Accruals & Deferrals
Treatment under IFRS
IFRS has no separate balance-sheet line for "deferral items" (Rechnungsabgrenzungsposten). Prepaid expenses and deferred income are presented within the relevant balance-sheet items as prepayments (other receivables) or deferred income (other liabilities).
- Allocation follows the accrual basis (IAS 1.27 f.).
- Asset-side deferrals: as prepayments within current or non-current assets.
- Liability-side deferrals: as deferred income within liabilities.
- Loan discount: no separate balance-sheet line; the effective-interest method spreads the difference automatically.
Treatment under German GAAP (HGB)
§ 250 HGB requires a separate balance-sheet line for prepaid expenses (ARAP, asset side) and deferred income (PRAP, liability side). A loan discount may optionally be capitalised as an asset-side deferral.
- § 250 (1) HGB: an asset-side deferral for expenditure before the reporting date that represents expense for a defined period thereafter.
- § 250 (2) HGB: a liability-side deferral for income received before the reporting date that represents revenue for a defined period thereafter.
- § 250 (3) HGB: an option to capitalise a loan discount (the difference on a liability).
- § 266 HGB: ARAP and PRAP as separate balance-sheet items (assets letter C / liabilities letter D).
Key differences
- HGB shows deferral items as a separate balance-sheet line; IFRS allocates these amounts to the ordinary receivable or liability items.
- Loan discount: HGB allows optional capitalisation under § 250 (3); IFRS has no separate item and spreads it automatically via the effective-interest method.
- Presentation differences can affect balance-sheet ratios (e.g. the current ratio).
Example
Worked example
Assumptions: (1) On 1 July an annual insurance premium of €12,000 is paid in advance for the next 12 months; at the reporting date 31 Dec, €6,000 relates to the following year. (2) A loan with a nominal amount of €1,000,000 is paid out at €950,000 (discount €50,000), term 5 years. All amounts in euros.
Step 1 – Prepaid expense: journal entry
The accrual is the same amount; only the presentation differs. Adjusting entry at 31 Dec (€6,000 is carried to the following year):
| Account | Debit | Credit |
|---|---|---|
| HGB: Prepaid expenses (ARAP) | 6,000 | |
| Insurance expense | 6,000 | |
| IFRS: Other assets (prepayment) | 6,000 | |
| Insurance expense | 6,000 |
Step 2 – Balance-sheet presentation
| Feature | IFRS | HGB |
|---|---|---|
| Deferred amount | 6,000 | 6,000 |
| Separate balance-sheet line | no | yes (assets letter C, § 266) |
| Presentation | within other assets (prepayments) | "prepaid expenses / accruals" |
| Effect on profit or loss | identical | identical |
Economically identical – the difference is purely presentational. Deferred income works as the mirror image.
Step 3 – Loan discount
Here there is a genuine difference in method. HGB grants a recognition option (§ 250 (3) HGB): the discount may be capitalised as a prepaid item and spread over the term, or expensed immediately. IFRS has no such item – the liability is recognised at €950,000 and accreted to €1,000,000 via the effective-interest method; the discount automatically flows into interest expense.
| Feature | IFRS | HGB |
|---|---|---|
| Discount | 50,000 | 50,000 |
| Separate balance-sheet line | no | option: prepaid item or immediate expense |
| Spreading over the term | effective-interest method (mandatory) | if capitalised: systematic, e.g. straight-line €10,000/year |
| Initial measurement of the liability | 950,000 | 1,000,000 (settlement amount) |
Note: the effective-interest method spreads the discount on a slightly rising basis (not exactly straight-line); the annual amounts therefore differ slightly from €10,000.
Key takeaway
For a pure accrual/deferral the difference is only formal: HGB carries a separate balance-sheet line for prepaid items and deferred income (§ 250 HGB), whereas IFRS assigns the amounts to receivables/payables. The difference is greater for a loan discount: an HGB recognition option (§ 250 (3)) versus the mandatory effective-interest method under IFRS. Even the different presentation alone can affect balance-sheet ratios (e.g. total assets, equity ratio).