Depreciation Analysis: Pepsi Bottling Group & Coca-Cola Enterprises

This case study provides a financial analysis of Pepsi Bottling Group (PBG) and Coca-Cola Enterprises (CCE), focusing on their depreciation policies and financial performance. It examines the impact of PBG's change in depreciation policy in 2000, analyzing its effect on gross profit margin, operati...Read More

Running head: ACCOUNTING FINANCIAL ANALYSIS AND REPORT
Accountancy
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1ACCOUNTING FINANCIAL ANALYSIS AND REPORT
Table of Contents
Question 1........................................................................................................................................2
Question 2........................................................................................................................................2
Question 3........................................................................................................................................2
Question 4........................................................................................................................................3
Question 5........................................................................................................................................3
Question 6........................................................................................................................................3
Reference.........................................................................................................................................5
Appendix..........................................................................................................................................6

2ACCOUNTING FINANCIAL ANALYSIS AND REPORT
Question 1
The PBG Gross Profit margin for the company in the year 2000 was around 44.8% and
was around 42.8% in the year 1999. The operating profit margin for the company was around
7.4% in the year 2000 and was around 5.5% in the year 1999. The change in the ratio was
computed for the company by adding up the depreciating expenses in the operating income of
the company. The change in the operating profit of the company was as such that the operating
profit margin of the company increased to around 7.6% in the year 2000 and 5.5% in the year
1999 (Appendix 1). The gross profit of the company would not change much with the change in
the depreciation amount of the company (Bragg 2017).
Question 2
The fraction of fixed assets depreciated in the year 2000 by the Pepsi Bottling Group Ltd
was around 53.2% in the year 2000 and the same was around 53.7% in the year 1999. The
fraction of the fixed asset depreciation at the same time if PBG had not changed the depreciation
policy then the same would the fraction would have been lower. The fraction of depreciation was
calculated by taking the book value of the depreciable assets divided by the amount of
depreciation expenses incurred by the company (Appendix 1). The fraction of depreciation in
contrast to the total assets of the company was around 53.2% in the year 2000 and was around
53.7% in the year 1999 (Del Giudice, Manganelli and De Paola 2016).
Question 3
The change in the depreciation policy will be affecting the fixed assets turnover ratio for
the company if the depreciation policy for the company changes. The fall in the depreciation
expenses for the company will ultimately increase the value of the fixed assets of the company

3ACCOUNTING FINANCIAL ANALYSIS AND REPORT
thereby decreasing the fixed asset turnover ratio for the company. The lower the fixed assets of
the company the higher is the fixed asset turnover ratio for the company. The higher the fixed
assets of the company the lower is the fixed asset turnover ratio for the company. The reduction
of the fixed assets in contrast to the total revenue of the company signifies that the company
might be fully utilizing the assets of the company (Gajfullina et al. 2017) (Appendix 1).
Question 4
The reduction in the depreciation expenses of the company was also applied for the CCE
Company where the total assets of the company was reduced by around 14 million for the
company. The reduction in the depreciation expenses of the company will ultimately increase the
operating profit of the company where the depreciation expenses of the company will be added
up. The operating profit margin for the company was around 7.6% and 5.8% in the year 2000
and 1999. The operating profit of the company after adding up the depreciation expenses of the
company was around 7.73% and 5.82% in the year 2000 and 1999 respectively (Appendix 2).
However, the gross profit margin of the company will not change for the company, which was
around 38.4% and 37.4% in the year 2000 and 1999 respectively (Gissel 2016).
Question 5
The PPG Company did sell some of the assets of the company where the company showed a
cash inflow of about 9 million for the company by selling the fixed assets of the company. The
company did not recognize any gain or loss on the fixed assets of the company as there was no
such items that was classified in the cash flow statement of the company for the financial year.
Reflecting that the company did sell the assets of the company at the right place thereby not
recognizing any profit or loss from the same.

4ACCOUNTING FINANCIAL ANALYSIS AND REPORT
Question 6
The earnings quality of the company for the company were evaluated for both the
company and both were assessed on the type of financial disclosures made by the company.
Regarding the earnings quality of the Coca-Cola Enterprise is better than the Pepsi Bottling
Group. The classification of the various facts and information done by the CCE Company in
contrast to the various accounts of the company has been well considered and disclosed by the
company. Disclosures of various information and facts and making the accounts of the company
in contrast to the accounting standards marks the earnings quality of the CCE Company
(Abakumov et al. 2015).

5ACCOUNTING FINANCIAL ANALYSIS AND REPORT
Reference
Abakumov, R.G., Avilova, I.P., Ursu, I.V. and Kapustina, E.O., 2015. Assets of an Organization.
The Social Sciences, 10(6), pp.1449-1455.
Bragg, S.M., 2017. Fixed Asset Accounting. AccountingTools LLC.
Del Giudice, V., Manganelli, B. and De Paola, P., 2016, July. Depreciation methods for firm’s
assets. In International Conference on Computational Science and Its Applications (pp. 214-
227). Springer, Cham.
Gajfullina, M.M., Nizamova, G.Z., Musina, D.R. and Alexandrova, O.A., 2017, June. Formation
of strategy of effective management of fixed production assets of oil company. In International
Conference on Trends of Technologies and Innovations in Economic and Social Studies 2017.
Atlantis Press.
Gissel, J.L., 2016. A case of fixed asset accounting: Initial and subsequent measurement. Journal
of Accounting Education, 37, pp.61-66.

6ACCOUNTING FINANCIAL ANALYSIS AND REPORT
Appendix
1) Pepsi Bottling Group
Particulars 2000 1999 Particulars 2000 1999
Gross Profit 3577 3209 Gross Profit 3577 3209
Sales 7982 7505 Sales 7982 7505
Gross Profit Margin (%) 44.8% 42.8% Gross Profit Margin (%) 44.8% 42.8%
Operating Income 590 412 Operating Income 604 412
Sales 7982 7505 Sales 7982 7505
Operating Profit Margin (%) 7.4% 5.5% Operating Profit Margin (%) 7.6% 5.5%
Average Gross Book Value of Assets 5068 4789 Average Gross Book Value of Assets 5068 4789
Depreciation Expenses 2710 2571 Depreciation Expenses 2696 2571
Percentage of Depreciation (%) 53.5% 53.7% Percentage of Depreciation (%) 53.2% 53.7%
Sales 7982 7505 Sales 7982 7505
Total Fixed Assets 6152 6126 Total Fixed Assets 6166 6126
Fixed Asset Turnover Ratio (%) 130% 123% Fixed Asset Turnover Ratio (%) 129% 123%
Cash Flow from Operations 831 718 Cash Flow from Operations 817 718
Constrained ScenarioCurrent Sceanrio
PEPSI BOTTLING GROUP PEPSI BOTTLING GROUP
2) Coca-Cola Enterprise
Particulars 2000 1999 Particulars 2000 1999
Gross Profit 5667 5391 Gross Profit 5667 5391
Sales 14750 14406 Sales 14750 14406
Gross Profit Margin (%) 38.4% 37.4% Gross Profit Margin (%) 38.4% 37.4%
Operating Income 1126 839 Operating Income 1140 839
Sales 14750 14406 Sales 14750 14406
Operating Profit Margin (%) 7.6% 5.8% Operating Profit Margin (%) 7.73% 5.82%
Average Gross Book Value of Assets 9538 8940 Average Gross Book Value of Assets 9538 8940
Depreciation Expenses 4059 3595 Depreciation Expenses 4045 3581
Percentage of Depreciation (%) 42.6% 40.2% Percentage of Depreciation (%) 42.4% 40.1%
Coca-Cola Enterprises
Current Sceanrio
Coca-Cola Enterprises
Current Sceanrio