What is an allowance


Items on the liabilities side (liabilities) of a balance sheet for overvalued assets.

If asset items shown on the assets side of the balance sheet are set too high, they must be corrected within the framework of the statutory provisions with the aid of depreciation.
Before the Accounting Directive Act came into force, it was possible to correct impairments of fixed assets by creating adjustment items on the liabilities side (indirect depreciation). Indirect depreciation is now only permitted in the event that the valuation of the depreciation permitted under tax law is above the depreciation or depreciation required under commercial law. Differences resulting from this may be included in the special item with a reserve component in accordance with Section 281 (1) of the German Commercial Code (HGB).

Also known as indirect depreciation. In contrast to direct depreciation, the original acquisition or production costs are shown on the assets side, while a negative adjustment item is created at the same time.

Separate credit side of an active inventory account (i.e. not a liability account). Examples: Indirect depreciation of fixed assets. If the only company vehicle was purchased for € 25,000 in the first half of 2002 and depreciated using the straight-line method at 20 percent, it was € 20,000 on the assets side on December 31, 2002. Instead, it is possible for accounting purposes (but not permitted in all cases for published annual financial statements due to legal formal requirements) to show a vehicle fleet of € 25,000 on the assets side and a value adjustment on fixed assets of € 5,000 on the liabilities side.

Valuation adjustments as adjustment items on the side of the liabilities to certain items of the assets, which are supposed to record the actual, estimated depreciation of the fixed assets and the current assets through indirect or passive depreciation, are generally not permitted.

Indirect depreciation i. S. a value adjustment for assets in the balance sheet or balance sheet assets that are valued too high or can be considered too high. In the case of banks, these are primarily their claims of all kinds from loans and their securities holdings that are to be written down. Liabilities item in the bank balance sheet: In sub-item a.) Only individual value adjustments to property, plant and equipment, participations and securities held as fixed assets are to be shown; they are to be structured like the items to which they belong. Individual value adjustments and taxed general value adjustments on bills of exchange, receivables and marketable securities are to be deducted from the relevant asset items. Prescribed collective value adjustments - as far as they do not refer to the liability items "Own drawings in circulation", "Endorsement liabilities from passed bills of exchange" and "Liabilities from guarantees, bills of exchange and check guarantees as well as from warranty contracts" - are either in total from the respective To deduct assets or to show them in total under sub-item b.). Value adjustments are also an instrument of silent risk provisioning. A distinction must be made between individual, flat-rate and collective value adjustments.

See allowance.

Balance sheet adjustment items resulting from indirect depreciation.
Value adjustments may only be made to the following items (Section 152 (6) AktG 1965): to property, plant and equipment, to investments, to securities held as fixed assets and as a general value adjustment due to the general credit risk to receivables. The value adjustments attributable to the individual items are to be shown separately on the liabilities side of the balance sheet (structure of the balance sheet) in a breakdown corresponding to the schedule of assets;

balance sheet depreciation

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