Accounting for replacement claims

In practice, companies often face situations where there are obligations for which they are entitled to compensation. This can, for example, be the case for insurance, warranty or other claims for compensation. There are no explicit provisions in the Commercial Code (UGB) regarding the accounting for such claims. Therefore, the correct accounting is derived from the general provisions of the UGB, distinguishing between claims for compensation that have already arisen legally and economically from the outset and claims for compensation that are not yet actionable.

If the replacement claim is not yet actionable, it must be taken into account as a matter of principle when determining the amount of the set-off. However, consideration of it is excluded if there are uncertainties regarding the existence or amount of the claim. In this case, the replacement claim can therefore only be taken into account as a matter of depreciation in the set-off if the claim is virtually undisputed and a loss is almost excluded. Replacement claims that have already arisen legally and economically must be accounted for as a separate asset item. Such claims must therefore not be taken into account when assessing the set-off due to the prohibition on aggregation. The asset item and the set-off must be treated separately. When assessing the asset item, the general valuation rules of the UGB must be observed. In this context, consideration must be given to the debtor’s creditworthiness. If the replacement claims cannot be taken into account when making the balance sheet, because the above-mentioned requirements are not met, it should be noted that these are to be reported as benefits from off-balance-sheet transactions in the appendix, provided that they are significant.

For the company that has granted the indemnity claim, the UGB contains clear provisions regarding the accounting and reporting of information in the annex. If the company is obligated to fulfill the indemnity claim and if the amount and due date of the obligation are determined, a liability must be set aside. If the amount or date of the entry into force of the obligation is uncertain, however, serious consideration must be given to the possibility that the company will be called upon to claim the indemnity. The company must therefore account for a provision. If the criteria for the accounting of a liability or a provision are not met, an entry as an eventual liability must be made if there are guarantees, guarantees of performance, or other contractual liability relationships. Unless the conditions for the recognition of an eventual liability are also met, the assumed obligation must be stated in the annex as an other financial liability or, as a subsidiary liability, as a risk from an off-balance-sheet transaction, provided that it is material.

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