What impact do special items have on the result in the profit and loss statement?
August 3, 2023 | 40,00 EUR | answered by Jonas Kessler
Dear Tax Advisor,
I am Katrin Kessler and I run a medium-sized company in the trading sector. In my profit and loss statement, there are often special items that I do not fully understand the impact on my results. I am concerned that these special items could distort my results and have negative consequences for my company.
In the past, I have, for example, created special items for provisions, depreciation, or write-downs. How do these special items affect my results in the profit and loss statement? What impact do they have on my profit or loss at the end of the fiscal year?
I would like to understand how to correctly interpret these special items and incorporate them into my financial planning. Are there any alternatives to creating special items in order to present my results more transparently and assess future risks better?
I would be very grateful if you could help me clarify these questions and show me possible solutions.
Best regards,
Katrin Kessler
Dear Mrs. Kessler,
Thank you for your inquiry regarding the special items in your profit and loss statement. It is understandable that you are concerned about how these special items may impact your results and what consequences they may have for your company. I will be happy to explain in detail how special items such as provisions, depreciation, and value adjustments affect your results in the profit and loss statement, as well as what alternatives exist to the formation of special items.
Provisions are reserves set aside to offset future liabilities or losses. By creating provisions, you are reducing your profit in the profit and loss statement. This means that your result at the end of the fiscal year will be lower, as provisions are recorded as expenses. Depreciation, on the other hand, is the reduction in value of assets spread over their useful life. Depreciation also reduces your profit, as it is recorded as an expense.
Value adjustments, on the other hand, are corrections to balance sheet positions made due to impairments. Value adjustments also lead to a reduction in results in the profit and loss statement. These special items therefore have direct implications on your profit or loss at the end of the fiscal year.
To present special items more transparently and better assess future risks, it is important to regularly review and adjust them if necessary. Alternatives to the formation of special items could include building up more reserves in good years to hedge against future risks. Strategic financial planning can also help in better managing special items and minimizing potential negative impacts.
I recommend sitting down with your tax advisor to analyze your profit and loss statement more closely and develop possible solutions. Together, you can optimize your financial planning and ensure that your company is on a solid foundation.
I hope this information is helpful to you and I am available for any further questions you may have.
Sincerely,
Jonas Kessler
