Solomon and others' have examined the relationship between the book yield on assets using conventional depreciation method and the cash-flow yield or internal rate of return of the assets. A substantial discrepancy between these two yields is often observed. Of course, if firms used the internal rate of return method of depreciation recommended by Anton2 and Reynolds,3 there would be no discrepancy between the expected book yield and the expected cash-flow yield. Unfortunately, these are practical and institutional considerations which often prevent the accountant from implementing an internal rate of return method of depreciation. Bierman4 and Shwayder5 (hereinafter referred to as the previous papers) explored the effect of price-level adjustments on the book rate of

Abstract The article focuses on a proposal for the accounting measurement and/or the measurement of foreign exchange exposure for a domestic parent with foreign subsidiaries. The proposed method differs from other recommendations in the accounting literature in the explicit treatment of fluctuations in the domestic price level, the foreign price level, and the exchange rate. In the other methods examined, there were difficulties in accounting for at least one of those changes. Such separate treatment of each factor results in an economic and an accounting model which is viable--not only under today's international monetary environment--but which should also hold true under other international monetary arrangements. As a measure of exposure, the proposed method assists in hedging decisions. When incorporated in the financial statements, the proposed method assists in intercompany comparisons by effectively measuring the economic effects of price and exchange-rate movements. Finally, as indicated in the last section, the approach can be extended beyond the simplifying assumptions used in the article.