Measurement of long-lived non-financial assets in Latvian listed companies: the cost model versus The revaluation model

Abstract

This paper deals with analysis of how Latvian companies listed on the Baltic Stock Exchange measure their long-lived non-financial assets. In the year 2014 the average proportion of these assets in their balance sheets was 48% and for some of the companies it was even up to 97%. Therefore, the information related to long-lived non-financial assets presented in financial statements plays a significant role in assisting its users to predict companies’ future cash flows and financial results. Often these assets are also related to significant capital investment decisions that should be performed in a strictly planned and wise manner. Decisions about these assets made by a company’s management are critical not only for the company’s efficient asset management, but also for its future value, stock price and shareholders’ wealth.

The objective of this study was to investigate which of the two models (cost model / revaluation model) are applied in Latvian companies listed on the Baltic Stock Exchange to measure their long-lived non-financial assets, and how the financial results and future market prices of these companies could be influenced based on the model selected. The author’s conclusions are based on a study of Western publications and analysis of practices at Latvian listed companies. The results of this research should be beneficial for academic researchers as well as educators and practitioners of financial statement analysis.