THEORETICAL AND PRACTICAL ANALYSIS OF THE CONCEPTIONS OF ASSET VALUATION BY METHODS OF HISTORICAL COST AND FAIR VALUE

The article analyzes the asset valuation methods of historical cost and fair value, which both are applied in accounting theory and practice. Advantages and shortcomings of both methods are revealed herein. The opinions of different authors on which method of asset valuation should be chosen by the enterprises are analyzed. Main aim of asset valuation at historical cost is to evaluate the asset by including any main expenses related to purchase and manufacturing of such asset. Fair value may be defined as an amount which the buyer is willing to pay for the product or service. Analysis of literature revealed that the authors prefer the method of fair value for valuation of asset, because real value ensures more reliable and real valuation of asset. Supporters of the method of historical cost argue that the asset assessment by real value based valuation methods is not reliable because a real price of asset may be only at the moment of sale – purchase of particular asset. In order to analyze influence of asset valuation method on an enterprise’s financial condition and result of activity, the simulation example was created by using financial data of agricultural company N. The obtained results revealed that asset valuation based on fair value conception has significant influence on the financial condition and activity result of the agricultural company N.  DOI: https://doi.org/10.15544/ssaf.2012.25