Lowest value principle

The lower of cost or market principle is a principle of proper bookkeeping, which is used within a company as a valuation method when drawing up the balance sheet.

Definition / explanation

If there are several options for the valuation of assets in proper bookkeeping, the lower of cost or market principle is used.

Anfallende Anschaffungs- und Manufacturing costs sind die Hauptanwendungsbereiche dieses Prinzips.

Legal basis

The rules for applying the lower of cost or market principle are set out in Section 253 of the German Commercial Code (Handelsgesetzbuch). There it is written that the lowest possible value is to be used in each case for the valuation of business assets.

From a tax law perspective, Section 6 (1) EStG is to be applied. Section 5 (1) EStG also states that the lowest value principle is relevant for the tax balance sheet if it has already been applied to the commercial balance sheet.

Why is the lowest value principle applied?

The principle of caution is the basis for its application. It can happen that losses are foreseeable but not yet realized. It is the same with profits.

If losses are realized in this way, they reduce the annual profit. The result is lower profit distributions. In addition, losses that actually occur can be better compensated because the liquidity reserves are better filled.

So-called creditor protection is provided for in the HGB. This is complied with by applying the lowest value principle.

Moderated lowest value principle

There are two factors involved in valuing an asset: the acquisition value and the current stock exchange or market value.

Diese beiden werden am Balance sheet date miteinander verglichen. Handelt es sich um Gegenstände des Anlagevermögens, wird das gemilderte Niederstwertprinzip angewendet.

It says that the purchase price can be reduced by scheduled depreciation. How long an impairment lasts, i.e. how long it is written off, under this principle is at the discretion of the accounting party.

If the decrease in value is only of a temporary nature, it can even be completely disregarded if necessary. If it is permanent, however, the strict lowest value principle is applied.

Strict lowest value principle

This principle applies to all current assets. Even if the impairment is not permanent, the lowest value on the balance sheet must be used. There is therefore no right to choose whether or not write-offs are made; they are compulsory.

The result is a lower valuation for the assets in the current assets.

Extended lowest value principle

This principle states that future fluctuations in the value of current assets can be included in the depreciation.

However, since the Accounting Law Modernization Act of May 25, 2009, this provision no longer applies. It can therefore no longer be applied.


  • The lowest value principle is used to value assets
  • softened lower value principle for fixed assets
  • Option for the softened principle
  • strict lowest value principle for current assets
  • In the strict principle, the lowest value in the balance sheet must always be used - no option
  • Extended lowest value principle no longer applicable since 2009
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