HGB

Question 1

§1 HGB

Answer 1

(1) Merchant is someone who carries out commercial business

(2) Commercial business is any commercial enterprise unless the company does not require commercially organised operations due to its size

Question 2

§2 HGB

Answer 2

(1) if registered it is a commercial business, owner of business can delete name on request unless conditions of Section 1 subsection (2) has been fulfilled

Question 3

§3 HGB

Answer 3

(1) section 1 does not apply to agriculture and forestry operations

(2) Section 2 applies to agricultural and forestry enterprises needing organised business operations. Once registered the deletion of the business name follows standard procedures

Question 4

§5 HGB

Answer 4

(1) Once a business name is registered it cannot be argued that the business conducted under that name is not commercial.

Question 5

§6 HGB

Answer 5

(1) The provisions applicable to merchants shall also apply to commercial companies and partnerships.

(2) An association retains its merchant status, regardless of the enterprise’s purpose, even if it doesn’t meet the conditions outlined in Section 1 subsection (2).

Question 6

§ 238 HGB

Answer 6

(1) Merchants must maintain accurate books of accounts following generally accepted accounting principles and readable for external parties and allow for tracking of transaction origins

(2) The merchant is obliged to retain a representation of the commercial letters sent such as a copy or transcript

Question 7

§ 240 HGB

Answer 7

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

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

(3) 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

Physical inventory should be conducted every three years.

(4) Similar assets in inventories, movable assets, liabilities, may be grouped together for accounting purposes.

Question 8

§ 241a HGB

Answer 8

Exemption from the obligation to keep books of accounts and drawing up 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

(1) Merchant must prepare a financial statement at the start of their commercial activities and at the end of each fiscal year

(2) At end of fiscal year draw comparisons between expenses and earnings

(3) The annual report consists of the balance sheet and the profit and loss account.

(4) `Both sole traders and new businesses are exempt if follow §241a HGB rules

Question 10

§ 246 HGB

Answer 10

(1) Annual report should include everything ( assets etc. ) unless law says otherwise 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 ) 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 can’t offset liabilities, nor can expenses cancel out earnings. But certain assets earmarked for specific long-term obligations can offset those liabilities, along with corresponding expenses and earnings from discounting. Any leftover value beyond liabilities must be accounted for separately.

(3) The recognition methods used in the previous annual report must remain consistent, with Section 252 (2) applied accordingly.

Question 11

§ 247 HGB

Answer 11

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

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

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

Question 12

§ 249 HGB

Answer 12

(1) Provisions shall be set up for uncertain liabilities, contingent losses from pending transactions, expenses for maintenance omitted in the fiscal year but incurred within three months of the following fiscal year, overburden removal costs for the following fiscal year, and warranties provided without 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

(1) Prepaid expenses and deferred charges, representing expenditures for a specific period after the balance sheet date, are shown on the assets side of the balance sheet.

(2) On the liabilities side, income before the balance sheet date shall be shown as deferred income if it represents income for a certain period after this date.

(3) If the settlement amount of a liability exceeds the issue amount, the difference can be added to prepaid expenses on the assets side of the balance sheet and amortized through ordinary annual depreciation over the term of the liability.

Question 14

§ 252 HGB

Answer 14

The valuation in the annual report follows these principles:

• Values in the opening balance sheet must match those in the closing balance sheet for the previous fiscal year.
• Valuation is based on the going concern assumption, except where this conflicts with reality or law.

-Assets and liabilities are individually valued on the balance sheet date.

-Prudent valuation considers foreseeable risks and losses up to the balance sheet date, including those known after but before the report date, with profits realised only by the balance sheet date.

-Expenses and earnings for the fiscal year are included regardless of payment dates.
Retain the valuation methods used in previous reports.

Question 15

§ 253 HGB

Answer 15

(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

To the extent that it complies with the generally accepted accounting principles, it may be assumed for the valuation of similar assets that the assets acquired or manufactured first or last were
consumed or sold first. Section 240 (3) and (4) shall also apply to the annual report.