Lowest Value Principle 2

Lowest Value Principle in English


It is often the first time, especially for founders, that they are confronted with the subject of proper bookkeeping. If you are not familiar with the topic and do not seek the support of a tax advisor or specialist, you will quickly reach your limits. Especially when you are confronted with the principles of proper accounting, such as the lowest value principle .

What is the lowest value principle?

Just like the highest value principle , the lowest value principle is also one of the principles of proper bookkeeping . Proper bookkeeping is also only abbreviated to GoB. It is derived from the principle of caution. The lowest value principle primarily serves to concretise the imparity principle. Many terms, which are perhaps still relatively unknown, but all play a role in the valuation of wealth. For you as a company, the lowest value principle plays an important part in your calculations. Because it stipulates that when selecting different assets, the lowest value in the balance sheet is always to be used. The maximum value principle, on the other hand, stipulates that you always have to balance your losses with the highest value.

The legal basis for the lowest value principle

How you have to apply the lower value principle is described in the regulations for application under ยง 523 HGB . It stipulates that the lowest possible value is always to be used when valuing business assets. If you consider the lower value principle from a tax point of view, the application of Section 6 (1) EStG applies here. In addition, according to Section 5, Paragraph 1 of the Income Tax Act, the lowest value principle is decisive for your tax balance sheet if you have already applied it to your commercial balance sheet .


A balance sheet analysis is an obstacle for some. In our lexicon article you will find out everything about the balance sheet!

Application of the lowest value principle

The lowest value principle is always applied on the basis of the principle of prudence . This means that you see losses coming your way, but they have not yet been realized. It is the same with profits. So if you realize your losses in this way, then they reduce your annual profit . Specifically, this means that the profit distributions will be lower. For you, the principle also has the advantage that you are able to better compensate for your actual losses. The lowest value principle means that your liquidity reserves are better off. This also means that the protection of creditors stipulated in the HGB is observed.

Differences in the lowest value principle

With the lowest value principle, a distinction must be made between three different types.

  • softened lowest value principle
  • strict lowest value principle
  • extended lowest value principle
Kind of principle description
Moderated lowest value principle Two factors are necessary to value an asset. These are the acquisition value and the current market valueor market value. Both must be compared with each other on the respective reference date. The lower of cost or market principle is used when it comes to objects that come from fixed assets. The principle says that you can reduce the acquisition value by the so-called scheduled depreciation. It is at your discretion how long such an item is written off, i.e. how long the depreciation lasts. If the depreciation is only for a short period of time, you can, if necessary, ignore it completely. However, if the impairment is permanent, then you have to apply the strict lowest value principle.
Strict lowest value principle The strict lowest value principle applies to all of your company’s current assets . This means that even in the case of a non-permanent decrease in value, the lower of cost or market principle must be applied. With the strict lower value principle, you have no right to choose whether or not to make depreciation. This procedure is binding for you. The consequence of the application is a valuation for all assets from the current assets, which is lower.
Extended lowest value principle The extended lower of cost or market principle describes that in the case of depreciation in current assets, future fluctuations in value can be taken into account. However, this regulation can or must no longer apply since 2009 according to the Accounting Law Modernization Act .

Difference between fixed assets and current assets

Fixed assets and current assets play an important role in the application of the lowest value principle . Fixed assets and current assets make up the total assets of your company. But what exactly is the difference between the two types of wealth?

Lowest Value Principle 2