In principle, the following applies: liabilities are to be stated with their repayment amount (Section 253 (1) sentence 2 HGB). In the case of foreign currency liabilities, the amount of the repayment amount depends on the market value at the time of payment. However, this future rate is ultimately not known as of the balance sheet date, so that other means have to be found here.
When accounting for foreign currency liabilities, a distinction can be made between the initial and subsequent valuation (on the balance sheet date).
The booking on receipt or incurrence of the liability takes place with the exchange rate valid at that point in time (historical rate). The foreign currency liability can be converted on receipt at the (foreign exchange spot) ask rate, i.e. at the rate at which the banks sell the foreign currency or the accounting party can purchase the currency, or alternatively at the average spot exchange rate.
According to Section 256a of the German Commercial Code (HGB), assets and liabilities denominated in a foreign currency are to be converted at the mean spot exchange rate on the reporting date. With a remaining term of one year or less, Section 253 (1) sentence 1 (acquisition cost principle) and Section 252 (1) no. 4 half-sentence 2 (realization principle) do not apply. This means that short-term foreign currency liabilities may be recognized on the balance sheet date at a lower value than the amount added. The remaining terms of the respective liabilities can be found in the balance sheet or in the appendix (Section 268 (5) sentence 1 HGB).
If the foreign currency liabilities are included in valuation units (e.g. with a forward exchange transaction concluded as a hedging transaction to compensate for the currency risk), the regulation of § 256a HGB does not apply to the corresponding extent and for the corresponding period (§ 254 HGB).
On July 1, 2010, a company took out a one-year loan for $ 1,200,000. The (historical) rate on July 1, 2010 is 1 euro = 1 US dollar. The liability is recognized on receipt on July 1 with 1,200,000 euros.
If the spot exchange rate as of December 31, 2010 is 1 euro = 1.20 US dollars, the liability must be converted accordingly and, due to the remaining six-month term, only to be recognized as a liability of 1,000,000 euros, so that income from foreign currency conversion of 200,000 Euro results.
If the loan had a term of two years and thus a remaining term of 1.5 years as of December 31, 2010, the amount originally posted as a liability of EUR 1,200,000 would remain.
§ 253 - Incoming and subsequent evaluation
(1) Assets are to be valued at their acquisition or production costs at most, less the depreciation according to paragraphs 3 to 5. Liabilities are to be set at their settlement amount and provisions in the amount of the settlement amount necessary according to prudent business judgment. Insofar as the amount of pension obligations is based solely on the fair value of securities within the meaning of Section 266 (2) A. III. 5, provisions for this are to be recognized at the fair value of these securities, insofar as it exceeds a guaranteed minimum amount. Assets to be offset in accordance with Section 246, Paragraph 2, Clause 2 are to be valued at their fair value.
(2) Provisions with a remaining term of more than one year are to be discounted at the average market interest rate for the past seven financial years corresponding to their remaining term. Notwithstanding sentence 1, provisions for pension obligations or comparable long-term obligations may be discounted at a flat rate using the average market interest rate, which results from an assumed remaining term of 15 years. Sentences 1 and 2 apply accordingly to obligations based on pension obligations for which consideration can no longer be expected. The discount rate to be applied in accordance with sentences 1 and 2 is determined by the Deutsche Bundesbank in accordance with a statutory ordinance and published monthly. In the statutory ordinance pursuant to sentence 4, which does not require the consent of the Bundesrat, the Federal Ministry of Justice, in consultation with the Deutsche Bundesbank, determines the details of the determination of the discount interest rates, in particular the determination methodology and its basis, as well as the form of disclosure.
(3) In the case of fixed assets, the use of which is limited in time, the acquisition or production costs are to be reduced by scheduled depreciation. The plan must distribute the acquisition or production costs over the fiscal years in which the asset can be expected to be used. Regardless of whether their use is limited in time, non-scheduled depreciation is to be carried out for fixed assets in the event of a likely permanent decrease in value in order to carry them at the lower value that is to be attached to them on the balance sheet date. In the case of financial assets, unscheduled depreciation can be made even if the impairment is not expected to be permanent.
(4) In the case of current assets, write-downs are to be made in order to set them at a lower value resulting from a stock exchange or market price on the balance sheet date. If a stock exchange or market price cannot be determined and the acquisition or production costs exceed the value to be attached to the assets on the balance sheet date, this value must be depreciated.
(5) A lower valuation according to paragraph 3 sentence 3 or 4 and paragraph 4 may not be retained if the reasons for this no longer exist. A lower valuation of goodwill acquired against payment is to be retained.
§ 256a - Currency Conversion
Assets and liabilities denominated in foreign currencies are to be converted at the mean spot exchange rate on the reporting date. With a remaining term of one year or less, Section 253 (1) sentence 1 and Section 252 (1) no. 4 half-sentence 2 do not apply.
Section 268 - Regulations on individual items in the balance sheet
(1) The balance sheet may also be drawn up taking into account the full or partial use of the annual result. If the balance sheet is drawn up taking into account the partial use of the annual result, the items "Net profit / loss for the year" and "Profit carried forward / loss carried forward" are replaced by the items "Balance sheet profit / balance sheet loss"; Any existing profit or loss carried forward is to be included in the item "Balance sheet profit / balance sheet loss" and stated separately in the balance sheet or in the notes.
(2) The development of the individual items of fixed assets must be shown in the balance sheet or in the appendix. Based on the total acquisition and production costs, the additions, disposals, transfers and write-ups of the financial year as well as the depreciation in their total amount are to be listed separately. The depreciation of the financial year must either be noted in the balance sheet for the item concerned or in the notes in a breakdown corresponding to the breakdown of fixed assets.
(3) If the equity has been used up by losses and if there is a surplus of the liability items over the asset items, this amount must be shown separately on the assets side at the end of the balance sheet under the heading "Deficit not covered by equity".
(4) The amount of the claims with a remaining term of more than one year is to be noted for each separately reported item. If amounts are shown under the item "other assets" for assets that do not legally arise until after the balance sheet date, amounts that are larger must be explained in the notes.
(5) The amount of liabilities with a remaining term of up to one year is to be noted for each item shown separately. Advance payments received on orders are to be shown separately under the liabilities, insofar as advance payments on inventories are not openly deducted from the item "inventories". If amounts are shown under the item "Liabilities" for liabilities that do not legally arise until after the balance sheet date, amounts that are larger must be explained in the notes.
(6) Any difference included in the deferred items on the assets side in accordance with Section 250 (3) must be shown separately in the balance sheet or in the notes.
(7) The contingent liabilities referred to in § 251 are to be stated separately under the balance sheet or in the appendix, stating the liens granted and other securities; If there are any such obligations towards affiliated companies, they must be stated separately.
(8) If internally generated intangible assets are shown in the balance sheet, profits may only be distributed if the freely available reserves remaining after the distribution plus a profit carryforward and minus a loss carryforward are at least the total amounts recognized less the deferred tax liabilities correspond. If deferred tax assets are shown in the balance sheet, sentence 1 is to be applied to the amount by which the deferred tax assets exceed the deferred tax liabilities. In the case of assets within the meaning of Section 246, Paragraph 2, Clause 2, Clause 1 shall apply to the amount minus the deferred tax liabilities formed for this, which exceeds the acquisition costs.
§ 254 - Formation of valuation units
If assets, debts, pending transactions or transactions that are expected with a high degree of probability are combined with financial instruments to compensate for opposing changes in value or cash flows from the occurrence of comparable risks (valuation unit), Section 249 (1), Section 252 (1) No. 3 and 4, Section 253 Paragraph 1 Clause 1 and Section 256a not to be applied to the extent and for the period in which the opposing changes in value or cash flows offset each other. Forward transactions for the purchase or sale of goods are also deemed to be financial instruments within the meaning of sentence 1.