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Received: 2018-03-12 | Accepted: 2018-05-05 | Published: 2018-09-30

Title

Historical cost vs fair value in forest accounting: the case of Lithuania

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.

Keywords

forest (stands), accounting methods, fair value, historical cost

JEL classifications

M41

URI

http://jssidoi.org/jesi/article/208

DOI

DOI 10.9770/jesi.2018.6.1(5)

HAL

HAL hal-02121016

Pages

60-76

This is an open access issue and all published articles are licensed under a
Creative Commons Attribution 4.0 International License

Authors

Budrionytė, Ramunė

Vilnius University, Vilnius, Lithuania https://www.vu.lt

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Gaižauskas, Lionius

Vilnius University, Vilnius, Lithuania https://www.vu.lt

Articles by this author in: CrossRef | Google Scholar

Journal title

Entrepreneurship and Sustainability Issues

Volume

Number

Issue date

September 2018

Issue DOI

DOI 10.9770/jesi.2018.6.1

ISSN

ISSN 2345-0282 (online)

Publisher

VšĮ Entrepreneurship and Sustainability Center, Vilnius, Lithuania

Cited

Article views & downloads

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References

Alexander, D.; Fasiello, R. 2014. Valore reale, fair value and the business model: was besta best after all? Proceedings of the 9 th International Conference on Accounting and Management Information System AMIS. June 11-12, Bucharest, Romania, p. 703-723.