The Accounting of Goodwill under German Commercial and Tax Law
By Andreas Gottmann, FACT GmbH
As in most other countries, both German commercial law and German tax law differentiate between goodwill acquired for a consideration and internally generated goodwill. Only goodwill acquired against payment may be capitalised. Under German commercial law, goodwill acquired for a consideration is recognised as an asset with a limited service life and regularly amortised over five years. Longer periods are also conceivable, provided that this is economically credible. If a longer service life is assumed, this must be justified in the notes to the financial statements as part of the annual financial statements. Extraordinary depreciation must be carried out if there is a permanent reduction in value.
Under German tax law, goodwill acquired for a consideration is amortised over 15 years. There are exceptions, e.g. with regard to the practical value. In this case, the service life regularly varies between three and five years (for a single practice) or six and ten years (for law firms, if the previous owner remains a participant and contributor). Impairment losses and the prohibition of accounting for internally generated goodwill apply analogously to German commercial law.
The accounting treatment of goodwill under International Financial Reporting Standards (IFRS) differs greatly from German commercial and tax law. Here, an annual impairment test is carried out, which verifies the recoverability by comparing the book value and the enterprise value. If a write-off is identified, an unscheduled write-off is recognised. The table below provides a simplified summary of the treatment of goodwill under German commercial and tax law and under IFRS.
Andreas GottmannGGI member firm
Wirtschaftsprüfungsgesellschaft, Steuerberatungsgesellschaft, Rechtsanwaltsgesellschaft
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FACT GmbH is a tax consultancy, public auditing company, and law firm located in Kassel, known as the heart of Germany. FACT provides German and international accountancy and tax services to companies and individuals. The experienced team works on cross-border issues for German clients as well as for foreign clients. FACT works closely with its clients and responds rapidly to their needs.
Andreas Gottmann is a Managing Partner of FACT. He is experienced in the areas of tax consulting and auditing. His main areas of expertise include the audit of annual and consolidated financial statements (German GAAP, IFRS) as well as legal or other special audits, corporate finance: financial diligence. Furthermore, he supports his clients to perform peer-review projects.
Published: Auditing, Reporting & Compliance Newsletter, No. 03, Spring 2020 l Photo: Benjamin ['O°] Zweig - stock.adobe.com