Inflation calculation

The accounting procedures are mostly based on a conventional, legally fixed monetary value. In practice, a company is constantly threatened by different country-specific inflationary tendencies. It is therefore important to ensure the preservation of real capital and the substance of a company. Approaches to this are:

Methods of maintaining purchasing power of own capital

Lokale Realkapitalerhaltung: Aufstellung des ausländischen Jahresabschlusses in lokaler Währung in Einheiten gleicher Purchasing power mit Umrechnung zum einheitlichen Stichtagskurs in die zentrale Währung („Restate Translate Method“).

Central capital preservation: Conversion of the nominal value statement (in local currency) of the subsidiary into the group currency and subsequent revaluation with the purchasing power index of the country of the head office ("Translate Restate Method").

Control of the maintenance of (domestic) real capital invested abroad

Balance sheet

The foreign company's equity is historically managed in the domestic currency and revalued using a central index. The non-monetary items are revalued using a local index, unless they are already valued at current values, and converted into the central currency at the rate on the reporting date. The monetary items are converted using the closing rate.

Income statement

Die aktuell bewerteten Positionen (Umsatzerlöse, Löhne etc.) werden mit dem Stichtagskurs in die Zentralwährung transformiert. Positionen, die nicht monetären Vermögensgegenständen zugeordnet werden können (Abschreibungen auf Property, plant and equipment oder Materialaufwand etc.) werden der aktuellen Bewertung in der Bilanz angepaßt, sofern sie nicht schon im Nominalwertabschluss aktuell bewertet sind. Differenzen aus der Währungsumrechnung und aus Kaufkraftverlusten werden ergebniswirksam verrechnet. Der Realkapitalzuwachs ergibt sich als Überschuss der Erträge über die Aufwendungen des Jahres.

Methods of preservation of substance

They are more important for the financial management and control of the company than the maintenance of capital:

Local preservation of substance: In contrast to local real capital preservation, the non-monetary year-end closing items are valued independently of the development of the general price level at the current value of the respective input goods. They can also be revalued using local goods and goods group-specific price indices. As is the case with local real capital maintenance, the resulting net asset calculation is uniformly transformed into the group currency at the rate on the reporting date (in the income statement also the average rate for the period).

Central maintenance of assets: In accordance with central maintenance of real capital, the non-monetary items should be extrapolated using local price indices to determine the replacement costs. If only a few purchases are carried out centrally within the group, the group replacement costs can be included in the local maintenance of assets after eliminating any intra-group profits and after converting them into the local currency. The increases resulting from the revaluation are then to be treated as in the case of local substance maintenance.

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