PDF, 3.2 MB - Pfleiderer AG

1. Leases
2. Valuation of
inventories
HGB does not stipulate explicitly how lease transactions should be treated. German companies
therefore generally fall back on the leasing decrees issued by the tax authorities when deciding
on how to account for leases. Applying tax criteria to lease agreements generally has the effect
that leased assets are recognized in the lessor’s balance sheet.
Comprehensive rules (especially SFAS 13) exist under US-GAAP on accounting for lease transactions.
As a matter of principle, a distinction is drawn between capital leases and operating leases,
depending on which party bears the significant rewards and risks from the use of the leased
assets and can thus be regarded as their economic owner. The lessee must capitalize the leased
asset if he is regarded as the economic owner, and the lessor must capitalize it in the event of
an operating lease.
Under HGB, inventories are valued as of the balance sheet date, in accordance with the strict
principle of the lowest value, at the lower of cost and market or a lower fair value. The fair value
of raw materials, consumables and supplies is generally based on the replacement values on the
procurement market and, for work in process and finished goods, by the inverse method starting
off from the net proceeds of sale on the sales market.
Under US-GAAP, inventories are valued at the lower of cost or market on the basis of individual
values or applying the weighted average method. The FIFO method (first in-first out) is also applied
in justified individual cases. Market value is based as a matter of principle on the replacement
value. The ceiling for determination of market value is the estimated selling price in the ordinary
course of business less the estimated costs of completion and the expected costs necessary to
make the sale (net realizable value). The floor for determination of market value is net realizable
value less a normal profit margin.
The production costs also include, in addition to direct material and production costs, an appropriate
share of the material and production overheads caused by the production process.
All foreseeable risks in the inventories that have resulted from diminished usability or obsolescence
were reflected by appropriate write-downs. Markdowns were recorded for slow-moving
items.
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FINANCIAL STATEMENTS/NOTES PFLEIDERER GROUP