The Link between Accounting Measures of Biological Assets and Financial Standing of the Agricultural Enterprises: Evidence from Lithuania

Abstract

The aim of the research is to conduct a case study based on analytical data from agricultural enterprises and to assess the impact of the choice of a biological asset measuring method on the financial standing, overall performance and financial attractiveness of the undertaking concerned. The research is based on analytic data of biological assets of agricultural enterprises, which are specializing in livestock farming and favor the use cost approach to measure biological assets. The research outlines advantages and disadvantages of both methods used to measure biological assets, reveals changes in reflecting information on biological assets in financial statements, and demonstrates effect of the change in the measuring method on the financial standing, overall performance and financial attractiveness. The practical implications of the research take the form of analysis and comparison of particular data. The research reveal specific issues related to the application of the method of fair value less costs to sell for measuring of biological assets. A change in the biological asset valuation method resulted in a decrease in the cost of produce sold by the enterprises and the general and administrative expenses and an improvement in the performance, profitability and asset turnover ratios. The problems identified by the research undermine confidence in the objectivity of the fair value model for biological asset measurement and suggest a conclusion that the cost model is more relevant for measuring those assets. The research results show that if biological assets are chosen to be measured at fair value less costs to sell, there is a risk to breach the principles of prudence and neutrality and to window-dress the financial statements.