Accounting Assignment-Pepsi and Cola Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Accounting Assignment-Pepsi and Cola Case Solution

Question 1

With the changes in depreciation under the new policy, it is analysed that the depreciated value would be deducted with a certain amount of ratio and increase the profitability of the company. So with the recent changes, the company has also deducted the cost of sales as well as selling & administration expense in 2000. Which shows the cost saving activities under the new depreciated policy method.

On the other side, if the sudden changes in depreciation value would not occur in the current year and follow the old policy method to use the useful life of fixed assets than the cost would be increased by the same percent as discussed in the annual report. So according to the comparison of these two policies, the gross profit margin of old policy shows deductible profit margins as compared to the new policy.

Therefore, the main difference of two GP margin would be 18% as decreased in the case of previous policy, on the other hand, the new policy shows the deductible amount of allocated depreciation due to the extended useful life to cover in order to determine the net book value of an asset.

Question 2

It is identified from the following financial statements that the cost of depreciated assets has shown in the company's balance sheet and also the allocated depreciated value is considered regarding accumulated depreciation. So with the change in new policy, it is expected that the depreciated amount would decrease with the certain portion over the year whereas the amount was high in the previous year due to the old policy.

Therefore, it is determined from the following analysis that with the new policy, the cost of fixed assets would be 4923 million whereas the net accumulated depreciation would generate less book value as compared to the market value and show cost savings over the last depreciated year. On the other side, the book value under the old depreciation shows greater than the estimated market value. It indicates that the depreciation expense was too high to cover the company's balance account.

So it is concluded that the best option for the company's future performance would be to select the new policy instead of going to the old one. Also, it shows the positive impact towards the cash flow activities and to increase the company's income statement with high-profit margin.

Question 3

It is expected that every company has its depreciation policy, some companies used straight line method of depreciation and some companies used reducing balance method of depreciation and every industry selects the percentage of depreciation according to the industry, according to the business dynamics and according to the norms of the business that close competitors used to follow. As the depreciation is a noncash item but a change in the policy and percentage of depreciation could affect the financial ratio and could produce both adverse and favourable results.

The company changed its policy regarding depreciation and it is expected that under new depreciation, depreciation expense will decrease which could help the company to generate more operating cash flows as operating cash flows are calculated by deducting depreciation expense for the year. The decrease in the value of depreciation will generate higher operating cash flows. Therefore, ratios related to operating cash flows will be favourable due to increasing in the value of nominator.

Similarly, fixed assets value shown in the balance sheet are supposed to be after depreciation, and accumulated depreciation is deducted in that scenario. Therefore, lower the value of depreciation will increase the value of assets. The increase in the value of assets will result in a decrease in asset turnover ratio as an increase in the value of denominator will affect the fixed asset turnover ratio adversely..............

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