Suppose you had invested $1 million in US fixed assets and in Italian fixed assets under
the following conditions:
|
PUS |
PIT |
PPUS |
PPIT |
S($/€) |
S1($/€) |
|
2% |
4% |
5% |
4% |
1.1500 |
1.1200 |
Assume that fixed asset prices in local currency have kept pace with prices in general.
a Which investment yielded higher returns over the year?
b What will appear in the income statement and the shareholder equity account under the FAS 52 procedure?
c What should appear as income?
d Why does your answer to ‘‘b’’ (where income and shareholder equity are aggregated) disagree with your answer to ‘‘c’’?