Accounting Policies On Fixed Assets And Their Influence On The Financial Performance Of The Economic Entity

Financial performance appreciated on the basis of financial statement data and often on the basis of the accounting result may be misleading, being rather the result of accounting choices rather than a true presentation of reality. Choosing the depreciation method, estimating the duration of use, residual value, appreciating some of the works performed on the fixed assets as modernization or repair has a direct effect on the accounting result, cosmetizing it so as to attract the attention of investors who often perceive this indicator as an important indicator of measuring the financial performance of the entity. But it is a volatile landmark. Neither the balance sheet is affected by these choices and estimates nor any indicators calculated on the basis of the balance sheet asset and the result (solvency, ROA, ROE). Thus, through these, the performance is presented in the form that is desired by the management and does not objectively reflect the financial situation of the economic entity. The disproportionate effects of the accounting policies on fixed assets on the result are eliminated in EBITDA which eliminatesfromthe result Interest, Taxes, Depreciation and Amortization.