Pepsi and Coca Cola are two international giants and are in to healthy competition since decades. Both are the manufacturers of carbonated soft drink. Pepsi was created in 1898 and was introduced in the market as Brad’s Drink. Later, it was renamed as Pepsi-cola then renamed again in 1961 as Pepsi. The country of origin of Pepsi is the US. Whereas Coca-cola was introduced in the year 1886 in the US.
Coca-Cola versus Pepsi Products
The main dark drink of the coca-cola company named coca-cola started the rivalry between Pepsi and coca-cola company. The major primary competitor of coca-cola is dark version of cola named Pepsi. The cola wars began after these two drinks. For instance, Full Throttle is an energy drink deputed in late 2004 in North America by Coca Cola Company. On the other hand, Pepsi introduced energy drink by the name of AMP under the Mountain Dew soft Drink Brand. Coca-Cola Company released carbonated beverage Vault in June 2005, on contrary PepsiCo also distributed Mountain Dew MDX in 2005 (David, 2011). There are numerous other products produced by both companies on the rivalry of each other.
IFRS on the pension for Coca-Cola and Pepsi Co by 2009
The term International Accounting Standards is replaced by the International Financial Reporting Standard. IFRS is the rule, regulation and, guideline and standard set by the International Accounting Standard Board which organizations and companies have to follow when compiling financial statements. Financial Analysis of every company is very significant to present how well it is being managed. The financial statements, taxes, audits, pension plans and various other areas of financials of the company show how well a company is doing and where it stands.
Both the companies have products with varying pension plans. For instance, the pension and retiree medical plan covers employees and this applies both to international and those employed in the US.
The rate of the health care trend employed in the determination of the retirees’ medical liability and expenses undergoes annual review where the overview is often based upon the company claim experiences as well as on the information available on the health plans and the general knowledge that the health industry poses (Keiso, Weygandt & Warfield, 2012). Overview of the trends comprise of factors including demographics.
This is mainly based on the company assumptions. For example, it is expected that the year 2009 will realize a decrease in the pension expense backs the expected returns on cost. Furthermore, contributions that are associated with productivity for growth program in the preceding year will help in partially offsetting an increase in amortization (Lundy, 2006). Therefore, the increase realized from experience loss amortization is mainly attributed to the pension.
Capital gains experienced by Coca-Cola and Pepsi Co in their respective pension funds
The return on assets shows that Coca-cola, with a higher return of assets with 16.6 as compared to Pepsi. It is expected that decrease in either the expected rate or the discount rate of return is essential in increasing pension scheme. It is understood that the effect of the expenses of the 25 base declines on the 2009 pension expense is the increase in the rate of return by a fairly accurate figure of $18 million (Keiso, Weygandt & Warfield, 2012). Normally companies do not finance their contributions particularly if their contributions are to be tax-deductible in the year 2009. This is to make pension contribution of 1.1 billion dollars with up to one billion dollars being discretionary.
It is also used for taxation made to the employees only upon reception of the plan benefits, and bearing in mind, that retiree’s medical schemes are not a subject of the regulatory funding obligations. Therefore, it is necessary that the pension plans are funded on pay-as-you-go basis. The medical contribution and the pension amount made are subjective in nature to due to some alterations of some factors. These factors consist of adjustments in interest rates, taxes/other benefits, policies and regulations or even a deviation existing between the true and the projected asset returns.
Analysis of the two companies pension schemes
Coca Cola Company has a more secure pension fund. It uses the Dublin based captive insurer to fund the benefits that are earned by plan participants in Ireland and the UK. The plan is expected to generate significant potential financial and operational advantages. Thus, instead of the company dealing with many groups of pension plans trustees as well as investment managers for given plans used in various countries.
The pension plan used by Coca Cola facilitates consolidation of asset management via the captive and also if the company investments are strong resulting to generation of surplus the company would accrue to the captive enabling its usage instead of remaining in the same plan (Keiso, Weygandt & Warfield, 2012). Therefore, the plan participant enjoys an arrangement that utilizes annuities that guarantee that their benefits are fully immunized and insured against market volatility.
The level of risk in Pension Plan
Yearly retiree’s medical expenses plus the pension sum are chiefly based on 4 key elements. These incorporate the benefits got by the employees of the company after their yearly contribution, the swelling up of liabilities due to time lapse (interests cost) and other gains and losses cut down by the projected return on scheme assets for the financed plans.
Considerable conjectures being utilized in measuring the yearly medical expenses and the pension amount of retirees consist of interest rates being applied in the calculation of the current worth of liabilities, employees-related factors such as the retirement age, turnovers and mortalities. Also, the pension expense return on assets in the funded plans as well as the rate of salary of each employee increases for plans whose benefits are based on their earnings, healthcare cost trend and retiree medical expense. The company conjectures reveal its best decision in respect of skills and management expertise in considering the future expectations (Keiso, Weygandt & Warfield, 2012).
Thus, in relation to the considerable management associated with this undertaking , the conjectures of the company possesses a physical impact on the determination of pensionable amount and retirement requirements and the retirement medical benefits expense.
In the aspect of profitability, although Coca-cola shows better revenue growth whereas Pepsi still is considered a clear winner in revenue generation. When it comes to asset management, however, Coca-cola secures high profit and return on equity. Although, Pepsi has a larger cash flow but what matters is how much the investors have earned. Coca-cola is a winner in risk management as well as it has capitalized its risky maneuver of reinventing their products and it is due to the contribution of rise in revenue. Therefore, Pepsi is better comparatively in risk management. As far as the pension schemes are concerned and according to the above mentioned discussion it shows that Coca Cola Company has a more secure pension fund.
Annual Report. (2009). Web.
David W. F. (2011). This American Life’ Reveals Coca-Cola’s Secret Recipe. Healthwatch, 12(3).
Keiso, D. E, Weygandt, J. J. & Warfield, T. D. (2012). Intermediate accounting with problem solving guide chapters 17-24 (14th Ed.). Hoboken, NJ: John Wiley & Sons.
Lundy, B. (2006). The Bottle. New York, NY: American Heritage Inc.