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Assignment 1:
Coca-Cola Company vs. PepsiCo, Inc.
Due Week 8 and worth
200 points

Recent events in the
world of corporate finance have shown the importance of proper administration
and funding of corporate pension plans. Evaluate the information in the Comparative
Analysis Case of Coca-Cola and PepsiCo found in the book’s companion Website
for Chapter 20.

Write a five to six
(2-3) page paper in which you:

1.Analyze and discuss
the current effects of IFRS on the pension reporting for Coca-Cola and PepsiCo
at 2009 year-end.
2.Calculate the
funding levels and capital gains experienced by Coca-Cola and PepsiCo in their
respective pension funds.
3.Analyze which of the
two (2) companies had a more secure pension fund, and explain why.
4.Evaluate how the
status of the pension fund affects the level of risk that must be reported in
the annual report. Justify your answer.
5.Use at least three
(3) quality academic resources in this assignment. Note: Wikipedia and other
Websites do not qualify as academic resources.

Your assignment must
follow these formatting requirements:

•Be typed, double
spaced, using Times New Roman font (size 12), with one-inch margins on all
sides; citations and references must follow APA or school-specific format.
Check with your professor for any additional instructions.
•Include a cover page
containing the title of the assignment, the student’s name, the professor’s
name, the course title, and the date. The cover page and the reference page are
not included in the required assignment page length.

The specific course
learning outcomes associated with this assignment are:

•Demonstrate the
proper accounting for investments, revenue recognition, income taxes, pensions
and postretirement benefits, leases, and accounting changes and error analysis,
including the required journal entries and supporting calculations.
•Analyze the reasons
for and evaluate the importance of proper accounting for selected areas, such
as: investments, revenue recognition, income taxes, pensions and postretirement
benefits, leases, and accounting changes and error analysis, including the
required journal entries and supporting calculations.
•Use technology and
information resources to research issues in intermediate accounting
•Write clearly and
concisely about intermediate accounting using proper writing mechanics

Robert · Accepted Answer

Solution 1 
 
The main aim of Pension reporting in financial report is to form a basis for the Conceptual 
Framework along with many other features of the Framework emerging from it and to give 
financial information of pension related to the entities of reporting which are valuable to the 
current and potential lenders, investors and some other creditors which help them in making 
decision of supplying resources to the entity. Hence, it is essential to show it in the Financial 
Statement. Both Pepsi and Coke have been in transition stage as far as reporting of Pension 
fund is concerned. Following are the effect of IFRS on the financial statement of both 
companies:- 
1) The first time adoption for both the companies will need retrospective statement 
which in turn put pressure on future earnings which in turn put effect on the owner’s 
equity for both the company. 
2) Till now, none of them has shown the components of the service cost separately 
which in turn decreases the operating expense and overstated the profit. Hence, if it 
will be shown separately it will decrease the Operating profit. 
3) The gains on assets must be shown on the Income statement which in turn will 
increase the EBITDA by $255 Mn for Coke and $270mMn for Pepsi. 
4) Both companies are showing the investment fund as assets without calculating the 
effect of service costs and other outflow in that which in turn increases the assess. 
Hence, under new regulations, it needs to be controlled in effective manner. Hence, it 
will affect the assets of both the companies and decreases it significantly. 
5) All actuarial and income loses has to be reported separately on income from other 
unrecognized item which in turn will affect the net income for both the companies in 
2009. 
From the above analysis, it is clear that the transition effect will put pressure on the net 
income. However, it increases EBITDA as explained above. 
Solution 2 
 
The funding level and the capital gain can be found from the Annual statement of both the 
company. Now, from both the company statement it is shown in the Cash flow statement. 
The positive cash flow shows the gain in the Pension fund whereas negative will discard 
the cash flow.

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