The German lawmaker does not clearly emphasise either the profit or loss quantification function or the information function of financial statements; the HGB-compliant (HGB = German Commercial Code) financial reporting provisions pursue both the targets. In contrast the aims in financial reporting to IFRS are exclusively identifiable with the information function.

As in-kind contributions amount to separate acquisitions, the valuation rates in the initial balance sheet can be defined without reference to historical costs of the contributor. The legal definition of acquisition cost is provided in § 255 I HGB. Under the acquisition cost principle, first an asset is measurable at its acquisition cost and secondly, acquisition cost amounts to absolute maximum limit that must never be exceeded (highest-value principle). The measurement at acquisition cost is meant to facilitate treatment of the purchases generally with no effect on profit and loss. This is achieved through the principle of relevance of value provided in return, i.e., the asset received is measured at the value the acquirer needs to provide to obtain it. Prerequisite to applicability of this principle is financial accounting-relevant comparability between the value received and the value provided in return.

There is no doubt that in-kind contributions as part of enterprise formation qualify as acquisitions without which there could be no acquisition cost. However, the existence of acquisition cost in terms of origin must be rejected in this context due to a lack of financial accounting-relevant comparability of the in-kind contributions. In existing sources, rather the term of notional acquisition cost is preferred. However, the latter in itself does not yet provide a reference valuation rate for the in-kind contributions. In German Commercial Code as valuation rate for notional acquisition cost, the issue price applies as minimum limit and fair value of the in-kind contribution as maximum limit.

Within IFRS as standard valuation rates, the framework defines historical costs, current cost, realisable value/settlement value and present value. Historical costs refer to the costs incurred in the financial accounting sense in the acquisition of the asset concerned. Consequently, the historical costs are equivalent to acquisition cost under HGB. The acquisition cost principle under IFRS also is based on the principle of non-effect of the acquisition on profit and loss. Components of acquisition cost for specific balance sheet items are provided in detail in individual IFRS standards. Accordingly, acquisition cost is determined by the type of asset concerned and its form of acquisition according to financial accounting-relevant means spent or the asset fair value. Where for instance tangible assets are acquired through exchange, the assets received are to be capitalised at fair value unless the technical exchange transaction lacks commercial substance or a reliable determination of fair value is not possible for both the asset provided and the asset received. Fair value amounts to a valuation

measure the aim of which is to hold assets of the reporting entity in balance sheet at or near their market value. The use of this valuation rate follows from the true and fair view principle the key purpose of which is communication of information. Actual applicability of measurement at fair value needs verification to the criterion as to whether the principles of the exchange theory apply accordingly. This has been answered negatively due to a lack of consistent arguments for a clear applicability already in the case of acquisition cost under German Commercial Code. In author’s opinion, the same must logically apply also for acquisition cost under IFRS. Hence the term of notional acquisition costs also is used within the context of IFRS.

The valuation rates for notional acquisition cost to German Commercial Code advocated in existing sources range from the issue price through values derived from historical costs of the contributor and intermediate values up to fair value. Both the decision making criteria of allowability of hidden reserves in initial balance sheet and objectivity follow from both the tasks in financial reporting of profit or loss quantification and information. The decision making criterion of objectivity in this context does not clearly point to any specific valuation measure while the decision making criterion of allowability of hidden reserves only actually becomes relevant where the tasks of the particular financial reporting system in use - such as in the case of German Commercial code - include quantification of profit or loss. Given the principal decision making criterion of allowability of hidden reserves, fair value should be exclusively referred to in determining notional acquisition cost in author’s opinion. Consequently, no hidden reserves can exist in initial balance sheet given the fact that the hidden reserves would be created in balance sheet with no effect on profit and loss, thus jeopardising and possibly diminishing corporate assets. The founders should use the available freedom of discretion they are given to protect corporate assets right from the start.

The financial reporting rules to IFRS do not provide a profit or loss quantification function. The sole aim here is identifiable with providing decision making relevant information. With a creation of hidden reserves, the recipients would be deprived of information and the information communication function in reporting not fulfilled. Consequently, hidden reserves in start-up balance to IFRS are not allowable. For determining notional acquisition cost, fair value applies as the only viable option.

Overall, the research carries out a comparison of aims in financial reporting to HGB and IFRS respectively as far as relevant to measurement of in-kind contributions, explores the different views on notional acquisition cost and extracts with the principal question of allowability of hidden reserves in initial balance sheet the key decision making criterion to refer to in measurement of the

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