Abstract
The accounting methods based on two concepts-accounting at historical cost and accounting at fair value-are responsible for the provision of information about the enterprise's assets in the financial statements. Taking into consideration the specifics of the national financial accounting regulation, the forests managed by the forestry enterprises can also be measured by using either of these two accounting methods. However, in terms of accounting, both of them pose certain problems or ambiguity. The purpose of the research is to evaluate the strengths and weaknesses of forest accounting methods based on fair value and historical cost and the practice of their use in Lithuanian forestry enterprises. The study examines scholarly literature and deploys the theoretical methods of comparative analysis, critical evaluation, systematisation, generalisation. The empirical research involved document content analysis, questionnaire survey. The article deals with the issues of the use of accounting methods for forestry accounting: traditional cost-based accounting methods do not reflect the biological forest transformation, hinders identifying the forest development costs and the end of their capitalisation, the method of a systematic derecognition. On the other hand, the essential complication of the use of the fair value method is that the forest largely lacks an active market with quoted prices. Thus, its fair value is determined on the basis of rather subjective assumptions by means of diverse valuation methods, resulting in unreliable and unverifiable information. The results of the research carried out into the forestry accounting policy observed in the Lithuania's private forestry enterprises revealed that forest accounting by cost is exclusively carried out by all the enterprises under investigation. Nevertheless, the method itself was interpreted quite differently. The article presents the modified forestry accounting methods by cost, which allow reducing the identified shortcomings.
Highlights
The meaning of the information presented in the financial statements on the entity’s resources and results achieved largely depends on the deployed accounting and evaluation methods which are based on two concepts: historical cost accounting and fair value accounting
When using the historical cost method, a number of data in the financial statements are subjective, based on certain assumptions, while the value of the assets in the financial statements is significantly different from their market price, financial information is less appropriate for economic decisions
Summarising the identified problem areas, it can be argued that they are related to the shortcomings of the forest accounting regulation, which were determined by the analysis of the national and international accounting regulations
Summary
The meaning of the information presented in the financial statements on the entity’s resources and results achieved largely depends on the deployed accounting and evaluation methods which are based on two concepts: historical cost accounting and fair value accounting. The benefits of accounting at fair value are obvious, as the information presented in the financial statements is increasingly becoming more relevant and appropriate for making economic decisions and cash flow forecasts, and for reflecting changes in the market and their impact on the enterprise’s performance. When using the historical cost method, a number of data in the financial statements are subjective, based on certain assumptions, while the value of the assets in the financial statements is significantly different from their market price, financial information is less appropriate for economic decisions
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
