National Accounting Standards Board’s Interpretations

The interpretations reflect the expert guidance of the National Accounting Standards Board on the practical application of the Czech accounting rules. The interpretations aim to support the development of optimal and consistent accounting and financial reporting practices. They primarily focus on areas that are not addressed by Czech accounting regulations, areas where existing guidance is insufficient, and practices that are applied inconsistently.

Although the interpretations are not legally binding, the Supreme Administrative Court has repeatedly recognised them as a valuable tool for supplementing accounting legislation.

Interpretation I-51 Reporting of Products and Goods Used for Demonstration

Interpretation I-51 Reporting of Products and Goods Used for Demonstration, adopted on 19 May 2025, responds to a situation where companies use products or goods for exhibitions or demonstrations. Such items are usually not intended for immediate sale, but they still need to be recognised in accounting records. Until now, however, there has been no consistent interpretation: some companies recorded them as inventory, others as fixed assets, and in other cases their value was reflected directly in expenses.

The new interpretation introduces a key principle – the decisive indicator is the purpose of use and the expected period of use. If goods (or products, by analogy) are to be used for demonstration purposes for a long time and if they meet the value test for fixed assets, they should be classified as fixed assets and gradually depreciated (taking into account their residual value, if they are expected to be sold after use for demonstration purposes). If their use is short-term and they are primarily intended for sale, they remain categorised as inventory. Goods are valued at the lower of acquisition cost or net realisable value. A provision reflecting poorer saleability (or, conversely, the incentive to purchase) of the items on display is relatively common.

To illustrate, let’s have a look at a simplified example for both situations:

Example A: Goods used for demonstration in the short term

The company acquires a coffeemaker at a cost of CZK 8,000, which will be displayed in a showroom for a short period of time and then sold to a customer.

• Purchase: 132 – Goods in stock / 321 – Suppliers CZK 8,000
• Display in the showroom: no effect, still inventory (merely a change of placement)
• Sale to a customer:
  • 311 – Customers / 604 – Sales of goods (e.g. CZK 10,000)
  • 504 – Goods sold / 132 – Goods in stock CZK 8,000

Conclusion: The coffeemaker is recorded as inventory because it was intended for sale and was only used for presentation purposes for a short period of time.

Example B: Demonstration goods with long-term use

A car dealership purchases a passenger car at an acquisition cost of CZK 750,000. This car is not intended for immediate sale but will be used for customer test drives for two years. Experience has shown that similar demonstration cars sell for around CZK 250,000.

• Car acquisition (invoice from the supplier):
  • DR 022 – Independent movable assets / CR 321 – Suppliers CZK 750,000
• Depreciation over the period of use (e.g. on a straight-line basis over 2 years, reflecting residual value, CZK 200,000/year):
  • DR 551 – Depreciation of tangible fixed assets / CR 082 – Accumulated depreciation of tangible fixed assets – CZK 200,000 per year
• Sale after two years (e.g. for CZK 230,000):
  • DR 311 – Customers / CR 641 – Sales of tangible fixed assets CZK 230,000
  • DR 541 – Net book value of tangible fixed assets sold / CR 082 – Accumulated depreciation of tangible fixed assets CZK 250,000
  • DR 082 – Accumulated depreciation of tangible fixed assets / CR 022 – Independent movable assets CZK 750,000

Conclusion: The goods are recorded as fixed assets with gradual depreciation up to their estimated residual value.

In the area of demonstration goods, reporting entities should identify which items are actually used for demonstration purposes and decide how and using what methodology each item will be classified.

The interpretation further states that circumstances such as building approval or vehicle registration are not reasons why demonstration items cannot be reported as inventory.

Interpretation I-52 Employee Benefits

Interpretation I-52 Employee Benefits was issued on 13 June 2025 and regulates the accounting for employee benefits. The practice has not been consistent to date – some reporting entities recorded these benefits in their profit and loss accounts, others in their balance sheets, leading to differences not only in profit or loss, but also in the structure of equity.

The interpretation says that employee benefits are understood as any consideration that an employer provides to its employees and persons in similar relationships for the performance of their activities.

According to the interpretation, all forms of employee benefits are reported in the profit and loss account – the expense arises in the period when the employee performed their work, and the employer’s payable to the employee arises at the same time. The reason for this is the basic thesis that work carried out by human resources is analogous to the consumption of other resources, which is recorded as an expense.

The interpretation sets clear boundaries between short-term and long-term benefits and specifies procedures applicable at the conclusion of employment or when transferring entitlements. The main priority is consistency – making sure that different entities do not work according to different interpretations and the result is not influenced purely by the choice of accounting method.

Short-term benefits

Short-term benefits are understood as employee benefits that are payable by the end of the reporting period following the reporting period in which the entitlement to the benefit arose. According to the interpretation, this category includes wages and salaries, employer contributions to social security, health and pension insurance, life insurance contributions, short-term compensation, profit-related bonuses and short-term paid leave (both cumulative and non-cumulative).

Long-term benefits

Long-term benefits are those that are not payable by the end of the reporting period following the reporting period when the employee carried out work for the employer. Examples include long-term paid leave, jubilees, benefits for working a certain number of years or benefits received during long-term incapacity for work. The employer’s payable and expense related to long-term benefits also arise the moment when the employee performs work for the employer.

Employee benefits provided to employees after the end of employment

Employees may be entitled to social services after retirement, early retirement, or disability retirement. During employment, a liability is created for these costs in the amount of the relevant portion of the qualified estimate based on expected future benefits.

Employee benefits in the event of early termination of employment by the employer

The interpretation clarifies that severance pay paid by the employer beyond the level set by law is not compensation for the employee’s work performance.

The issuance of the new interpretation encourages reporting entities to review their accounting policies regarding employee benefits. We expect that policies adjusted in line with this interpretation will be consistent in principle with the new accounting legislation.

Conclusion

The changes brought by interpretations I-51 and I-52 may lead to a review of internal policies and methodologies. On the other hand, however, they bring companies greater certainty in reporting and less room for differing interpretations. Although the interpretations are not legally binding, they offer a valuable framework that may be used by reporting entities as a guideline to ensure consistent and comprehensible information contained in the financial statements.

Source: www.nur.cz