Coca-Cola Amatil's Depreciation and Impairment

This assignment delves into the financial reporting practices of Coca-Cola Amatil concerning depreciation and impairment. It examines the company's chosen depreciation periods for buildings and plant & equipment, the straight-line method used for depreciation, and the fair value revaluation technique applied to property assets. The analysis also explores Coca-Cola Amatil's approach to impairment testing, including the recognition of impairment losses when the carrying amount exceeds the recoverable amount.

Running head: FINANCIAL ACCOUNTING
Financial Accounting
Name of the Student
Name of the University
Author’s Note

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Table of Contents
Part 2................................................................................................................................................2
Task 1...........................................................................................................................................2
Requirement (a).......................................................................................................................2
Requirement (b).......................................................................................................................3
Task 2...........................................................................................................................................3
Task 3...........................................................................................................................................5
References........................................................................................................................................7

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Part 2
Task 1
Requirement (a)
The main aim of this part is the determination of the classification of the expenses of
Coca-Cola Amatil based on nature or function. For this purpose, the 2016 annual report of the
company is considered. For the answering of this present question, it is required to obtain
necessary knowledge related to the classification of the expense of the companies based on
nature and faction. In the income statement developed based on the nature method, the disclosure
of the expenses is done as per their nature like depreciation, transportation cost, rent related
expenses, salaries, wages and others. Thus, it implies that the companies do not don any
reallocation of these expenses based on their functions. This method provides simplicity in the
financial statements (Scott, 2015).
On the other hand, in the income statements based on function method, the disclosure of
the expenses is done based on their functions like cost of goods sold, selling expenses,
administrative expenses, other expenses and others. Under the function method, the expenses are
still required to be disclosed by nature (Weil, Schipper & Francis, 2013).
From the 2016 Consolidated Income Statement of Coca-Cola Amatil, it can be observed
that the reported expenses by the company are cost of goods sold, selling expenses, warehousing
and distributing expresses and support services and other expenses. From this, it can be observed
that Coca-Cola Amatil has just provided the headings of the expenses. The detailed name of the
expenses have not been discussed. Thus, based on the above discussion, it can be concluded that

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Coca-Cola Amati has classified their expenses based on their functions as there is scope for
further disclosure of these expenses as per their nature (ccamatil.com, 2018).
Requirement (b)
The possible reasons for the different method of classification of expenses are discussed
below:
 The main objective of the companies is to earn profits; and for this reason, it is required
for the companies to observe the behavior of their business expenses. The classification
of expenses based on nature or function helps the companies in profit planning (Horngren
et al., 2012).
 One major way to increase the business profit is to establish effective control on the
business expenses. Control on the business expenses helps in the reduction of expenses
that helps in the increased profitability. For this reason, there is a need for the
classification of expenses (May, 2013).
 The classification of expenses is required for the development of flexible budget of the
companies. In addition, it helps in the establishment of control over the budgets.
 Most importantly, the classification of the expenses based on function and nature is
helpful for the process of organizational decision-making process (Henderson et al.,
2015).
Task 2
From the analysis of the 2016 Annual report of Coca-Cola Amatil, it can be observed that
the company has certain issues related with the change in accounting policies. Three of these
major issues are discussed below:

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 This issue is related with the Revenue from contracts with the customers as per AASB
15. As per the summary of this aspect, the revenue is required to be recognized after
satisfying the pre-set performance obligation specified under the contracts (Warren &
Jones, 2018). It is required for Coca-Cola Amatil to apply this accounting standard from
January 1, 2018. It needs to be mentioned that this new accounting standard has some
major impacts on Coca-Cola Amatil as there will be change in the recognition of some
portion of the revenue by the company with the implementation of this new accounting
standard (ccamatil.com, 2018).
 The next issue is related with the recognition of financial instruments of the company and
the related accounting standard with this change in the recognition process is AASB 9.
As per the summary of this standard, Coca-Cola Amatil is to follow some new
requirements for the recognition of expected credit losses (Bazley et al., 2013). The date
of the application of this standard is January 1, 2018 and this standard will have some
major impact on the accounting procedures of the company. Coca-Cola Amatil will be
required to change the basis for the determination of allowances for the doubtable
receivables and then, the company needs to do the recognition of potential credit losses in
their cash assets (ccamatil.com, 2018).
 The next issue is related with the lease accounting of the Coca-Cola Amatil and the
related accounting standard for this change is AASB 16. As per the summary of this
accounting standard, the company is required to do the recognition of operating leases in
their balance sheet and the company is required to implement this standard from January
1, 2019 (Bushman, 2014). The adoption of this standard will have some impact on the
accounting of Coca-Cola Amatil related to operating leases as it will become obligatory

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for the company to report the whole amount of operating lease liability in their balance
sheet to provide transparency in the whole accounting process (ccamatil.com, 2018).
Task 3
 From the 2016 Annual Report of Coca-Cola Amatil, it can be observed that the company
has reported about their property, plant and equipment in their financial statements. It
needs to be mentioned that the company follows certain accounting standards for the
accounting treatment of property, plant and equipment. Coca-Cola Amatil report
property, plant and equipment at the cost value after the deduction of depreciation and
impairment. As per 2016 Annual Report, the cost of freehold and leasehold land is
$227.6 million; the cost of freehold and leasehold buildings is $527.1 million; the cost of
plant and equipment is $3,463.9 million; and the cost of property, plant and equipment
under construction is $209.0 million for the year 2016 (ccamatil.com, 2018).
 The 2016 Annual Report of Coca-Cola Amatil has also segregated the amount of
depreciation among all these aspects. The amount of depreciation expenses for freehold
and leasehold buildings is $20 million; for plant and equipment is $221.2 million. The
total amount of depreciation is $241.2 million (ccamatil.com, 2018).
 As per the 2016 Annual Report of Coca-Cola Amatil, it can be observed that the
company has certain depreciation period for two aspects. According to the annual report,
the depreciation period for freehold and leasehold buildings is 20 to 50 years. After that,
the depreciation period for plant and equipment is 3 to 15 years (ccamatil.com, 2018).
 From the annual report of Coca-Cola Amatil, it can be observed that for the depreciation
of property, plant and equipment other than freehold land, the company has adopted
straight-line method of depreciation (ccamatil.com, 2018).

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 It needs to be mentioned that the company has adopted the technique for fair value
method for the revaluation of their property, plant and equipment (ccamatil.com, 2018).
 In the business organizations, impairment of the assets happens when the market value of
the assets is less than the carrying value of the assets in the balance sheet (Bevis, 2013).
The property, plant and equipment of Coca-Cola Amatil are subject to the impairment
testing when there is an indication of impairment. Coca-Cola Amatil recognizes
impairment loss when the carrying amount of property, plant and equipment is more than
the recoverable amount of them; and it is defines as the greater of the assets’ fair value
less their cost value or the value in use. It can be seen that Coca-Cola Amatil has reported
as $1077.4 million for the year 2016 and $ 1129.7 million for the year 2015
(ccamatil.com, 2018).

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References
Annual Report 2016. (2018). Ccamatil.com. Retrieved 4 February 2018, from
https://www.ccamatil.com/-/media/Cca/Corporate/Files/Annual-Reports/2017/CCA181-
Annual-Report-2016-low-resolution.ashx
Bazley, M., Hancock, P., Fisher, C., Lovell, A., Berk, J., DeMarzo, P., ... & DeMarzo, P. (2013).
Financial Accounting: An Integrated. Thomson Pty Ltd, South Melbourne.
Bevis, H. W. (2013). Corporate Financial Accounting in a Competitive Economy (RLE
Accounting). Routledge.
Bushman, R. M. (2014). Thoughts on financial accounting and the banking industry. Journal of
Accounting and Economics, 58(2-3), 384-395.
Henderson, S., Peirson, G., Herbohn, K., & Howieson, B. (2015). Issues in financial accounting.
Pearson Higher Education AU.
Horngren, C., Harrison, W., Oliver, S., Best, P., Fraser, D., & Tan, R. (2012). Financial
accounting. Pearson Higher Education AU.
May, G. O. (2013). Financial accounting. Read Books Ltd.
Scott, W. R. (2015). Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.
Warren, C. S., & Jones, J. (2018). Corporate financial accounting. Cengage Learning.
Weil, R. L., Schipper, K., & Francis, J. (2013). Financial accounting: an introduction to
concepts, methods and uses. Cengage Learning.

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