The following report aims to present the discussion on the strength and weakness of the company’s capabilities together with the discussion on relevant issues in the theory used by the companies. In order to present the discussion, Coca- Cola Amati and Pacific diaries beverage companies have been selected that incorporates identification of relevant accounting theory. The assignment covers the discussion based on the general purpose as well as special purpose relevant for the reporting entities. The report also involves the discussion based on the concept of prudence level as well as International Financial Reporting Standard (IFRS) to determine the compliance level.
Coca- Cola Amati is an Australian public company listed on Australian Stock Exchange engaged in the business as bottlers of beverages. The company has been one of the largest companies in Australia with a revenue of around $5.12 billion in the year 2014 whereas the value of operating income $502.8 million in the financial year 2014 (Ccamatil.com 2017). On the other hand, Pacific Beverage Company involved in the manufacturing and distribution of beverages in the region of Australia as well as in other parts of the world. The company has revenue valued to around $789.7 million while the operating income valued to $64.2 million with the approximate number of employees around 3500 (Pacificbeveragecompany.com 2017).
Areas of Strength and weakness in the organization’s capabilities
Considering the business functions and financial report of the companies, it can be said that both the companies are widely renowned brands in the Australian region as well as across the world. Coca- Cola brand is one of the well- known brands for non- alcoholic beverage and maintains high business value in the market share. The companies involve core consumers together with the huge amount of financial resources to maintain the production level as well as the quality of the products (Bonin 2013). Similarly, the Pacific Beverage Company is known for its renowned brand for the products in terms of brewers’ yeast, bottom- fermenting yeast and other products that assist in producing a clean taste.
The companies also involve strong marketing and distribution network that makes the product accessible across the region. Both the companies have been using large controlled channel of distribution to market the products to the individuals. Other than the distribution network, companies are also known for maintaining the accounting standards as the value of assets and liabilities has been appropriately recorded (Oldroyd, Tyson and Fleischman 2015). The companies are also known for maintaining and managing the production costs, marketing costs and place as well as the factors on maintaining several geographical locations. Coca- Cola and Pacific Beverage companies are well known for the marketable locations in order to reach to the individual consumers in remote areas without affecting the cost and quality of the products.
One of the common weaknesses that both the companies experience is management of water as product raw material, which is a primary ingredient to produce the beverage products. In addition, water is a primary source of requirements for individuals and society to manage the basis needs that has been a limited source in the country (Cheng et al. 2014). Hence, the companies face problems in accumulating the required raw material water. Consequently, the companies experience high cost in generating beverage products to maintain the quality. Another weakness that both the companies face is fluctuations in the foreign currency that eventually affect the company’s financial reports since it is essential to recognize fair and correct value of foreign currency amounts. The value of foreign currency exchange incorporates in the financial statements while determining the profit level and financial position of the business that is required to be reflected in the financial statements (Too and Weaver 2014).
Relevant issues in the accounting theory and organizational content
In order to prepare and present the financial statements, it is essential to follow the accounting theories and underlying assumptions. Accounting theories refer to the set of methodologies as well as assumptions that are required for preparing financial reporting standards. It is essential to maintain the conceptual framework and principles to recognize the financial information appropriately for the benefit of users and stakeholders while taking business decisions and investment decisions (Christensen et al. 2015). However, management of the companies face several issues while considering the accounting theory methodologies, which incorporates valuation assumption based on historical methods or fair value method. In case of Coca- Cola Amati, it has been noted that the company used the fair value method to determine the value of assets and financial resources. The company stated that the value of property, plant as well as equipment has been determined by using the cost method including the valuation of economic benefits (Ahmed, Neel and Wang 2013). The management of the company used straight- line method to recognize the value of depreciation together with the valuation of impairment of assets. It can be said that the assets of plant and property has been tested for impairment that and the value of disposal has been derecognized which is not as per the standards of accounting theory.
On the contrary, in case of Pacific Beverage Company, it has been noted that the management used the estimates based on the historical records. It has been observed that using the historical method to record the value of tangible and intangible assets, recognition of assets as per current market value cannot be considered. Accordingly, it might be possible that the financial position of the company did not reflect appropriate and fair balance as per the present market value. The accounting theory incorporates issues on considering the valuation for intangible assets, maintaining provisions for losses and estimates as well as valuation of depreciation charges using an appropriate method (Palepu, Healy and Peek 2013). As per the accounting theory, depreciation for certain assets is valued as per straight- line method that represents lower amount of depreciation charge compared to that of diminishing value method. Accordingly, financial report of Pacific Beverage reflects lower value of asset than the prevailing marketing price, which means the company’s financial balance represented inappropriate performance valuation.
Identification and analysis of relevant theory
One of the basic accounting theories in accounting is conceptual framework, which is a part of accounting standards to recognize and report the financial information of the company. The part of accounting theory is essential to follow while recording the financial information so that the company can present value of financial performance and financial position appropriately (Vanderhoof and Altman 2013). In case of Coca- Cola Amati, it has been noted that the financial statements has been prepared by considering the accounting principles and standards. The company prepared the financial statements by following the prudence level, going concern and standards of International Financial Reporting Standards. For instance, while calculating the value of intangible assets and goodwill, the management followed the principles to use current market value and estimates as well as by following the IFRS standards based on the terms of ten years time.
The fundamental purpose of the financial accounting theory involves business decisions, investment decisions as well as economic decisions. Accordingly, Pacific Beverage Company followed the principle of IFRS while measuring the value of assets and liabilities. While conducting the impairment test, the company followed the accounting principles for identifying the recoverable amount of the assets by considering fair value as well as the amount of value in use (Goh et al. 2015). The company used key estimates to measure the amount of value in use for royalty and other intangible assets such as goodwill. The company used margins of EBIT, volumes or amount of capital expenditure based on the number of years to use and relevant discount rates. Further, while measuring the value of tax liabilities, deferred tax has been measured by considering the temporary differences based on the carrying value of the assets and liabilities. Hence, it can be said that the company followed the requirements of accounting principles and conceptual framework policies (Sinclair and Keller 2014).
Considering the relevant issues of accounting theory and weaknesses of the companies, it can be recommended that compliance of conceptual framework to recognize business transactions is essential. Coca Cola organization is recommended to follow the current and fair market value while measuring the value of assets and liabilities. The management of the company is suggested to follow appropriate depreciation method to determine the value wear and tear charges of the assets so that the financial position reflects true and fair value. Similarly, Pacific Beverage is recommended to follow the standards of IFRS while considering impairment test for the cash generating units including goodwill.
Conclusion
For each organization, it is essential to follow the relevant accounting theory to prepare and present the financial statements and other non- financial statements for the use of stakeholders. Considering the strengths and weaknesses of the companies, it can be said that presentation of financial report as per conceptual framework is essential to reflect the transparent and accountable business information. It has been noted that the companies involved strong brand value and distribution network while foreign exchange fluctuations has been a major weakness. Accordingly, it is essential to follow the relevant accounting standards to correctly value the foreign exchange transactions to present the true and fair financial statements.
Reference List
Ahmed, A.S., Neel, M. and Wang, D., 2013. Does mandatory adoption of IFRS improve accounting quality? Preliminary evidence. Contemporary Accounting Research, 30(4), pp.1344-1372.
Bonin, H., 2013. Generational accounting: theory and application. Springer Science & Business Media.
Ccamatil.com. 2017. Coca-Cola Amatil | Home. [online] Available at: https://www.ccamatil.com [Accessed 4 Apr. 2017].
Cheng, M., Green, W., Conradie, P., Konishi, N. and Romi, A., 2014. The international integrated reporting framework: key issues and future research opportunities. Journal of International Financial Management & Accounting, 25(1), pp.90-119.
Christensen, H.B., Lee, E., Walker, M. and Zeng, C., 2015. Incentives or standards: What determines accounting quality changes around IFRS adoption?. European Accounting Review, 24(1), pp.31-61.
Goh, B.W., Li, D., Ng, J. and Yong, K.O., 2015. Market pricing of banks’ fair value assets reported under SFAS 157 since the 2008 financial crisis. Journal of Accounting and Public Policy, 34(2), pp.129-145.
Oldroyd, D., Tyson, T.N. and Fleischman, R.K., 2015. American ideology, socialism and financial accounting theory: A counter view. Critical Perspectives on Accounting, 27, pp.209-218.
Pacificbeveragecompany.com. 2017. Pacific Beverage Company. [online] Available at: https://www.pacificbeveragecompany.com/ [Accessed 5 Apr. 2017].
Palepu, K.G., Healy, P.M. and Peek, E., 2013. Business analysis and valuation: IFRS edition. Cengage Learning.
Sinclair, R.N. and Keller, K.L., 2014. A case for brands as assets: Acquired and internally developed. Journal of Brand Management, 21(4), pp.286-302.
Too, E.G. and Weaver, P., 2014. The management of project management: A conceptual framework for project governance. International Journal of Project Management, 32(8), pp.1382-1394.
Vanderhoof, I.T. and Altman, E. eds., 2013. The fair value of insurance liabilities (Vol. 1). Springer Science & Business Media.
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