Facing complex decisions regarding your assets? This article highlights how informed valuation and strategic planning can help you maximise the value of your assets and minimise risks.
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The topic briefly and concisely
A precise assessment of assets according to HGB and BewG is the basis for sound financial decisions and compliance with legal requirements.
Diversification across different asset classes and regions is a core strategy for risk minimisation and the long-term preservation of asset value.
Digital assets and sustainability aspects (ESG) are gaining increasing importance and require an adjustment of investment strategies and valuation methods.
The world of assets is diverse and often complex. From tangible goods like real estate to intangible assets like patents – every asset carries potential, but also risks. A thorough understanding and assessment of your assets is the first step to financial success and security. This guide offers you a comprehensive overview of different types of assets, their correct evaluation according to German standards, and strategies for enhancing and protecting your portfolio. Discover how to make data-driven decisions and achieve your financial goals.
Fundamentals of Assets: What Really Counts?
Assets are all goods that have a measurable economic value and are owned by an individual or a company. They can be tangible, like real estate or machinery, or intangible, like patents and trademarks. The key point is that an asset promises current or future economic benefits. For companies, assets are found on the assets side of the balance sheet and indicate the use of resources. A clear distinction and correct recording are fundamental for any financial decision.
The exact definition and classification of assets are regulated by the German Commercial Code (HGB). The HGB stipulates that assets must be independently assessable and tradable. For example, software on a data carrier is considered an intangible asset. [6,2] Correct classification directly affects the balance sheet and thus the assessment of a company's economic situation by investors or banks. [2,2] Therefore, precise valuation of assets is essential.
This foundation is crucial to understanding the various types of assets and their specific characteristics.
Asset Diversity: An Overview of Tangible and Intangible Goods
There is a fundamental distinction between tangible and intangible assets. Tangible assets are physical and quantifiable, such as real estate, vehicles, or machinery. Their value is often easier to determine because comparative values exist. In contrast, intangible assets are not physical, but still hold significant value; examples include patents, licenses, trademarks, or software. The valuation of intangible assets can be more complex, as their value often depends on future income expectations.
Tangible assets also include inventories or a company's cash holdings. [1,6] For real estate, a significant tangible asset, factors such as location and condition play a role in determining the value, which can be calculated using methods such as the income-based or cost-based approach. [6,5] Intangible assets such as goodwill often arise during corporate acquisitions and represent value beyond the mere intrinsic value. [5,1] Many companies underestimate the value of their intangible assets, which can often account for over 50% of total value.
Another important distinction is between fixed assets and current assets. [1,6] Fixed assets serve the company in the long term, typically more than a year, such as buildings or technical facilities. [1,6] Current assets, however, are intended for short-term use and are consumed, sold, or converted into liquid assets within a year, for example, raw materials or receivables. [1,6] This distinction is central to balance sheet analysis and risk management.
Accurate valuation of these different types of assets is crucial for sound financial planning.
Asset Valuation: Legal Foundations and Recognised Procedures in Germany
The valuation of assets in Germany is subject to strict legal regulations, primarily the Commercial Code (HGB) and the Valuation Act (BewG). The HGB stipulates that assets must not be valued higher than their acquisition or production costs (§ 253 Para. 1 HGB). The Valuation Act provides specific rules for determining the fair value for tax purposes. The aim is a realistic and consistent valuation of all assets.
Various recognized methods exist for the valuation. In real estate, the comparative value method, the income method, and the cost method are often used. [6,5] Company valuations often use the income method (according to IDW S1) or the discounted cash flow method (DCF). [1,15] The tax office relies on the market value for inheritances and gifts, which can lead to higher valuations since 2023. [1,13] Professional sales support can provide clarity here.
The principle of lower of cost or market is another important concept in the HGB. It states that of several possible valuations, the lower one must always be chosen to anticipate losses and only recognize gains upon realization. This serves creditor protection and prudent accounting. In the case of anticipated permanent impairments in fixed assets, extraordinary depreciation is mandatory.
The complexity of valuation methods often requires specialized knowledge to avoid errors and resulting disadvantages.
Assets in the Lifecycle: From Acquisition to Disposal or Transfer
Every asset goes through a lifecycle, starting with acquisition or production. The acquisition costs include all expenses required to acquire an asset and make it operational. Changes in value can occur during the period of use. Depreciable fixed assets like machines systematically lose value through depreciation. In contrast, real estate can increase in value, depending on market developments and maintenance.
At the end of the lifecycle, there is often a disposal or transfer, for example through inheritance or gift. [1,13] Upon disposal, the realized price is compared with the book value, which can lead to gains or losses. Accurate valuation is crucial for tax purposes in cases of inheritance and gifting. [1,13] Specific allowances apply here, e.g. 500,000 euros for spouses and 400,000 euros for children. [6,5;1,13]
The following aspects are relevant when transferring assets:
Determining the correct market value on the key date. [1,13]
Utilizing statutory allowances to reduce the tax burden. [1,13]
Considering the different tax classes depending on the degree of kinship. [2,13]
Possibility of anticipatory succession through lifetime gifts. [2,13]
Special regulations for business assets. [2,2]
Early planning of asset succession can enable significant tax savings. The complexity, especially with luxury real estate, often requires expert advice. Thorough documentation of all processes is essential.
Strategic management throughout the entire lifecycle is key to maximizing value.
Factors influencing value: inflation, market trends, and interest rates
The value of assets is not static but is influenced by a variety of external factors. Inflation plays a significant role as it reduces the purchasing power of money. [1,10] Tangible assets like real estate or stocks can offer a certain degree of protection against inflation in the long term since their prices tend to rise with inflation. [1,10] Pure cash assets, on the other hand, lose real value in times of high inflation if interest income does not compensate for the rate of inflation. [2,10]
The general market trends and business cycles also have a direct impact. In economically strong phases with high demand, prices for real estate and corporate shares tend to rise. [4,10] Interest rate changes by central banks particularly affect fixed-income securities and the financing costs for real estate. Rising interest rates, for example, can depress bond prices and increase the cost of real estate loans, which may dampen demand and prices. [5,10]
A broad diversification of assets across various asset classes can help cushion the impact of negative market developments. [2,10] Losses in one area can potentially be offset by gains in another. Monitoring market indicators and economic data is essential for forward-looking asset management. The Bundesbank regularly publishes data on the asset situation and its development in Germany. [4,10]
In addition to these macroeconomic factors, specific properties of individual assets must also be taken into account in risk management.
Asset Risk Management: Strategies for Protection and Value Preservation
Every asset is associated with specific risks. Market risks, such as stock price fluctuations or changes in real estate prices, are ubiquitous. [1,4] Liquidity risks arise when assets cannot be converted into cash quickly enough without significant losses. Effective risk management aims to identify, assess, and control these hazards. [3,4] This is a key aspect of any investment strategy.
A fundamental strategy in risk management is diversification. [1,4] By distributing assets across different asset classes (e.g., stocks, bonds, real estate, commodities) and regions, overall risk is reduced. [1,4] If one asset class loses value, others may compensate for this. Studies indicate that diversified portfolios often achieve more stable returns in the long term.
Other measures in risk management include:
Determining an individual risk tolerance based on age, financial goals, and investment horizon. [1,4]
Regularly reviewing and adjusting asset allocation to changing market conditions and personal circumstances. [1,4]
Using hedging instruments for certain risks, such as currency fluctuations.
Building an emergency fund in liquid assets for unforeseen expenses. [1,4]
Concerning real estate: insurance against damage and careful selection of tenants.
Proactive wealth protection and risk management are crucial to secure and grow hard-earned assets in the long term. This is especially true in volatile market phases. Digitalisation offers new tools for analysis and monitoring.
assets
Digitisation has brought about new forms of assets, most notably cryptocurrencies such as Bitcoin or Ethereum. [1,12;2,12] These digital assets are often based on blockchain technology and are stored in digital wallets. [2,12] Their value can fluctuate greatly and is characterised by high volatility. [3,12] Nevertheless, some investment firms are already recommending a mix of 2-3% crypto-assets for portfolio diversification. [5,12]
In addition to cryptocurrencies, other digital assets are also gaining importance, such as tokenised shares in real goods (e.g., real estate or art). [2,12] The management and valuation of this new asset class presents challenges to traditional approaches, but also offers opportunities. AI-supported valuation can help create transparency here. The acceptance of digital assets is growing, and regulatory authorities are working on clear frameworks. [2,12]
At the same time, the issue of sustainability (ESG – Environment, Social, Governance) is increasingly coming into focus for investors. [1,14] Companies are increasingly being assessed on how they consider ecological and social aspects as well as good corporate governance. [1,14] The EU taxonomy and the Corporate Sustainability Reporting Directive (CSRD) increase transparency requirements for companies regarding their sustainability performance and the associated assets. [4,14;2,14] Investments in sustainable assets, such as renewable energies, can not only meet ethical demands but also offer stable returns in the long term. [2,10]
These developments show that the consideration of assets remains dynamic and requires new competencies.
Future trends and strategic alignment of your assets
What role does the Commercial Code (HGB) play in relation to assets?
The HGB provides the legal framework for accounting and valuation of assets in Germany. It defines what qualifies as an asset and specifies valuation principles such as the cost and lower of cost or market principle.
What is the difference between fixed and current assets?
Fixed assets are held by the business long-term (more than one year), e.g., buildings, machinery. Current assets are intended for short-term use and are consumed or converted into cash within a year, e.g., inventories, receivables.
How can I protect my assets from risks?
Key strategies include diversification (spreading across various asset classes), regular portfolio review, building an emergency reserve, and, if necessary, the use of hedging instruments. Insurance is also relevant for real estate.
Are cryptocurrencies recognised as assets?
Yes, cryptocurrencies are considered digital assets. Their valuation and accounting treatment can be complex and are subject to specific regulations. They are known for high volatility.
How does Auctoa assist me with my assets?
Auctoa offers AI-powered property valuations and strategic advice. We help you to objectively determine the value of your assets, manage risks, and make informed decisions for sales, inheritance, or investments. You can also use our ImmoGPT-Chat for initial inquiries.
What valuation methods are available for real estate?
The most common methods are the comparative value method (comparison with similar properties), the income value method (based on future earnings, e.g., rent), and the cost value method (based on production costs or intrinsic value).
Additional useful links
The Bundesfinanzministerium provides current statistics on inheritance and gift tax.
The Deutsche Bundesbank regularly publishes reports on financial stability in Germany.
The Federal Institute for Research on Building, Urban Affairs, and Spatial Development (BBSR) offers detailed insights into the German real estate market, such as the Real Estate Market Report 2021.
FAQ
What role does the Commercial Code (HGB) play in assets?
The HGB provides the legal framework for the accounting and valuation of assets in Germany. It defines what qualifies as an asset and prescribes valuation principles such as the cost and lower of cost or market principle.
What is the difference between fixed assets and current assets?
Fixed assets serve the company in the long term (longer than a year), e.g., buildings, machinery. Current assets are intended for short-term use and are consumed or converted into cash within a year, e.g., inventories, receivables.
How can I protect my assets against risks?
Important strategies include diversification (spreading across different asset classes), regular portfolio reviews, building an emergency fund, and, if necessary, the use of hedging instruments. For real estate, insurance is also relevant.
Are cryptocurrencies recognised assets?
Yes, cryptocurrencies are considered digital assets. Their valuation and accounting treatment can be complex and are subject to specific regulations. They are known for high volatility.
How does Auctoa help me with my assets?
Auctoa offers AI-powered real estate evaluations and strategic consulting. We help you objectively determine the value of your assets, manage risks, and make informed decisions regarding sales, inheritance, or investments. Also, use our ImmoGPT chat for initial inquiries.
What valuation methods are available for real estate?
The most common methods are the comparative value method (comparison with similar objects), the income approach (based on future income, e.g., rents), and the cost approach (based on the production costs or intrinsic value).
