In 1993 Daimler-Benz Became the First German Company to Be

Essay

In 1993 Daimler-Benz became the first German company to be listed on the New York Stock Exchange (NYSE). This forced Daimler-Benz to file a reconciliation statement with U.S. GAAP (Form 20-F). Because Daimler-Benz drew on hidden reserves during the recession of 1993, its German-reported profit (in Deutsche mark or DM) was a small, but positive, DM615 million. It translated into a DM1.84 billion loss according to U.S. GAAP. Daimler's 1993 net worth translates from DM18.15 billion under German rules to DM26.28 billion under U.S. GAAP.
a. Explain what happened on earnings.
b. Explain what happened on book value (net worth).
c. In a profitable year, Daimler-Benz decides to increase its hidden reserves. How would this decision affect earnings calculated according to U.S. and German GAAP?
d. Same question for book value.