In principle, German accounting regulations require the applica-
tion of the historical cost principle under both commercial and
tax law. If the value of an asset at a later date exceeds its his-
torical cost, the increase may not be recognized in the balance
sheet until a realization event occurs (e. G. The sale of the asset).
The principle of the lower cost or market value applies in a differ-
ent form for fxed and current assets.
Fixed assets must be stated in the balance sheet at their pur-
chase or manufacturing costs less accumulated amortization or
depreciation. Depending on the type of asset involved, assets
are generally amortized or depreciated over their estimated
useful lives using the straight-line method, the declining-balance
method, the declining-balance combined with the straight-line
method, or an output-related method. Regardless of the legal
form of the company, an exceptional write-down for fxed assets
must be carried out in cases of a decrease in value deemed to
For financial assets, an option for exceptional
depreciation exists for decreases in value deemed to be non-per-
manent. For tax purposes, exceptional write-downs can be
exercised if the decrease in value is deemed to be permanent.
When an asset recovers in value subsequent to an exceptional
write-down, the reversal of the write-down is mandatory for all
For commercial accounting purposes, by way
of exception no reversal of a prior write-down will be permitted
for goodwill acquired for consideration.