Historical cost is the main basis for assessing tangible assets in the annual financial statements. However, the accounting regulations applicable in Romania allow the valuation of tangible investments at fair value determined by authorized persons. Once chosen, this option must be applied consistently for the entire class of tangible assets subject to revaluation. By January 1, 2015, national regulations did not allow the return from the fair value method to historical cost method. The chapter aims to present both the accounting and tax treatments to be adopted when choosing the fair value, as well as those related to returning to the cost-based approach.
TopIntroduction
In the years immediately following the fall of communism, Romania has seen an increase of companies from the private sector. At the same time, the accentuated growth of consumer prices led to the alteration of the quality of accounting information from the balance sheets expressed in costs (Albu et al., 2011). In this case, the amortization of fixed assets became highly inferior to the replacement value, which led to the disinvestment of these companies (Cameran, Campa & Pettinicchio, 2014).
For the limitation of inflationist effects, the reevaluation of fixed assets had in Romania either a compulsory nature, or an optional one (Măciucă, Hlaciuc & Ursache, 2015). From the perspective of accounting regulations, the reevaluation was accepted as an alternative treatment, the entities having the possibility to use either the method based on the historical cost of intangible assets, or the method based on their fair value (reevaluated).
Producers and users of financial statements consider that in the measurement and presentation of accounting information, the most widely used is the historical cost, although it has some weaknesses (Gong & Wang, 2016; Istrate, 2014). This is usually combined with other bases of evaluation (Jones & Finley, 2011). Moreover, the tendency is to use current cost accounting in response to failure based on historical cost model to solve problems connected with non-cash effect of changes in asset prices (Barker & McGeachin, 2013; Zeff, 2007).
On such inactive markets, reevaluation is not possible and for this reason the cost model is used to account, where the accounting value is the historical cost reduced by accumulated depreciation and loss of value due to depreciation (Muller & Riedl, 2002).
The major objective of financial accounting, obtaining an accurate picture can be assured by fair value (Nobes, 2015). Applying this concept of utility requires shaping, techniques for obtaining knowledge and provides better quality information than the historical cost accounting and adds safety to users as they can avoid the negative aspects related to assessing the profitability and solvency of an entity property (Forbes, Hudson, Skerratt, Soufian, 2015).
If the carrying amount of an intangible asset is reduced as a result of revaluation, the decrease should be recognized as an expense (Cotter & Richardson, 2002). However, a revaluation loss from revaluation surplus directly reduced accordingly, since the decrease does not exceed the corresponding revaluation surplus recorded in the same asset (Aharony, Barniv & Falk, 2010). Cumulative revaluation surplus included in equity may be transferred directly to retained earnings when the surplus may be made to withdraw from use or disposal of assets (Lee & Kim, 2010). Part of this surplus may be realized as the asset is used by society in such a case, the surplus is the difference between the depreciation that should be recognized on the basis of historical cost of assets. The transfer from revaluation surplus to retained earnings is not made through income statement (Gunny, 2010).
So far, theoretical and normative approaches regarding intangible asset, in general, were based on theory (Buculescu & Velicescu, 2014; Oz & Yelkenci. 2018). At present, the theory is not so much accepted and there is more and more discussion on a conceptual reorientation of accounting evaluation which could be a prerequisite for the establishment of an improved valuation model (Kouki, 2018).
Abandoning the principle of historical cost is encouraged by the application of new evaluation methods that best meet the needs of users of financial statements (Alzola, 2017). Other users oppose restatements as outlined above, because they lead to a loss of credibility of accounting information (Atwood, Drake, Myers & Myers, 2011; Missonier-Piera, 2007). IASC is not far from this second perspective, because as we have seen, the effects of inflation finding are not required only when it reached very high levels (). The international conceptual framework leaves a possibility to keep accounting in current values (Fiume & Vignini, 2013).