Balance sheet presentation of a liquidation preference
January 25, 2022 | 35,00 EUR | answered by Steuerberater Knut Christiansen
A company (A) is being newly founded. Since certain services from another company (B) will be incorporated into company A, but company B does not want to be directly involved in company A, company B will receive a liquidation preference in the event of a sale in the amount of X%.
Now the question is: Does company A have to disclose this liquidation preference in the balance sheet? Or even make a provision for it?
Good morning and thank you for using ask-a-tax-expert.com!
I am happy to provide you with the following feedback.
Since company A apparently accounts for it, the services provided to B would generally need to be valued as an asset. This would then correct the expenses that have reduced the result of A accordingly.
Since (apparently) no direct invoice is being issued yet, the valuation would need to be done in the form of work in progress. The valuation is done according to commercial law as of the balance sheet date based on the production costs incurred for these services (material costs, personnel costs, overhead costs).
However, if the service is already "finished," that is, fully provided, it may even be the case during an audit that the auditor wants to calculate VAT here, because it arises after the completion of the service.
A provision cannot/must not be made here because there is no uncertain liability.
I hope this answers your question, otherwise feel free to ask follow-up questions at no charge.
I would like to point out that this forum cannot replace a comprehensive and personal tax consultation, but is primarily intended to provide an initial tax assessment. Adding or omitting relevant information could lead to a different legal assessment of your issue.
Best regards!
Knut Christiansen
Tax Advisor
