ndrew Corporation, a Russian affiliate of a major UKbased hotel chain, starts the calendar year with 2 million roubles (R) cash equity investment. It immediately acquires a refurbished hotel in Moscow for R1.5 million. Owing to a favorable tourist season, Andrew Corporations rental revenues were R4 million for the year. Operating expenses of R2 million together with rental revenues were incurred uniformly throughout the year. The building, comprising 80% of the original purchase price (balance attributed to land), has an estimated useful life of 20 years, and is being depreciated in straight-line fashion. By year-end, the Russian consumer price index rose to 260 from an initial level of 100, averaging 180 during the year.

Required:

a. Prepare financial statements for Andrew Corporations first year of operations in terms of the historical cost model and the historical cost-constant dollar model.

b. Assume that Russians construction cost index increased by 60 percent during the year, while the price of vacant land adjacent to Andrew Corporations hotel increased in value by 70 percent. Use the new information to restate the value of Andrews nonmonetary assets. What would Andrew Corporations financial statements look like under the current-cost model?

c. Compare and evaluate the information content of rate-of-return on total assets statistics computed using each of these models: the historical cost model, the historical cost-constant dollar model and the current-cost model.