Impairment of assets – the case of Latvia
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Economic recession has led to the worsening of financial results of many Lat-vian companies. In this situation, cash flows from the use of assets in economic activities turn out to be insufficient to recover the balance sheet value of those as-sets. The laws and accounting standards of Latvia do not provide sufficient guid-ance on how the decrease in value should be calculated because cash flows gener-ated by individual items of fixed assets cannot be estimated reliably in most cases. In the present economic situation it seems reasonable to follow the rule that when the market value of assets is lower than their balance sheet value it is necessary to recognize an impairment loss or to carry out their revaluation, which will allow their true value to be calculated. Annual revaluation is necessary for those items whose true value is changeable. For items whose values change rarely revaluation can be done less frequently. In the economic situation of Latvia almost every com-pany, excepting only some production areas, is facing a high risk of decrease in the value of its assets. If there are indications that there may be a decrease in the value of long term assets, the company’s management has to consider at least the indicators provided by internal and external sources of information.
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