The non-alcoholic beverage business is highly competitive. Two of the largest competitors in this business are the Pepsi Bottling Group (PBG), the world’s largest seller, manufacturer, and distributor of Pepsi-Cola beverages, and Coca-Cola Enterprises (CCE), the world’s largest marketer, distributor, and producer of Coca-Cola beverages. 

On March 6, 2000, PBG issued a press release regarding changes in their depreciation policy: 

In recognition of its long-standing success in preventive maintenance programs, The Pepsi Bottling Group, Inc. (NYSE: PBG) today announced a change in the depreciation lives of certain categories of assets. During the past two months, PBG has conducted a review of the operating lives of its assets. This review has shown that it is appropriate to extend the book lives of several asset categories, particularly manufacturing and selected distribution assets. The primary reason for this is that our extensive preventative maintenance programs have enabled us to extend the operating lives of our assets well beyond their previous book lives. “We maintain that cash profits remain the best method of tracking our performance. However, since some investors look at us and other bottlers in terms of reported earnings, we thought it was important to reflect our depreciation expenses and reported profit more accurately,” said John Cahill, Executive Vice President and Chief Financial Officer for PBG. “Even with these changes, the new policies still present our financial results conservatively.” In the first quarter alone, the change in depreciation policy lowered depreciation expense by $14 million, reducing cost of sales by $8 million and selling, delivery, and administrative expenses by $6 million.

What do you think are the benefits and costs to PBG and CCE of changing their depreciation policies?

Answer rating: 100% (QA)

The benefits and costs of changing depreciation policies for PBG and CCE can be analyzed as follows Benefits for PBG and CCE 1 Improved accuracy of re... View the full answer