The use of historical cost and fair value for property and plant and equipment measurement: Evidence from the Republic of Serbia

Abstract

The aim of the paper is to reveal how financial statement preparers in the developing and transition country of the Republic of Serbia, behave in situations where they can choose between the valuation model based on historical cost and the valuation model based on fair value. In that regard, we have analysed the subsequent measurement of property and plant and equipment in Serbia. We find that companies are more likely to choose the historical cost model than the revaluation model (the model based on fair value) for owner-occupied properties and plant and equipment, and the fair value model rather than the historical cost model for investment properties. The willingness to use the revaluation model for subsequent measurement of owner-occupied properties and plant and equipment varies across different categories of companies, and we find a statistically significant relationship between that willingness and the legal form of the company. We also find that in the notes to their financial statements, a significant number of companies in Serbia do not disclose adequate information on the model used for subsequent measurement of property and plant and equipment, although such information is required by the applicable financial reporting standards.