Runnign head: The Coca Cola Company

The Coca-Cola Company – Accounting For Investments in Bottlers

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 The Coca Cola Company

Table of Contents

Question 1..................................................................................................................................................2

Question 2..................................................................................................................................................3

Question 3..................................................................................................................................................5

Question 4...............................................................................................................................................5

Question 5...............................................................................................................................................5

Question 6...............................................................................................................................................6

Question 4..................................................................................................................................................8

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 The Coca Cola Company

Question 1

In 2001, accounting controllers, particularly those in the U.S., started to reevaluate the principles

of consolidation with a move toward a prerequisite taking into account control with considerably

less thought of the span of the value stake. FASB's Proposed Statement of Financial

Bookkeeping Standards Consolidated Financial Statements Purpose and Policy expressed:

Control includes the vicinity of two vital qualities first is a parent’s non-imparted choice making

capacity that empowers it to guide the progressing exercises of its backup, and besides a parent’s

capacity to utilize that energy to build the profits that it infers and point of confinement the

misfortunes that it experiences the exercises of that auxiliary.

Question 2

The organization utilizes the value strategy to record for ventures for which the organization can

practice huge impact over working and monetary arrangements. Combined net wage incorporates

the Company's offer of the net salary of these organizations.

The Coca-Cola utilize the cost technique to record for the company’s interests in organizations

that they do not control and for which the organization don't be able to practice noteworthy

impact over working and budgetary arrangements. As per the expense technique, these ventures

are recorded at expense or reasonable worth, as proper.

The merged monetary proclamations incorporate the records of the Company and all backups

with the exception of where control is transitory or does not rest with the Company. The
 The Coca Cola Company

Organization's interests in organizations in which it has the capacity to practice huge impact over

working and money related approaches are represented by the value technique.

In like manner, the Company's offer of the net profit of these organizations is incorporated in

merged net salary. The Organization's interests in different organizations are conveyed at cost or

reasonable quality, as proper. All huge intercompany records and exchanges are wiped out.

Certain sums in the earlier years' budgetary explanations have been renamed to comply with the

current year presentation.

The Coca-Cola Company should account the investment as the equity because it does not hold a

much enough stake in bottlers to exercise significant influence over operating and financial

policies. And thus, the consolidated net income should include the company’s share of the net

income of those companies. However, there are several limitations of equity method

applicability.

In applying the equity method, the accounting target is to report the speculator's venture and

speculation pay is mirroring the nearby relationship between the organizations. In the wake of

recording the expense of the obtaining, two value technique passages occasionally record the

speculation's effect:

The financial specialist's venture record increments as the investee procure and reports salary.

Likewise, the financial specialist perceives speculation wage utilizing the collection technique

that is, in the same period as the investee acquires it. On the off chance that an investee reports

pay of $100,000, a 30 percent manager ought to quickly build its own wage by $30,000. This

profit accumulation reflects the embodiment of the value system by underscoring the association

between the two organizations; as the holders' value of the investee increments through the profit
 The Coca Cola Company

transform, the venture account additionally increments. Despite the fact that the financial

specialist at first records the obtaining at expense, upward changes in the advantage equalization

are recorded when the investee makes a benefit. A decrease is important if a misfortune is

accounted for.

The financial specialist's speculation record is diminished at whatever point a profit is gathered.

Since the circulation of money profits diminishes the book estimation of the investee

organization, the speculator reflects this change by recording the receipt as a decline in the

conveying estimation of the venture as opposed to as income. At the end of the day, a parallel is

made between the venture accounts what's more, the fundamental exercises of the investee: The

decrease in the investee's holders' value makes an abatement in the venture. Moreover, because

the financial specialist promptly perceives wage when the investee gains it, twofold including

would happen if the speculator too recorded resulting profit accumulations as income.

Essentially, the accumulation of a money profit is not a suitable point for money

distinguishment. Since the financial specialist can impact the timing of investee profit

conveyances, the receipt of a profit is not a target measure of the pay created from the

speculation.

Question 3

Question 4

If the investment of Coca-Cola Enterprise is shown at the cost, the total assets would increase to

$29427 million. The investment is added under the head of investments in the Balance sheet

following the Current Assets. If the investment is recorded at cost, it would give rise to the total

assets. The calculations are shown in Excel, question 4.

Question 5

If the Coca-Cola Company was instead required to account for CCE as a passive investment (as

available-for-sale), then according to accounting principles the investment that is classified as

available for sale would be recorded at fair value (i.e. market value) in its financial statements.

Therefore, the amount that Coca-Cola would show for CCE in its statement of financial position

will be its carrying value plus fair value the investment has above its carrying value. As stated by

the company that the fair value of the investment in CCE is $1.5 billion higher than that of its

carrying value. Therefore the Fair value of CCE would be $3.2 billion ($1.7 billion plus $1.5

billion). This cumulative value will represent the fair value of the company on its financial

statements, as available for sale investments.

Subsequently, the investment would be recorded at fair value in the statement of financial

position and any changes in its value will be adjusted in other comprehensive income, such as,

gains or losses.

Question 6

If the Coca-Cola Company requires to consolidate its investment is CCE, the return on Assets

(ROA) ratio in both the situation have a large difference due to the difference in operations. The

Coco-Cola Enterprise actual Return on Investment shows a ratio of 2% whereas, on the other

hand, if Coca-Cola consolidate Coca-Cola Enterprise, it would give return on assets of 12%.

That means together, companies are better off.

A marker of how beneficial an organization is with respect to its aggregate resources. ROA gives

a thought in respect to how proficient administration is at utilizing its resources for create
 The Coca Cola Company

income. Ascertained by partitioning an organization's yearly income by its aggregate resources,

ROA is shown as a rate. Once in a while this is alluded to as "quantifiable profit".

ROA lets you know what profit were produced from contributed capital (resources). ROA for

open organizations can shift significantly and will be exceedingly reliant on the business. This is

the reason when utilizing ROA as a near measure, it is best to think about it against an

organization's past ROA numbers or the ROA of a comparable organization.

The advantages of the organization are embodied both obligation and value. Both of these sorts

of financing are utilized to store the operations of the organization. The ROA figure gives

financial specialists a thought of how viably the organization is changing over the cash it needs

to put into net salary. The higher the ROA number, the better, in light of the fact that the

organization is winning more cash on less speculation. For instance, if one organization has a net

salary of $1 million and aggregate resources of $5 million, its ROA is 20%; be that as it may, if

another organization gains the same sum however has downright resources of $10 million, it has

a ROA of 10%. In view of this sample, the first organization is better at changing over its venture

into benefit. When you truly consider it, administration's most critical employment is to settle on

savvy decisions in dispensing its assets. Anyone can make a benefit by tossing a huge amount of

cash at an issue, yet not very many chiefs exceed expectations at making expansive benefits with

little speculation.

Return on resources demonstrates the quantity of pennies earned on every dollar of benefits.

Hence higher estimations of profit for resources demonstrate that business is more gainful. This

degree ought to be just used to think about organizations in the same business. The explanation

behind this is that organizations in a few commercial enterprises are most resource harsh i.e. they

require extravagant plant and gear to create salary contrasted with others. Their ROA will
 The Coca Cola Company

regularly be lower than the ROA of organizations which are low resource inhumane. An

expanding pattern of ROA shows that the productivity of the organization is progressing.

Alternately, a diminishing pattern implies that benefit is decaying.

Question 4

Considering the initial acquisition of the company, the Bottlers was acquired completely by The

Coca Cola Company for which it should have recorded it as its subsidiary. Later on, when Coca

Cola sold 51% of the share of CCE in 1986 which left the Company with the remaining 49% of

the shares.

The selling out of the shares and its majority interest to general public, the company tend to have

lost control in the company due to having just 49% of equity shares. However, there is a special

treatment in this case, that is, although the company does not possess the controlling interest in

the company but it still have control over the management and decision making of the company.

In this regard, the CCE can be treated as the subsidiary of the Coca Cola company as proposed

by FASB in Consolidated Financial Statements: Purpose and Policy. The company can treat its

holding company as a subsidiary if it exercises control over its policies and decision making. In

this light, the Coca Cola Enterprise can be treated as subsidiary company for Coca Cola.

However, there is an option provided by the FASB that such holding companies can either be

classified as subsidiary or as an investment which can be accounted for using the method of

equity accounting, fair value or cost. With this statement the company may also classify the CCE

as one and then use the related treatments for the investment as per FASB and IAS.
 The Coca Cola Company

Conclusively, I would support that Coca Cola Enterprise should be treated as the subsidiary

company of The Coca Cola Company, as it is meeting the criteria for being classified as a

subsidiary company. Although it does not possess the required equity interest in CCE, but still

possess significant control over its strategic decision making,