Usefulness of fair valuation of biological assets for cash flow prediction

This study develops an empirical analysis of the relevance of accounting information when biological assets are measured at fair value. We use an international sample of firms with biological assets.We find that biological assets influence unpredictability when they are measured at historical cost (HC). In this case, the ability of accounting data to predict future cash flows diminishes as the proportion of biological assets on total assets increases. The valuation at fair value (FV) switches this negative influence of biological assets to a positive one. We find that when they are measured at FV, the prediction accuracy of future cash flows improves as the ratio of biological assets to total assets increases. This evidence is robust to differentmeasures of prediction accuracy, as well as to the improvement of accounting standards, regardless of FV, over time. The evidence is weaker for bearer plants

The link between accounting measures of biological assets and financial standing of the agricultural enterprises: evidence from Lithuania

Eurasian Studies in Business and Economics book series (EBES, volume 14/1) Series Print ISSN 2364-5067, Series Online ISSN 2364-5075; https://doi.org/10.1007/978-3-030-53536-0The purpose of the research is to assess the impact of the choice of biological asset measuring method on the financial standing, overall performance, and financial attractiveness of the agricultural enterprises. The analysis of scientific research studies shows that there is no preference given for one of the methods in the measurement of biological assets—cost or fair value less estimated costs to sell. The advantages and disadvantages of both methods are disclosed in this research. The case study is based on analytical data of agricultural enterprises, which are specializing in livestock farming and applies cost method to measure biological assets. The impact of the change in the measuring method on key financial ratios was calculated. Financial performance improves when using the fair value method compared to the cost method. However, a risk of violation of the principles of prudence and neutrality was noted. For this reason, the conclusion was made that the cost method is more relevant for measuring biological assetsBioekonomikos plėtros fakultetasVytauto Didžiojo universiteta