Lowest value principle corresponds to the tax depreciation to the lower partial value.
The depreciation of receivables to the lower value is referred to as value adjustment, regardless of the fact that the balance sheet scheme according to Section 269 of the German Commercial Code (HGB) does not provide for any value adjustment items. It is to be deducted directly from the receivables portfolio.
A distinction must be made between:
• The Individual valuation allowancewhich is recommended if the actual financial position (Section 264 (2) of the German Commercial Code) is to be presented in the best possible way. It requires a lot of work. Every single claim would have to be subjected to a credit check.
• The general valuation allowance, which is based on the actual bad debt losses in previous years. It is permissible according to the GoB. The tax authorities also recognize the general value adjustment under certain conditions as permissible for tax purposes.
In practice, a mixed procedure is predominantly used, according to which the dubious claims are valued individually, while flat-rate deductions are made for the remaining claims.