Abstract:
The purpose of this study is to examine firms’ motives for reporting fixed assets at revalued amount. The
study analysed 30 manufacturing firms listed in Colombo Stock Exchange (CSE) for a period of two years
from 2012 to 2013, employing Mann–Whitney U test and bivariate and multivariate logistic regression. It
is found that manufacturing firms tend to report their property, plant and equipment (PP&E) at revalued
amount, when land and building dominates their fixed assets, and firms whose PP&E is dominated by
plant and machinery are inclined towards reporting fixed assets at historical cost. However, all such other
factors investigated as firm size, carrying amount of PP&E (ppe), intensity of PP&E (ippe), returns on total
assets (roa) and return on equity (roe) fail to explain the accounting choice between cost and revaluation
models. The probability for a revaluation to occur, on the other hand, is found to be significantly and
positively associated to financial leverage, indicating that highly levered manufacturing firms tend to
revalue their assets, may be with the expectation of creating possibilities for additional borrowing.
Further, no other variables investigated associate with the probability for a revaluation to occur, though
prior researches support such association. Findings reveal that fixed assets revaluation motives may be
characterized by the nature of fixed assets and their market dynamics characterized by the nature of
economy in which firms operate. Findings also suggest that fair value accounting is relevant to
manufacturers with high levels of land and building within their asset structure. Fixed assets revaluation
motives may differ across countries which should accordingly be valued by financial analyst and investors.
Future research should focus on value relevance of revaluation decision of firms in developing countries.
Revaluation decisions should be analysed as first‐time revaluation and frequency of subsequent
revaluations. This is the first study in Sri Lanka reporting the evidence for fixed asset revaluation motives.
