Rouse Company, a real estate developer, is well known as one of the few U.S. companies to

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Rouse Company, a real estate developer, is well known as one of the few U.S. companies to have reported the current value of property and equipment in its financial statements. As mentioned in the text of the chapter, IAS 16 permits the inclusion of upward asset revaluations, based on appraisals, in the financial statements. And IAS 40 allows real estate companies to both record investment property in the balance sheet at its fair value and include the associated unrealized gains in the income statement. In Germany, as in the United States, upward revaluations are not allowed. In fact, before being replaced by IASB standards, German rules were seen as encouraging write-downs, resulting in the creation of so-called hidden reserves, which constitute a systematic understatement of assets. In March 1993, Daimler-Benz (one of the two companies that merged into DaimlerChrysler) disclosed that it had hidden reserves of $2.45 billion.
1. Why might real estate companies be among the leaders in encouraging the disclosure of the current value of property and equipment?
2. If German companies have “hidden reserves,” why do you think Daimler-Benz chose to reveal the magnitude of its hidden reserves in March 1993? What is the advantage of having hidden reserves?
3. As an auditor, how would you feel about auditing the financial statements of a company that uses appraisal values instead of historical costs?

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
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Intermediate Accounting

ISBN: 978-0324592375

17th Edition

Authors: James D. Stice, Earl K. Stice, Fred Skousen

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