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Understanding business assets: What it is and why it is so important to the business

posted 06.02.2023

Operating assets are an important component of every company and represent the basis for operational and financial success. It includes all assets required to run the business, such as machinery, buildings, vehicles and inventory. In this blog post, we'll look at the various aspects of working capital, including how to manage, monitor and value it, and discuss why it's so important that it's managed properly.

Operating assets - definition, types and calculation

The operating assets of a company include all assets that are necessary to carry out the company's operations. It is an important part of the company and has a direct impact on the company's performance and liquidity. But there are different forms of business assets from a tax law perspective.

The calculation of business assets is equally important for a company. Here you will learn from the auction house InventoryNord, what all may be included as business assets and how the demarcation from private assets is made.

Business assets - legal basics at a glance

In Germany, the legal basis for business assets is primarily regulated in the German Commercial Code (HGB). The HGB sets out the rules for the recognition and measurement of operating assets. It can be divided into various forms, which may vary depending on the type and useful life of the assets.

However, the voluntary business assets included in the business assets must also be taken into account. Special business assets I and special business assets II, on the other hand, are only considered for partnerships. The definition of business assets can be found in Section D of the Valuation Act (BewG).

More precisely, the term is defined for commercial operations in sec. 95 (GewO). § Section 15 (1) of the Income Tax Act (EStG) in Germany governs the tax treatment of business assets. It states that the business assets of a company are treated as part of the company's assets and are therefore relevant for tax purposes.

According to Section 15 (1) EStG, business assets are generally to be taken into account as acquisition costs when determining the company's taxable profit. This means that the acquisition costs of business assets can be deducted from tax in order to reduce the company's profit.

Similarly, there are regulations on the depreciation of business assets, which are described in Section 7 of the Income Tax Act. According to this, it can be depreciated annually in order to reduce the company's profit.

What exactly are the necessary business assets?

Necessary business assets is a term that refers to the assets that are absolutely necessary for the proper operation of a business. It includes the assets that the company needs to carry out its business activities and provide its products or services.

An example of necessary business assets is the machinery and equipment that the business needs to produce goods or provide services. Other examples may include warehouse space, office space, delivery vehicles, office equipment and other similar assets.

What is an optional business asset?

All assets that can be used privately and for business purposes are included in the company's assets at will. These assets are included because they benefit the business, but they are not recognized directly.

What is important is that the assets benefit the business and are suitable for the business in the first place. In order for an asset to be counted as an optional asset, the percentage of use must be between ten and 50 percent. It is important to keep accurate records of these assets and their value, as they are subject to depreciation over time.

From an accounting point of view, voluntary business assets are considered fixed assets and are recorded in the company's balance sheet, their value is also subject to depreciation.

What is referred to as special business assets?

Special business assets are a type of assets that are not part of the regular business assets of a company. These assets are not used in the day-to-day operations of the business, but are used for a specific purpose or project. Examples of special business assets include assets used for research and development, assets used for a specific construction project, or assets used for a specific investment.

How is the distinction between business and private assets made?

The different forms of business assets have been described. But at what point does an asset belong to private assets and when is it assigned to business assets? If the assets are predominantly used for the business, they belong to the necessary assets.

For this to be the case, however, the assets must be used at least 90 percent for business purposes. Since there are immovable and movable assets, they are treated differently. For example, the 1 percent rule can be used to determine whether a passenger car belongs to the business.

However, this method is only applicable if the passenger car is counted as a necessary business asset, which means that it is used more than 50 percent for business purposes. In this case, automatic allocation also takes place. If the share of use decreases, the asset still remains in the business assets.

Even if the share of use is less than ten percent. Immovable assets can also be counted as private or business assets.

How are business assets calculated?

All items found in assets, minus debts, operating expenses and provisions, are allocated to assets. In order to be able to determine the business assets, one must follow the § 199 of the Valuation Law.

According to Section 199 of the Valuation Law, assets must be valued at their acquisition cost, i.e. the original price paid for the asset, adjusted for subsequent changes in value. It also provides for the adjustment of the value of assets for inflation and depreciation.

The main purpose of Section 199 of the Valuation Act is to ensure the accuracy and consistency of the assets reported in the financial statements. It also provides guidelines for determining the value of assets for tax purposes to ensure that businesses pay the correct amount of tax.

Do you still have questions about this topic or perhaps you need a valuation of your assets? Then get in touch with us!

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