ANALYSIS OF BIOLOGICAL ASSETS VALUATION WITH FAIR VALUE ACCOUNTING AND HISTORICAL COST ACCOUNTING METHOD IN PLANTATION SUBSECTOR OF INDONESIAN AGRICULTURAL INDUSTRY IN THE PERIOD OF 2007-2012
Karina Putri Ramadhani1 and Indra Pratama2 1 Thesis Writer, Swiss German University 2 Thesis Advisor, Swiss German University
Abstract The analysis of biological assets valuation with fair value accounting and historical cost accounting method in plantation subsector of Indonesian agricultural industry, in the period of 2007-2012, tries to evaluate the relevance of historical cost towards the fair value of biological assets. It also tries to look for empirical evidence on the differences in ...view middle of the document...
In middle-term and long-term, the impact may create different stories. In such events, the level of company performance may be questionable, particularly about the fair values accounting (FVA) and the any records on historical cost
accounting(HCA) company’s books.
For years, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have attempted to swing-away from the lower value between cost and fair value rules. For years, FASB and IASB have been effortless in merging toward the agreement on relaying on the FVA. During those years to the present day, FVA measurement remains debatable due to its subjectivity in nature, particularly in projecting the future cash flows (Reis & Stocken, 2005), or the alleged role in financial commotion (Palea, 2013). This is true not only for accountants, but also for financiers. Until now, there are countless researches devoted into the study
on FVA measurement, not only for financial assets, but particularly important for the non-financial assets(Liu & Lu, 2010). Also, numerous research have been emphasizing on the economic consequences of FVA measurement in comparison to the HCA measurement (Christensen & Nikolaev, 2013; Liu & Lu, 2010; Reis & Stocken, 2005). From the perspective of HCA(Christensen & Nikolaev, 2013; Liu & Lu, 2010; Reis & Stocken, 2005), information from the past transactions prevails. At the same time, information on future prospects may not be immediately available. This normally leads to under-investment decisions for buyers. It is obvious that this condition may not mirror the fair market value since those sellers in developing countries may not have the ability to portray the future prospects of coffee beans. Looking from the perspective of FVA (Christensen & Nikolaev, 2013; Liu & Lu, 2010; Reis & Stocken, 2005), information on future prospects reigns. Referring to SFAS 157, as mentioned in Liu &Lu (2010), “fair value measures the sellers’ aggregate unobservable decision and private information on future prospects”. This simply means that if sellers are unaware of such forwardlooking information, substantial incentives may transfer to buyers at ease. Relying on IFRS is beneficial where IFRS extends freedom to make choices between FVA and HCA for non-financial assets, and IFRS calls for managerial commitment to follow-up on accounting policies (Cairns, Massoudi, Taplin, & Tarca, 2009) to maintain the general objectives of any organizations, which is often aimed at maximizing the shareholders’ wealth and value of the firms(Hubbard, Rice, & Beamish, 2008; Copeland, Koller, & Murrin, 1996; Nasmul, 2011; Spulber, 2009; Starovic, Cooper, & Davis, 2004). In this case, organizations must rely on the prevailing market demand and supply to enhance the economic costs and benefits to
companies (Besanko, Dranove, Shanley, & Schaefer, 2007; Spulber, 2009), prior to making managerial decisions in using FVA or HCA...