Memorandum amount (reminder item) – Definition and legal context
Definition
Der Memorandum amount (also reminder item) is a term from commercial law and accounting. It refers to a minor book value that is assigned to items of fixed or current assets in the balance sheet, even though their actual value has already been written off or is of no significant economic relevance. The memorandum amount is used to indicate the continued existence or use of the asset in the books and to maintain clarity in the balance sheet.
Legal basis
The memorandum amount is used in particular in German commercial law. The fundamental regulations are found in the German Commercial Code (HGB), especially in connection with the regulations on accounting and depreciation (§§ 253 et seq. HGB). Also, under the provisions of the Fiscal Code (AO) as well as various accounting guidelines, for example the generally accepted accounting principles (GoB), the reminder item plays a role.
German Commercial Code (HGB)
The HGB does not contain an explicit definition of the memorandum amount. However, the regulations on depreciation and valuation of assets implicitly allow for the application of a memorandum amount. Commercial law accounting requires that assets, which are still present and usable, must continue to be shown in the balance sheet even if their book value has largely been written off. In practice, a memorandum amount of €1.00 is often used for this purpose.
Tax law principles
Comparable rules can be found in the Income Tax Act (EStG), especially within the provisions regarding depreciation for wear and tear (AfA, § 7 EStG). Writing down an asset to a memorandum amount is permissible to document its continued use until it is removed from the business assets.
Areas of application
Depreciation and accounting
The memorandum amount is often used in connection with fully depreciated fixed assets that are still being used in the business. Examples include machines, office and business equipment, and software. If a full regular or extraordinary depreciation occurs, the asset remains on the balance sheet at its memorandum amount until it actually leaves the company.
Low-value assets
The memorandum amount is also used in connection with low-value assets (GWG). For the sake of clarity and traceability of fixed assets that fall below the GWG threshold and are immediately written off, the memorandum amount may remain in the balance sheet.
Function and purpose
Truthfulness and clarity of financial statements
The memorandum amount serves to comply with the principles of truthfulness and clarity in financial statements. As long as an asset is still used in the business, it must be continued in the balance sheet to accurately reflect the actual situation. The memorandum amount indicates that the asset has already been almost entirely written off on the books, but is still physically present.
Documentation and verification function
Carrying forward a memorandum amount facilitates inventorying and ensures that disposals are properly written off. It is also important for tax documentation, especially in the case of asset disposals or during audits.
Treatment in inventory and disposal
When the relevant asset is disposed of, withdrawn, or sold, the memorandum amount must be written off and documented in the asset register and accounting records. Only once the asset actually leaves may the item be removed from the balance sheet.
Accounting treatment
Recognition and valuation
The memorandum amount is typically set at a symbolic value of €1.00. Any deviation from generally accepted accounting principles or arbitrary amounts is not permitted, as the memorandum amount is purely declaratory in nature.
Commercial and tax differences
While the memorandum amount is generally accepted under commercial law, differing views can arise under tax law. Continued recognition on the basis of a reminder item is generally permissible; however, tax-specific aspects such as the GWG threshold and immediate write-off must be taken into account. Tax recognition of the reminder item depends on the specific case.
Case law
The courts have confirmed the admissibility of the memorandum amount many times, particularly as a means of maintaining continuity in the balance sheet and documenting asset inventory. The prerequisite remains that the recognition and valuation rules of the HGB and EStG are observed.
Distinction and variations
The memorandum amount must be distinguished from other balance sheet items such as provisions or deferred income, which are separate and substantively independent positions.
International accounting standards
A memorandum amount in the strict sense is not explicitly regulated in international accounting law (for example under IFRS), but similar principles, such as the continuation of fully depreciated assets in asset registers, are also applied there.
Summary
The memorandum amount (reminder item) is an important tool in commercial and tax-related accounting, serving to depict and document low-value or depreciated, yet still existing, assets. It ensures clarity and truthfulness in the balance sheet and supports proper tracking of assets until their complete disposal from business assets. When recognizing and writing off, the relevant commercial and tax regulations must be carefully observed.
Frequently asked questions
How is the memorandum amount treated for tax purposes in the balance sheet?
The memorandum amount (reminder item) is primarily used for depreciation of assets in the commercial and tax balance sheet when the assets remain in the company but, after full planned or extraordinary depreciation, would no longer have to be reported for balance sheet purposes. According to § 253 Para. 1 HGB, assets must be recognized at no more than their acquisition or production cost less depreciation to the lower fair value. In practice, after full depreciation to zero, a memorandum amount of €1 (or occasionally 1 DM in old balance sheets) is often used to continue to record the asset in the fixed asset register. For tax purposes, this is tolerated for proof and documentation reasons, even though the law does not explicitly require it. The actual necessity of the memorandum amount is based on the fact that, despite the write-off, ownership and useful life of assets can continue to be presented transparently.
When may a memorandum amount be recognized?
A memorandum amount may generally be recognized if tangible or intangible assets have been fully written off but are still physically present and usable in the business. However, recognition is only permissible if the asset remains in the company for legal or economic reasons. It is not mandatory, but generally accepted in practice to maintain clarity in the fixed asset register and to ensure traceability of asset positions. It should be noted that the memorandum amount must not create a fictitious additional value, but is merely a formal accounting entry.
Are there any legal regulations on the memorandum amount?
There is no explicit legal regulation for the memorandum amount in either the German Commercial Code (HGB) nor in tax regulations such as the Income Tax Act (EStG) or the Fiscal Code (AO). The memorandum amount is instead rooted in commercial and tax practice. In pure depreciation rules (§ 253 Para. 3 HGB; § 7 EStG), the memorandum amount is not mentioned. The necessity arises from the requirement for complete, clear, and transparent presentation of the asset and financial position pursuant to § 238 Para. 1 HGB and the principle of traceability. Tax authorities therefore accept recognition of the memorandum amount for documentation purposes, particularly to avoid proof difficulties during business or tax audits.
Can the memorandum amount be reversed?
Recognition of a memorandum amount is to be maintained as long as the respective asset remains in the business assets. When the item is written off, sold, scrapped, or withdrawn, the memorandum amount is also written off, which for tax purposes may result in a disposal or withdrawal gain of €1. Early reversal or adjustment of the memorandum amount is not provided for legally and would contradict the principle that only when the actual right of disposal over the asset ceases may the memorandum amount be eliminated from the balance sheet. For the sake of balance sheet clarity and proof, companies must maintain complete documentation.
What risks exist in the case of improper handling of the memorandum amount?
Improper handling of the memorandum amount can have both commercial and tax law consequences. If a memorandum amount is incorrectly recognized, even though the item no longer exists, this constitutes inadmissible accounting, resulting in an inaccurate asset presentation (§ 246 HGB). Similarly, omission of the memorandum amount for fixed assets actually still in use is problematic, as this makes asset accounting less traceable and may lead to inquiries during audits. In addition, the tax office may require corrections and may even impose tax penalties if improper handling affects the taxable profit.
Is a memorandum amount permissible for all assets?
Recognition of a memorandum amount is legally customary only for depreciable intangible and tangible fixed assets that continue to be used. For low-value assets (GWG), which according to § 6 Para. 2 EStG are written off in full immediately, practice is inconsistent. A memorandum amount is not permissible for GWGs as ongoing asset accounting is not required for them. Nor can a memorandum amount be recognized for current assets or receivables; here, under commercial and tax law, full write-off after complete loss in value is mandatory. This particularly applies to foreign participations or non-depreciable fixed assets where there is a permanent impairment—in these cases, the memorandum amount is excluded for legal reasons.
