Term
Nominal value
The amount stated on money, a receivable, a share, a bond or a contribution, regardless of what was paid for it. Receivables and payables are booked at nominal value when they arise, and so is a stake in equity.
Updated
What it means
Nominal value is the amount stated on a financial instrument or on the document evidencing a receivable or payable, its face value. For money it is the denomination of the note, for a share the amount by which it participates in registered capital, for a bond the amount the issuer repays at maturity.
It is one of the methods of valuing assets and liabilities. Cash, stamps and vouchers, and receivables and payables on initial recognition are booked at nominal value, meaning the amount one party has to pay the other.
Nominal value may differ from the price at which an instrument is bought or sold and from its fair value. For shares and contributions, the difference between the amount paid and the nominal value is the share premium.
How it works in practice
When an s. r. o. is founded, each shareholder’s contribution is recorded at nominal value and determines their stake, and the contributions together form the registered capital. In a joint-stock company each share has a nominal value and together they likewise make up registered capital.
When a receivable is bought, for example through an assignment for a fraction of its value, the new creditor books it at acquisition cost, not at nominal value, even though it can pursue the debtor for the full nominal amount. The difference matters for tax when the money is later collected.
Receivables and payables in foreign currency are translated into euros at the exchange rate when they arise and remeasured at year end, giving rise to an exchange difference. The nominal value in the foreign currency does not change; only its value in euros does.
What to watch out for
The nominal value of a receivable does not mean the company will collect the full amount. If the debtor is in difficulty, the receivable stays at nominal value, but its real value must be reduced by an impairment allowance, otherwise the balance sheet overstates assets.
Reducing or increasing registered capital may change the nominal value of shares or contributions. Such changes require a general meeting resolution and registration, and if done incorrectly the books and the register can end up out of line.
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