Financial accounting

Question 1

§1 HGB*

Answer 1

§1 HGB:

(1) Merchant: a person engaged in commercial business.

(2) Commercial business: Any enterprise involved in commerce is a commercial business, unless its nature or size doesn’t require organised commercial operations.

Question 2

§ 2 HGB*

Answer 2

§ 2 HGB:

If company is not deemed a commercial business under 1(2).

Then it becomes a commercial business if its name is in the Commercial Register, which is optional for the owner.

If registered Deletion is possible upon request unless Section 1(2) conditions are met.

Question 3

§ 3 HGB*

Answer 3

§ 3 HGB Section 3:

(1) The regulations outlined in Section 1 do not apply to agricultural or forestry operations.

(2) Agricultural or forestry enterprises requiring organised commercial operations are subject to the provisions of Section 2. Once registered in the Commercial Register, the business name can only be removed following regular deletion procedures.

(3) If there’s a secondary business linked to an agricultural or forestry operation, the rules from subsections (1) and (2) also apply to this secondary business.

Question 4

§ 5 HGB*

Answer 4

§ 5 HGB Section 5:

Once a business name is registered in the Commercial Register, it cannot be argued against someone using that name that their business is not commercial

Question 5

§ 6 HGB*

Answer 5

§ 6 HGB:

(1) The regulations that apply to merchants also extend to commercial companies and partnerships.

(2) Associations granted merchant status by law, regardless of their enterprise’s purpose, retain their rights and duties, even if they don’t meet the criteria outlined in Section 1 subsection (2).

Question 6

§ 238 HGB*

Answer 6

§ 238 HGB:

(1) Bookkeeping obligations:
Merchants must maintain books of accounts reflecting their commercial activities and asset positions, following generally accepted accounting principles.

(2) Retention of commercial letters:
Merchants are required to preserve representations of commercial letters sent, which can include copies, etc

Question 7

§ 240 HGB*

Answer 7

§ 240 HGB Section 240 Inventory:

(1) Initial declaration of assets and liabilities: Merchants must accurately declare assets & liabilities value of individual assets and debts

(2) Annual inventory: Merchants are required to conduct an inventory at the end of each fiscal year.

(3) Treatment of certain assets: Property, plant, equipment, raw materials, and consumables, if regularly replaced and of minor overall value to the enterprise, can be stated at a constant quantity and value.
However, a physical inventory should typically be conducted every three years.

(4) Grouping of similar assets: Similar assets in inventories and other movable assets, as well as liabilities, may be grouped together for accounting purposes.

Question 8

§ 241a HGB*

Answer 8

§ 241a

HGB Section 241a Exemption from the obligation to keep books of accounts and drawing up inventory:

Sole traders exempt from keeping books of accounts & inventory. If revenue < 600,000 and net income <60,000

New incorporations exempt if first balance sheet does not exceed values above

Question 9

§ 242 HGB*

Answer 9

§ 242 HGB Section 242 Obligation to compile:

(1) Financial statement requirement:
Merchants must prepare a financial statement, consisting of an opening balance sheet at the start of their commercial business and a balance sheet at the end of each fiscal year.

(2) Profit and loss account:
Merchants must also create a comparison of expenses and earnings for the financial year.

(3) Annual report:
The balance sheet and the profit and loss account together form the annual report.

(4) Exemption for sole traders:
Sole traders as defined in § 241a are exempt from the requirements outlined in paragraphs 1 to 3. For newly founded companies, these exemptions apply if the values specified in § 241a are not exceeded on the first balance sheet date after incorporation.

Question 10

§ 246 HGB*

Answer 10

§ 246 HGB Section 246 Completeness. Prohibition of offsetting:

(1) Inclusion of all elements in the annual report: The annual report must encompass everything unless specified otherwise by law. If assets belong to someone else this must be included in balance sheet. Liabilities should be written on debtors balance sheet. Goodwill acquired for consideration, is considered an asset with finite useful lives.

(2) Prohibition of offsetting: Assets cannot be offset against liabilities, expenses cannot be offset against earnings, and rights over immovable property cannot be offset against expenses over immovable property.

Assets intended exclusively to settle liabilities from long-term obligations, such as pension obligations, can be set off against these liabilities.
If the fair value of assets exceeds the liabilities, the surplus must be capitalised separately.

(3) Retention of recognition methods:
The recognition methods used in the previous annual report must be maintained, with proportional application of Section 252(2).

Question 11

§ 247 HGB*

Answer 11

§ 247 HGB Section 247 Contents of the balance sheet:

(1) Separate presentation of components:
The balance sheet must separately and sufficiently detail all components of balance sheet

(2) Focus on fixed assets:
Only fixed assets for long term use included in balance sheet

(3) Note: Section 247(3) is omitted.

Question 12

§ 249 HGB*

Answer 12

§ 249 HGB:

(1) Establishment of provisions:
Provisions must be created for uncertain liabilities and potential losses from pending transactions.

Additionally, provisions should be made for:Expenses omitted in the fiscal year for maintenance, occurring within three months of the following fiscal year, or for the removal of overburden, incurred in the subsequent fiscal year.
Warranties provided without a legal obligation.

(2) Limitation and reversal of provisions:
Provisions can only be reversed if the reason for reversal no longer applies.

Question 13

§ 250 HGB

Answer 13

§ 250 HGB:

(1) Presentation of prepaid expenses and deferred charges: Prepaid expenses and deferred charges incurred before the balance sheet date, representing expenditures for a specific period after that date, should be shown on the assets side of the balance sheet.

(2) Presentation of deferred income:
Income earned before the balance sheet date, representing income for a specific period after that date, should be shown as deferred income on the liabilities side of the balance sheet.

(3) Treatment of differences in settlement amounts: If the settlement amount of a liability exceeds the issue amount, the difference may be included in prepaid expenses on the assets side of the balance sheet.
This difference should be amortized through ordinary annual depreciation, which can be spread over the entire term of the liability.

Question 14

§ 252 HGB

Answer 14

§ 252 HGB:

(1) Valuation principles for assets and liabilities: Values in the opening balance sheet for the fiscal year must match those in the closing balance sheet for the previous fiscal year.
Valuation should be based on the going concern assumption, except when contrary to fact or law.
Assets and liabilities must be individually valued on the balance sheet date.
Valuation should be prudent, considering all foreseeable risks and losses up to the balance sheet date, even if they became known afterward. Profits should only be considered if realized by the balance sheet date.
Expenses and earnings for the fiscal year should be included in the annual report regardless of payment dates.
Retain the valuation methods used in previous annual reports.

(2) Permitted deviations: Deviations from the principles outlined in paragraph 1 are allowed only in exceptional and justified cases.

Question 15

§ 253 HGB

Answer 15

§ 253 HGB:

(1) Valuation of assets and liabilities:Assets should not exceed their acquisition or production costs less depreciation, except for certain cases specified in paragraphs 3 to 5.
Liabilities should be stated at their settlement amount, and provisions should be established based on prudent business judgment.
Provisions for pension obligations may be recognized at the fair value of securities if this exceeds a guaranteed minimum amount.

(2) Discounting of provisions: Provisions with a residual maturity of over one year should be discounted at the average market interest rate corresponding to their remaining maturity.
Provisions for pension obligations or comparable long-term obligations may be discounted at a flat rate based on an assumed remaining term of 15 years.
The discount rate is determined by the German Federal Bank and published monthly.

(3) Depreciation of fixed assets: Depreciation of fixed assets should reflect their expected useful life, with ordinary depreciation spread over the years of expected use.
Extraordinary depreciation should be applied to fixed assets expected to be permanently impaired.

(4) Valuation of current assets: Current assets should be valued at the lower value resulting from a stock exchange or market price on the balance sheet date, or their acquisition or production costs.

(5) Retention of lower valuation: Lower valuations of assets and goodwill acquired for payment should be retained unless the reasons for such valuations no longer exist.

(6) Profits distribution and presentation: Differences in the recognition of provisions for pension obligations between the past ten fiscal years and the past seven fiscal years must be determined annually.
Profits may only be distributed if the available reserves meet certain criteria, and the difference in provision recognition must be presented in the financial statements.

Question 16

§ 255 HGB

Answer 16

§ 255 HGB Section 255 Valuation yardsticks:

(1) Acquisition costs: Acquisition costs are the expenses incurred to acquire an asset and put it into operational condition, if they can be individually allocated to the asset. This includes ancillary costs and subsequent acquisition costs, with reductions in the purchase price that can be allocated to the asset being deducted.

(2) Manufacturing costs: Manufacturing costs are the costs of consuming goods and services to produce an asset, extend its useful life, or make substantial improvements beyond its original condition.
This includes material costs, production costs, special production costs, and a share of material overheads, production overheads, and value depreciation of fixed assets caused by production.
Research and distribution costs are not included.
(2a) Manufacturing costs of internally generated intangible fixed assets:
Manufacturing costs of internally generated intangible fixed assets are the expenses incurred in their development, defined as the application of research results or other knowledge for new or further development of goods or processes.

(3) Treatment of interest on debt: Interest on debt is generally not included in manufacturing costs.
However, interest on debt used to finance the production of an asset can be recognized if it relates to the production period, in which case it’s considered a cost of the asset.

(4) Fair value: Fair value is equivalent to the market price. If no active market exists, generally accepted valuation methods should be used.
If fair value cannot be determined, acquisition or production costs are carried forward. The last determined fair value is considered the acquisition or production cost.

Question 17

§ 256 HGB

Answer 17

§ 256 HGB Section 256 Valuation simplification method:

Assumption for valuation:
Valuation of similar assets may assume that the assets acquired or manufactured first or last were consumed or sold first.
This method simplifies valuation based on the assumption of the order of consumption or sale of assets.

Application to the annual report:
The provisions of Section 240 (3) and (4), which relate to inventory valuation and depreciation of assets, also apply to the annual report. This ensures consistency in valuation methods across financial reporting.

Question 18

§ 257 HGB

Answer 18

§ 257 HGB Section 257 Retention of documents - Retention periods:

Obligation to keep documents:
Every merchant must maintain the following documents in an orderly manner: Trading books, inventories, opening balance sheets, annual reports, individual financial statements, management reports, consolidated financial statements, group management reports, work instructions, and other organizational documents.
Commercial letters received.
Reproductions of commercial letters sent.
Vouchers for entries in the books kept according to § 238 (1) (accounting vouchers).

Nature of commercial letters:
Commercial letters pertain exclusively to documents related to commercial transactions.

Storage of documents:
Documents listed in paragraph 1 may also be stored as reproductions on image carriers or other data carriers, provided they meet certain criteria.
The reproduction or data must accurately correspond to the received commercial letters and accounting documents.
Documents must be available for the duration of the retention period and be legible at any time within a reasonable period.

Documents produced on data carriers based on § 239 Para. 4 Sentence 1 may also be stored in printed form.
Retention periods: Documents listed in paragraph 1 numbers 1 and 4 must be kept for ten years.
Other documents listed in paragraph 1 must be retained for six years.

Commencement of retention period:
The retention period starts at the end of the calendar year in which the last entry was made in the trading book, inventory was conducted, opening balance sheet or annual reports were established, financial statements were drawn up, commercial letter was received or sent, or accounting document was created.

Question 19

§ 264 HGB

Answer 19

§ 264 HGB Section 264 Obligation to set up; exemption:

Extension of the annual report:
Legal representatives of a corporation must extend the annual report (§ 242) by an annex, which includes the balance sheet, profit and loss account, and a management report.
Capital market-oriented corporations not required to prepare consolidated financial statements must include a cash flow statement and a statement of shareholders’ equity in the annual report.
The annual report and management report must be prepared within the first three months of the financial year for the previous year. Small corporations may delay preparation up to six months.

Content of the annual report:
The annual report must give a true and fair view of the corporation’s net assets, financial assets, and results of operations.
Additional information must be provided in the annex if special circumstances prevent the annual report from giving a true and fair view.

Assurance by legal representatives:
Legal representatives of domestic issuers must give written assurance that the annual report provides a true and fair view, or the annex contains necessary information. Micro-capital corporations availing relief must provide additional information below the balance sheet.
Exemption for subsidiary corporations:
Subsidiary capital companies included in a parent company’s consolidated financial statement may be exempt from certain reporting requirements if specific conditions are met.
Exemption details must be disclosed in the parent company’s consolidated financial report annex.
Disclosure of relevant documents is required according to § 325 (1) to (1b).

Non-application of exemption:
The exemption under paragraph 3 does not apply if the parent company has prepared consolidated financial statements using an option provided for in the Publizitätsgesetz.
Relevant provisions, such as § 314 paragraph 3, remain unaffected.

Question 20

§ 266 HGB

Answer 20

§ 266 HGB Section 266 Structure of the balance sheet:

Assets:
Fixed Assets:
Intangible Fixed Assets:
Internally generated industrial property rights and similar assets.
Concessions, industrial property rights, and similar assets acquired against payment.
Goodwill.
On-account payments.
Property, Plant, and Equipment:
Land, leasehold rights, and buildings.
Technical equipment and machinery.
Other equipment, factory, and office equipment.
On-account payments and plants under construction.
Financial Assets:
Shares of subsidiaries.
Lendings to subsidiaries.
Participation.
Lendings to companies with whom a participation ratio exists.
Securities of fixed assets.
Other lendings.
Current Assets:
Inventories:
Raw materials.
Unfinished goods and services.
Finished goods and services.
On-account payments.
Receivables and Other Financial Assets:
Trade receivables.
Receivables from subsidiaries.
Receivables to companies with whom a participation ratio exists.
Other financial assets.
Securities:
Shares of subsidiaries.
Other securities.
Cash and Equivalents:
Cash, deposits at the Federal Bank, deposits at banks, and cheques.
Prepaid Expenses
Deferred Tax Assets
Active Difference from Asset Offsetting
Liabilities:
Equity:
Subscribed capital.
Capital reserve.
Retained earnings:
Legal reserve.
Reserve for shares in a controlling or majority-owned company.
Statutory reserves.
Other retained earnings.
Profit/Loss carried forward.
Net profit/loss of the year.
Provisions:
Pension provisions and other obligations.
Tax provision.
Other provisions.
Liabilities:
Bonds (including convertible).
Liabilities to banks.
Advance payment received on orders.
Trade payables.
Liabilities arising from the acceptance of drawn bills of exchange and the issue of own bills of exchange.
Liabilities to subsidiaries.
Liabilities to companies with whom a participation ratio exists.
Other liabilities (including taxes, social security).
Deferred Income
Deferred Tax Liabilities

Question 21

§ 267 HGB

Answer 21

§ 267 HGB Section 267 Description of size classes:

Small Capital Companies:
Do not exceed at least two of the following three characteristics:
EUR 6,000,000 balance sheet total.
EUR 12,000,000 sales revenue in the twelve months preceding the balance sheet date. An annual average of fifty employees.

Medium-sized Capital Companies:
Exceed at least two of the characteristics mentioned for small capital companies.
Do not exceed at least two of the following three characteristics:
EUR 20,000,000 balance sheet total.
EUR 40,000,000 sales revenue in the twelve months preceding the balance sheet date. An annual average of two hundred and fifty employees.

Large Corporations:
Exceed at least two of the characteristics mentioned for medium-sized capital companies. A corporation within the meaning of § 264d is always considered a large corporation.

Legal Consequences:
The legal consequences of the size classifications occur if they are exceeded or fallen short on the balance sheet dates of two consecutive fiscal years.
In the case of conversion or new formation, the legal consequences occur if the requirements of the size classifications are met on the first balance sheet date after the conversion or new formation.

Exception: This doesn’t apply if the legal entity changing legal form is a corporation or a commercial partnership within the meaning of § 264a (1).
Calculation of Average Number of

Employees: The average number of employees is calculated as the fourth part of the sum of the numbers of employees employed on specific dates throughout the year, including employees employed abroad but excluding those employed for vocational training.

Employee Representatives:
Information and disclosure rights of employee representatives under other laws remain unaffected.

Question 22

§ 272 HGB

Answer 22

§ 272 HGB Section 272 Equity:

Subscribed Capital:
Stated at its nominal value.
Uncalled outstanding contributions to subscribed capital are deducted from “Subscribed capital.”
The remaining amount is shown as “called up capital” in the main column of the liabilities side.
Amounts called but not yet paid up are shown separately under claims.

1a. Own Shares Acquired: The nominal value or accounting par value of own shares acquired is openly deducted from “Subscribed capital” in the sub-heading.
The difference between the nominal value or accounting par value and the acquisition cost of own shares is deducted from available reserves.
Incidental acquisition costs are recognized as expenses for the fiscal year.

1b. After Sale of Treasury Shares: The deduction pursuant to paragraph 1a sentence 1 no longer applies.
Any difference from the proceeds of the sale exceeding the nominal value or arithmetic value is transferred to reserves.
Any excess amount beyond what’s offset against freely available reserves is transferred to capital reserves.
Ancillary costs of the sale are recognized as expenses for the fiscal year.

Capital Reserves:
Include:
Amounts achieved in excess of nominal value or arithmetic value when issuing shares.
Amounts obtained from issuing bonds for conversion and option rights to acquire shares.
Additional payments made by shareholders in return for preference shares or other additional payments to equity.

Revenue Reserves:
Formed from the result in the fiscal year or earlier fiscal years.
Include statutory reserves, reserves based on the memorandum or articles of association, and other revenue reserves.
Reserve for Shares in Controlling or

Majority-Owned Undertaking:
An amount equal to the value of shares in the controlling or majority-owned undertaking is placed in the reserve.
Can be created from existing freely available reserves.
Released when shares are sold, issued, redeemed, or if a lower value is recognized on the assets side.

Excess Profit Reserve:
Created if the profit attributable to a participating interest exceeds dividends received or entitled to be received.
The reserve is released when the corporation collects the amounts or acquires a right to their payment.

Question 23

§ 275 HGB

Answer 23

§ 275 HGB Section 275 Structure:

Presentation Method:
Presented in graduated form using either the nature of the type-of-expenditure method or the cost of sales method.
Nature of the Type-of-Expenditure

Method:
Sales revenue
Increase or decrease of finished and unfinished goods
Other activated internal contributions
Other operational earnings

Cost of materials:
Expenses for raw materials and received goods
Expenses for received services

Personnel expenses:
Wages and salaries
Social security contributions and expenses on pensions and other benefits, including for pension schemes

Depreciations:
On intangible fixed assets and property, plant and equipment
On current assets exceeding customary depreciation and amortization
Other operational expenses
Earnings from participations, including from subsidiaries
Earnings from other securities and lendings of financial assets, including from subsidiaries
Other interest and similar earnings, including from subsidiaries
Depreciation on financial assets and securities of current assets
Interest and similar expenses, including on subsidiaries
Taxes on income and earnings
Result after taxes
Other taxes
Net profit/loss of the year

Cost of Sales Method:
Sales revenue
Cost of goods sold and services rendered to generate sales revenue
Gross result from sales
Sales costs
General administrative costs
Other operational earnings
Other operational expenses
Earnings from participations, including from subsidiaries
Earnings from other securities and lendings of financial assets, including from subsidiaries
Other interest and similar earnings, including from subsidiaries§ 275 HGB

Section 275 Structure: Presentation

Method:
Presented in graduated form using either the nature of the type-of-expenditure method or the cost of sales method.
Nature of the Type-of-Expenditure

Method:
Sales revenue
Increase or decrease of finished and unfinished goods
Other activated internal contributions
Other operational earnings

Cost of materials:
Expenses for raw materials and received goods
Expenses for received services

Personnel expenses:
Wages and salaries
Social security contributions and expenses on pensions and other benefits, including for pension schemes

Depreciations:
On intangible fixed assets and property, plant and equipment
On current assets exceeding customary depreciation and amortization
Other operational expenses
Earnings from participations, including from subsidiaries
Earnings from other securities and lendings of financial assets, including from subsidiaries
Other interest and similar earnings, including from subsidiaries
Depreciation on financial assets and securities of current assets
Interest and similar expenses, including on subsidiaries
Taxes on income and earnings
Result after taxes
Other taxes
Net profit/loss of the year

Cost of Sales Method:
Sales revenue
Cost of goods sold and services rendered to generate sales revenue
Gross result from sales
Sales costs
General administrative costs
Other operational earnings
Other operational expenses
Earnings from participations, including from subsidiaries
Earnings from other securities and lendings of financial assets, including from subsidiaries
Other interest and similar earnings, including from subsidiaries
Depreciation on financial assets and securities of current assets
Interest and similar expenses, including on subsidiaries
Taxes on income and earnings
Result after taxes
Other taxes
Net profit/loss of the year
Capital Reserves and Retained Earnings:
Changes in these may only be shown in the profit and loss account after the item “Net profit/loss for the year.”
Micro-Capital Corporations (§ 267a):
May present the profit and loss account as follows:
Sales revenues
Other earnings
Cost of materials
Personnel expenses
Depreciation
Other expenses
Taxes
Net profit/loss for the year

Question 24

§ 277 HGB

Answer 24

§ 277 HGB Section 277 Provisions relating to individual items in the income statement:

Sales Revenue:
Comprises income from the sale and rental of products and from rendering services by the corporation after deduction of sales deductions, value-added tax, and other taxes directly related to sales.

Changes in Inventories:
Include changes in both quantity and value. Depreciation is considered, but only to the extent that it does not exceed the depreciation otherwise customary in the corporation.

Extraordinary Depreciation:
Shall be shown separately or disclosed in the annex. Earnings and expenses from the transfer of losses and profits received or transferred on the basis of profit pooling agreements, profit transfer agreements, or partial profit transfer agreements shall each be shown separately under the appropriate designation.
(Omitted)

Earnings from Discounting:
Shall be shown separately in the profit and loss account under the item “Other interest and similar earnings.”
Expenses from discounting shall be shown separately under the item “Interest and similar expenses.”
Income from currency translation must be shown separately in the profit and loss account under the item “Other operating earnings,” and expenses from currency translation under the item “Other operating expenses.”

Question 25

§ 290 HGB

Answer 25

§ 290 HGB:

Preparation of Consolidated Financial Statements and Group Management Report: The legal representatives of a corporation (parent company) domiciled in Germany shall prepare consolidated financial statements and a group management report for the past group fiscal year in the first five months of the group fiscal year if the parent company can exercise a direct or indirect controlling influence over another company (subsidiary).
If the parent company is a corporation within the meaning of § 325 (4) sentence 1, the consolidated financial statements and the group management report shall be prepared in the first four months of the group fiscal year for the previous group fiscal year.

Definition of Controlling Influence:
A parent company exercises a controlling influence if:
It holds a majority of the voting rights of the members in another undertaking.
It has the right to appoint or remove the majority of the members of the administrative, management, or supervisory body governing the financial and operating policies of another undertaking.
It has the right to govern the financial and operating policies through a control agreement or provision in the statutes of another undertaking.
It bears the majority of the risks and rewards of a company serving a narrowly limited and precisely defined objective of the parent company (special purpose entity).

Extension of Rights:
The rights conferred on a parent undertaking include those conferred by another subsidiary and those conferred by rights on persons acting on behalf of the parent undertaking or its subsidiaries.
Rights linked to shares held by the parent company or its subsidiaries for the account of another person, or held as collateral, are deducted.

Calculation of Majority:
The proportion of voting rights an undertaking may exercise from its holdings is determined by the ratio of the number of voting rights it may exercise to the total number of voting rights.
Voting rights of own shares belonging to the subsidiary itself, to one of its subsidiaries, or to another person on behalf of those undertakings are deducted from the total number of voting rights.

Exemption:
A parent company is exempt from the obligation to prepare consolidated financial statements and a group management report if it only has subsidiaries that are not included in the consolidated financial statements according to § 296 of the German Commercial Code (HGB).

Question 26

§ 291 HGB

Answer 26

§ 291 HGB:

Exemption with EU/EEA Consolidated Financial Statements:
A parent company, which is also a subsidiary of a parent company domiciled in a member state of the European Union or another state party to the Agreement on the European Economic Area, is not required to prepare consolidated financial statements and a group management report if the consolidated financial statements and group management report of its parent company, meeting certain criteria, are published in German in accordance with applicable provisions.
Any enterprise, regardless of its legal form and size, may prepare an exempting consolidated financial statement and an exempting consolidated management report if it would be obliged to prepare consolidated financial statements including the parent enterprise to be exempt and its subsidiaries.

Criteria for Exempting Effect:
The consolidated financial statements and group management report of the parent company must meet specific criteria to have an exempting effect, including compliance with applicable laws and directives, preparation according to specified accounting standards, and inclusion of certain information in the annex.

Exceptions to Exemption:
A parent undertaking cannot invoke the exemption if it issues securities on an organized market or if shareholders holding a certain percentage of shares request the preparation of consolidated financial statements and a group management report.

Question 27

§ 292 HGB

Answer 27

§ 292 HGB:

Exemption with Consolidated Financial Statements from Third Countries:
A parent company, also a subsidiary of a parent company in a non-EU country, need not prepare consolidated financial statements and a group management report if the other parent company prepares exempting consolidated financial statements and a group management report meeting certain conditions.
Conditions include preparation of the exempting consolidated financial statements according to EU or EEA laws or international accounting standards, auditing by statutory auditors, and publication in German.

Criteria for Exempting Effect:
The exemption applies if specific information is provided in the annex of the annual reports of the enterprise to be exempted, including details about the preparation of the exempting consolidated financial statements and group management report.

Auditing Requirements:
If the group accounts are not audited by an auditor approved in accordance with EU Directive 2006/43/EC, they still have an exempting effect if the auditor has equivalent competence and the audit is consistent with certain requirements.
Auditors not approved under EU Directive 2006/43/EC must meet specific criteria, and relevant certificates or confirmations must be disclosed along with the audit certificate.

Question 28

§ 297 HGB

Answer 28

§ 297 HGB:

Content of Consolidated Financial Statements: The consolidated financial statements include the consolidated balance sheet, consolidated income statement, annex, cash flow statement, and statement of shareholders’ equity. Segment reporting may also be included.

Information Required:
The consolidated financial statements must include the parent company’s name, registered office, register court details, and commercial register number. If the parent company is in liquidation or settlement, this must be disclosed.

Clarity and Compliance:
The consolidated financial statements must be clear and comprehensive, providing a true and fair view of the group’s net assets, financial position, and results of operations. Additional disclosures are required in the annex if special circumstances prevent a true and fair view.
Legal representatives of a parent company, which is a domestic issuer and not a corporation, must provide written assurance that the consolidated financial statements give a true and fair view or that the annex contains necessary information.

Consolidation Methods:
The consolidated financial statements should reflect the net assets, financial position, and results of operations of the group as if it were a single entity. Consolidation methods used in previous accounts should be retained, with deviations disclosed and justified in the annex. Their impact on the group’s financials must be disclosed.

Question 29

§ 315 HGB

Answer 29

§ 315 HGB:

Presentation of Group Management Report:
The group management report should provide an accurate and comprehensive overview of the group’s business performance, financial results, and position. It should include a detailed analysis of the business’s course and position, considering its complexity and scale. Financial performance indicators relevant to the business should be explained with reference to the consolidated financial statements. Expected developments, significant opportunities, and risks, along with underlying assumptions, must also be assessed and explained.
Members of the authorized representative body of a parent company are required to assure, to the best of their knowledge, that the group management report accurately presents the business’s development, performance, and position, along with its principal opportunities and risks.
Details Required in the Group Management Report:
It should include details about the group’s risk management objectives and policies, including hedging policies for significant transactions and exposure to various financial risks like price, default, liquidity, and cash flow risks arising from financial instruments usage.
Information about the research and development division of the group and essential branches of the companies included in the consolidated financial statements should be provided.
If the parent company is a stock corporation, it should reference the disclosures required in the annex to the consolidated financial statements according to section 160 (1) no. 2 of the German Stock Corporation Act (AktG).
Application to Non-financial Performance Indicators:
Proportional application of paragraph 1 sentence 3 is required for non-financial performance indicators relevant to understanding the business’s course or the group’s position, such as environmental and employee matters.
Requirements for Capital Market-Oriented Companies:
If the parent company or a subsidiary included in the consolidated financial statements is capital market-oriented, the group management report should address essential features of the internal control and risk management system concerning the group accounting process.
Aggregation of Annexes:
Section 298 (2) on the aggregation of the annex to the consolidated financial statements and the annex to the financial statements should be applied proportionally.

Question 30

§ 316 HGB

Answer 30

§ 316 HGB:

Audit Obligation for Corporations:
Corporations that are not classified as small, as per the definition in § 267 (1), are required to have their annual reports and management reports audited by an auditor. Without an audit, the annual accounts cannot be adopted.
Audit Requirement for Consolidated Financial Statements:
The consolidated financial statements and the group management report of corporations must also be audited by an auditor. Failure to undergo an audit means the consolidated financial statements may not be approved.
Re-examination in Case of Amendments:
If any changes are made to the annual reports, consolidated financial statements, management report, or group management report after the initial audit report submission, the auditor must re-examine these documents as necessary. The audit findings should be reported, and the audit opinion should be updated accordingly.

Question 31

§ 325 HGB

Answer 31

§ 325 HGB:

Disclosure Requirement by Authorized Representative Bodies:
Members of the authorized representative bodies of corporations must disclose certain documents in German on behalf of the company, including the adopted or approved annual report, management report, auditor’s opinion (or refusal opinion), and the report of the Supervisory Board along with the declaration required by Section 161 of the German Stock Corporation Act. These documents must be submitted electronically to the operator of the Federal Gazette for publication.
Timeframe for Submission:
The submission of these documents must occur no later than one year after the balance sheet date of the fiscal year to which they relate. If certain documents are not available within this timeframe, they must be disclosed immediately after becoming available.
Amendments and Additional Disclosures:
Any amendments to the annual report or management report must also be disclosed. If the annual report contains only a proposal for the appropriation of profits, the resolution on the appropriation of profits must be disclosed once adopted.
Publication in the Federal Gazette:
The authorized representative body must ensure that the disclosed documents are published for the corporation in the Federal Gazette immediately after submission.
Option for Individual Financial Statements:
Corporations have the option to replace the annual report with individual financial statements prepared in accordance with international accounting standards. However, this option requires compliance with specific standards and obligations regarding disclosure.
Proportionate Application to Consolidated Financial Statements:
Similar disclosure requirements apply to members of the authorized representative body responsible for preparing consolidated financial statements and a group management report.
Expedited Submission for Certain Corporations:
For corporations subject to § 264d but not § 327a, the submission period specified in paragraph 1a shall not exceed four months.
Other Obligations:
Obligations of the company to publish or make available the annual report, individual financial statements, management report, consolidated financial statements, or group management report in other ways remain unaffected.
Proportionate Application of Other Sections:
Sections 11 and 12 (2) apply proportionally to the documents submitted to the operator of the Federal Gazette, with certain provisions remaining unaffected.

Question 32

§ 140 AO

Answer 32

§ 140 AO:

This section states that individuals or entities who are required by laws other than tax laws to maintain accounts and records relevant for taxation purposes must fulfill these obligations in the interests of taxation as well. In other words, if there are laws outside of tax regulations that mandate the keeping of certain records, those records must also be maintained with consideration for their impact on taxation.

Question 33

§ 141 AO

Answer 33

§ 141 AO:

This section outlines the obligation for certain taxpayers, such as commercial traders, farmers, and foresters, to keep accounts and prepare financial statements if specific criteria are met. These criteria include exceeding certain thresholds in transactions, land management, or profits from commercial, agricultural, or forestry operations.

Thresholds: Taxpayers must keep accounts if their transactions exceed €600,000 in a calendar year, or if they have agricultural or forest land with an economic value exceeding €25,000. They must also keep accounts if they have a profit from commercial operations exceeding €60,000 or a profit from agricultural and forestry undertakings exceeding €60,000 in a calendar year.
Legal Framework: The regulations of the Commercial Code regarding accounting and financial statements apply mutatis mutandis, meaning with necessary modifications, unless tax laws dictate otherwise.
Duration of Obligation: The obligation to keep accounts starts from the beginning of the financial year following the notification from the revenue authority indicating the start of this obligation. It ends at the close of the financial year following the year in which the revenue authority determines that the conditions for the obligation no longer exist.
Transfer of Obligation: If management of the entire operations is transferred to another person as owner or beneficial owner, the obligation to keep accounts is transferred as well, without the need for additional notification.
Effective Date: The provisions regarding profit thresholds have applied since the calendar year 1980.

Question 34

Aspects & Purpose of Accounting

Answer 34

Reduction of complex relationships of the company

representation of the financial movements and movement of goods

In the form of money and service flows

Question 35

Trading company

Answer 35

Sale of goods without further processing (e.g. supermarkets and car
dealers)

Question 36

Industrial company:

Answer 36

Purchase of raw, auxiliary and operating materials, processing in a
production process to new products (e.g. clothing industry or automobile manufacturer). The
production process generally has more levels, e.g. unfinished goods, then processing to
finished goods

Question 37

Service provider:

Answer 37

Company which supplied organizations with consulting, legal,
communications and many other factors provided by the client (external factors (e.g. tax
advisor or cab driver))

Question 38

Factors influencing modelling

Answer 38

Types of companies:
Trading company
Industrial Company
Service provider

Question 39

Different recipients of accounting

Answer 39

Internal accounting which often includes budgetary accounting which contains making an investment plan ( payment in/out ) , budgeting ( payment in/out ) and cost accounting ( cost/revnues )

External accounting which is usually financial statements which follow GAAP standards which separate FS ( earnings & expenses ) and consolidate FS

Another type of external accounting is tax balance sheet

Question 40

Definitions for cash accounting

Answer 40

Payment in/payment out: Decrease/increase of stock of instruments of payment (cash and
demand deposits)

Expenditure/income: Decrease/increase of financial assets

Expenditure/income: Value of purchase/sale of material goods, intangible goods and services

Expenses/earnings: Operational decrease/increase of equity (e.g. offsetting in the financial
accounting caused by certain legal regulations)

Ordinary result: sustainable achievable result from core business

Neutral result:
− non-operating component (speculations)
− extraordinary component (debt write-off, natural disaster)
− prior period component (based on valuation, e.g. sales above or under book value)

Costs: valued use of goods and services caused by operational performance

Revenues: valued provided services in the course of the ordinary business operations

Consider:
− expenses/earnings: every value change; cost/revenues: every operations related value
change
− difference expenses/earnings: overall results (change of net assets); difference
cost/revenues: operating result

Question 41

Neutral expenses

Answer 41

(1) non-operating expenses, (2) extraordinary expenses, (3) prior period expenses,

Question 42

Imputed costs (calculatory)

Answer 42

(4)calculatory additional depreciation,
(5) calculatory risks,
(6) additional costs (e.g. imputed interest for equity, imputed rent,imputed wages of
management)

Question 43

Payments out

Answer 43

+ Decrease of receivables
- Increase of receivables
+ Increase of liability
- Decrease of liability
= Expenditures
- Increase of tangible assets
+ Decrease of tangible assets
= Expenses

Question 44

Payments In

Answer 44

+ Increase of receivables
- Decrease of receivables
+ Decrease of liability
- Increase of liability
= Income
+ Increase of tangible assets
- Decrease of tangible assets
= Earnings

Question 45

Attributes of single financial statements under GAAP & three functions

Answer 45

Information instrument (not only) for external stakeholders

Necessary for assessment of distribution

Contains balance sheet and profit & loss statement (including notes for corporations; additional
management report)

Functions:
Documentation
Information
Assessment of Distribution

Question 46

Double entry accounting basics law

Answer 46

Obligation to keep records under § 238 German Commercial Code (HGB)

Qualification as merchant under § 1 HGB

Merchant by virtue of registration

Merchant by virtue of legal form under § 2, 3, 5, 6 HGB

Question 47

Requirements for commercial businesses: Qualification as merchant under § 1 HGB

Answer 47

Independancy
Permanently
Systematically
Market presence
Not breaching the law
Intension of profit-making

Question 48

Stocktaking

Answer 48

Stocktaking as activity: Physical inventory of assets and liabilities of a company by counting,
measuring, weighing!

Inventory as directory: Comparison of all assets and liabilities depending on kind, amount and
value.

Preparation of inventory at the beginning of each commercial business under § 240 para. 1HGB and has to be repeated at the end of each business year under § 240 para. 2 HGB.

There are simplification procedures to solve the timing problem as well as the problem with the
amount while undertaking the stocktaking.

Question 49

Timing issues with double entry accounting & solution

Answer 49

§ 240 para. 1 and 2 HGB anticipate a stocktaking at the business year-end (Stichtagsinventur) or within 10 days of the business year-end (erweiterte Stichtagsinventur)

Under § 241 para. 3 HGB it is possible to have up- and downstream inventory (vor- odernachgelagerte Inventur) within two months before or three months after business year-end

A permanent stocktaking is allowed under § 241 para. 2 HGB (permanente Inventur)

The stocktaking can be carried out as sample stocktaking under § 241 para. 1 HGB.

Question 50

Quantity Issues with double entry accounting

Answer 50

Permanent valuation (§ 240 para. 3 HGB) – Festbewertung

Group valuation (§ 240 para. 4 HGB) – Gruppenbewertung

Consumption sequence procedures (§ 256 HGB) – Verbrauchsfolgeverfahren