From Schweser Assigned Reading #43, International Standards Convergence, Concept Checkers, #7 (page 326): An analyst wants to compare the financial results of a US firm and a European firm. The accounting standards followed by both firms are the same except that the European firm revalues its real property upward to reflect fair value. The US firm’s real property is reported at historical cost. The analyst decides to restate the European firm’s real property by eliminating the unrealized gains. What effect will the restatement have on the European firm’s total asset turnover and debt-to-equity ratio? TAT DTE A Lower Higher B Lower Lower C Higher Higher D Higher Lower Answer C. Schweser says “Removing the unrealized gain from assets will increase the total asset turnover ratio (lower assets).” But in removing the unrealized gain from assets, shouldn’t the analyst also be removing the gain from income, i.e. revenue? And if so, wouldn’t that also affect the numerator (ie revenue) of the total asset turnover ratio?
cnd Wrote: ------------------------------------------------------- Schweser says “Removing the unrealized > gain from assets will increase the total asset > turnover ratio (lower assets).” > > But in removing the unrealized gain from assets, > shouldn’t the analyst also be removing the gain > from income, i.e. revenue? And if so, wouldn’t > that also affect the numerator (ie revenue) of the > total asset turnover ratio? gains dont get tossed into the revs.