Accounting Assignment-Pepsi and Cola Case Solution

Question 4

Like Pepsi Cola, the same procedures has been applied for coca cola in order to know the difference of adopting the new policy as compared to the results of Pepsi. So according to the results of Coca-Cola, the gross profit margins was not generated more value as compared to the profit margins of Pepsi cola. Therefore if considering the change in adopting the new as well as old policy than the same results would reflect the company’s entire position over the use of depreciation. The net results show that approximately 0.9% would increase if the new policy is applied.

On the other side, if the new policy would change the deprecation amount by extending towards the number of selected years than the book value would show the less amount as compared to the market estimated value, while the old policy also showed the decreased amount of book value but less than the one included in the new case. So it shows that Coca-Cola would generate more profits by reducing the amount of depreciation expense through extending into the more years of useful life and to consider the same position in the future.

Question 5

It is expected that certain firms invest in property plant and equipment as a short-term investments and these property plant, and assets are considered as held for sale. Sometime the firms generate a significant return through this transactions, but it also occurs losses as the firms forced to sell these property plant and assets with the given time frame or sold these things in order to invest in other profitable investments. By examining the cash flow statement of the company, it is clear that the firm is generating positive returns by selling the property plant and assets. The company is generating 9 million dollars in the year 2000 by selling the property plant and equipment.

Question 6

After the critical evaluation of both the companies, it is identified that the best transparency level for the investors would be concluded by Pepsi because it shows the more accurate financial results as compared to Coca-Cola. So the quality of earnings would also be high because all the related disclosure has been identified in order to provide accurate information to the shareholders of the company.

The earnings quality can also be tested through analysing the accrual and prudency of the results, which means that the company has deferred as well as payable amounts to cover at the end of the financial year. So this information would provide the true picture of the company to the related investors in order to make them certain decisions about holding the invested shares within a company.

Exhibits

Income Statement New Policy Old Policy
PEPSI COLA 2000 1999 1998 2000 1999
Net Revenues 7982 7505 7041 7982 7505
Cost of sales 4405 4296 4181 4413 4304
Gross Profit 3577 3209 2860 3569 3201
Selling and administrative expenses 2987 2813 2583 2993 2819
Unusual impairment and other charges and credits 0 -16 222 0 -16

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