FINANCIAL REPORTING

ASSIGNMENT # 1&2

ANALYSIS OF CONSOLIDATED FINANCIAL

STATEMENTS PEPSICO INC. 2023
MUHAMMAD UMAIR ABID
FA22-BAF-106

SECTION: A
PepsiCo’s application of IAS 16 in its 2023 financial statements is consistent with the standard’s
requirements. The company records its property, plant, and equipment at historical cost, uses the
straight-line depreciation method, and provides detailed disclosures about the nature and value of
its tangible assets. PepsiCo’s capital spending on PPE continues to support its global operations,
and its treatment of assets under construction and impairment testing aligns with IAS 16 principles.
Moreover, PepsiCo’s application of IAS 38 in its 2023 annual report reflects adherence to
international accounting standards for intangible assets. The company capitalizes significant
intangible assets, conducts rigorous impairment testing, and provides comprehensive disclosures.
Notably, the treatment of goodwill and acquired franchise rights aligns with the best practices for
managing long-lived intangible assets under IAS 38. Overall, PepsiCo’s adherence to IAS 16 and
38 ensures the accuracy, transparency, and comparability of its financial reporting concerning PPE.
The company’s conservative approach, focusing on historical cost rather than revaluation,
demonstrates stability in asset management practices. However, PepsiCo’s commitment to
maintaining the value of its brands and intangible assets ensures the continued generation of future
economic benefits, in line with IAS 38 principles.

IAS 16
Analysis of financial statements of Pepsico for the year ended 2023
IAS 16 "Property, Plant and Equipment" governs the accounting treatment for property, plant,
and equipment (PPE), focusing on their recognition, depreciation, revaluation, and disposal. The
standard applies to tangible assets held for use in production, supply of goods, administrative
purposes, and other organizational needs. This report provides a detailed analysis of how
PepsiCo has applied IAS 16 in its 2023 financial reporting.
1. Property, Plant, and Equipment:
PepsiCo has reported significant amounts of property, plant, and equipment (PPE) in its financial
statements under IAS 16.
PPE Category Carrying Value in Useful Life
Million (USD)
Land 1159 Not Depreciated
Buildings and 11579 15-44 yrs
Improvements
Machinery and Equipment 36006 5-15 yrs
Construction in Process 5695 Not Depreciated until in
use

As per the consolidated balance sheet for the fiscal year ended December 30, 2023, PepsiCo's
PPE stands at $27,039 million, net of accumulated depreciation of $27,400 million. These
figures reflect the historical cost approach outlined in IAS 16.
Recognition of PPE in PepsiCo:
PepsiCo records its PPE at historical cost, as mandated by IAS 16, which includes the purchase
price, costs directly attributable to bringing the asset to the location and condition necessary for it
to be operational, and any subsequent additions, replacements, or improvements.
2. Depreciation
IAS 16 requires the systematic allocation of the depreciable amount of PPE over its useful life.
PepsiCo employs the straight-line depreciation method for its assets, which is a key
requirement under IAS 16.
• Depreciation Expense: In 2023, the total depreciation expense reported was $2,714
million.
• PPE categories and depreciation: Buildings and improvements are depreciated over
15–44 years. Machinery and equipment are depreciated over 5–15 years.
Carrying Annual Depreciation
PPE Value (in Depreciation Expense (in million
Category million USD) Useful Life Rate (%) USD)
Not
Land 1159 Depreciated N/A N/A
Buildings and 2.27% -
Improvements 11579 15-44 yrs 6.67% 263 - 772
Machinery
and
Equipment 36006 5-15 yrs 6.67% - 20% 2,400 - 7,201
Not
Construction Depreciated
in Process 5695 until in use N/A N/A

Depreciation Method:
IAS 16 emphasizes the use of a depreciation method that reflects the pattern in which an asset’s
future economic benefits are expected to be consumed. PepsiCo’s straight-line method is
suitable for assets that are expected to provide benefits evenly throughout their useful lives. This
method matches IAS 16’s requirement for consistency and appropriateness in applying
depreciation policies.
3. Revaluation and Impairment
Though IAS 16 permits the revaluation model, PepsiCo has opted for the cost model, meaning it
does not revalue its assets to fair value on a regular basis. This decision aligns with the
company's consistent application of historical cost accounting for PPE.
Impairment Testing:
PepsiCo performs impairment testing of assets whenever there is an indication of impairment, as
required under IAS 16. The company evaluates indicators of impairment for PPE in conjunction
with IAS 36, which governs the impairment of assets.
No specific revaluation or impairment loss on PPE was reported for the fiscal year 2023.
4. Disclosures of PPE
PepsiCo has provided comprehensive disclosures for its PPE, complying with IAS 16’s
requirements for transparency. Key disclosures include the breakdown of PPE categories,
accumulated depreciation figures, which depreciation methods used it also state the disclosures
regarding capital expenditure details related to construction are in progress.
The company also discloses capital spending figures by division. For 2023, total capital
spending was $5,518 million, with significant investments in machinery, equipment, and
buildings.
5. Construction in Progress
IAS 16 stipulates that assets under construction should not be depreciated until they are ready for
use. PepsiCo classifies assets under construction as Construction in Progress and does not
depreciate them until they are operational. For 2023, the balance of construction in progress was
$5,695 million. This reflects PepsiCo’s ongoing investment in expanding and modernizing its
operational infrastructure.
PepsiCo’s application of IAS 16 in its 2023 financial statements is consistent with the standard’s
requirements. The company records its property, plant, and equipment at historical cost, uses the
straight-line depreciation method, and provides detailed disclosures about the nature and value of
its tangible assets. PepsiCo’s capital spending on PPE continues to support its global operations,
and its treatment of assets under construction and impairment testing aligns with IAS 16
principles.
The company’s conservative approach, focusing on historical cost rather than revaluation,
demonstrates stability in asset management practices.
 IAS 38
Analysis of financial statements of Pepsico for the year ended 2023
IAS 38 "Intangible Assets" governs the accounting treatment for intangible assets that are not
specifically covered by other standards. This standard focuses on the recognition, measurement,
amortization, and impairment of intangible assets, such as goodwill, patents, brands, and
internally generated software. This report provides an in-depth analysis of how PepsiCo has
applied IAS 38 in its 2023 annual report.
1. Intangible Assets Overview
PepsiCo’s financial statements include significant amounts of intangible assets, primarily in the
form of goodwill, franchise rights, and brand value. As of December 30, 2023, the net book
value of PepsiCo’s intangible assets, after accumulated amortization, was approximately $20.7
billion. These intangibles are accounted for in line with IAS 38 principles, particularly in terms
of capitalization, impairment, and amortization.
Categories of Intangible Assets:
1. Goodwill: Primarily arising from acquisitions, goodwill is recognized but not amortized.
Instead, it undergoes annual impairment testing. As of 2023, goodwill amounts to $17.7
billion.
2. Reacquired and Acquired Franchise Rights: These rights allow PepsiCo to produce
and distribute beverages in specific regions. The carrying value of acquired and acquired
franchise rights totaled approximately $8.7 billion.
3. Brands: Recognized based on acquisitions and sustained through ongoing investment in
marketing and brand support, certain brands are treated as indefinite-lived intangible
assets (e.g., the SodaStream brand).
2. Initial Recognition and Measurement
PepsiCo recognizes intangible assets when:
• It is probable that future economic benefits attributable to the asset will flow to the entity.
• The cost of the asset can be reliably measured.
The standard requires intangible assets to be initially measured at cost. In PepsiCo’s case, this
includes:
• Direct acquisition costs e.g. purchase price, legal fees.
• Subsequent costs are necessary to prepare the asset for use.
For example, software development costs for internal use are capitalized, reflecting IAS 38's
recognition of internally generated intangible assets. These capitalized software costs were $1.4
billion as of 2023, up from $1.1 billion in 2022.
3. Amortization of Intangible Assets
IAS 38 requires the amortization of finite-lived intangible assets over their useful lives. PepsiCo
follows this standard by amortizing its intangible assets on a straight-line basis:
• Brands: Amortized over 20 to 40 years.
• Acquired Franchise Rights: Typically amortized over 56 to 60 years.
• Other Identifiable Intangibles: Amortized over 10 to 24 years.
In 2023, PepsiCo recorded an amortization expense of $75 million. Projected amortization over
the next five years, based on existing assets, is expected to be $72 million for 2024, decreasing
slightly in subsequent years.
4. Impairment Testing
IAS 38 mandates annual impairment tests for intangible assets with indefinite useful lives, such
as goodwill and certain brands. For amortizable assets, impairment testing is only triggered by
events indicating a possible loss in value. PepsiCo follows this approach rigorously, especially
regarding its goodwill and franchise rights.
In 2023, PepsiCo performed its annual impairment test, focusing on SodaStream and certain
brands in its Europe division due to deteriorating market conditions. This resulted in:
• $0.6 billion impairment charge for the SodaStream brand.
• $0.3 billion impairment charge for SodaStream's goodwill.
The impairment evaluation involved estimating the fair value of these assets using discounted
cash flow models, consistent with IAS 38. The models applied assumptions such as forecasted
sales, operating profits, and perpetuity growth.
5. Internally Generated Intangible Assets
IAS 38 provides stringent guidelines on the capitalization of internally generated intangible
assets, particularly regarding development costs. PepsiCo capitalizes software development
costs when the asset is intended for internal use, and its future economic benefits can be reliably
measured.
In 2023, PepsiCo recognized $159 million in software amortization, indicating the company's
ongoing investments in technology and digital infrastructure.
6. Significant Disclosures on Intangible Assets
In accordance with IAS 38, PepsiCo provides detailed disclosures about nature, carrying amount,
and amortization of intangible assets in its financial statements. This includes:
• Breakdowns of intangible assets by category (goodwill, franchise rights, brands).
Category 2023 Gross Value (in 2023Accumulated 2023 Net
billions) Amortization (in Value (in
billions) billions)
Goodwill $18.58 N/A $18.13
Re-aquired $7.61 $0.26 $7.35
Franchise
Rights
Acquired $1.76 $0.03 $1.73
Franchise
Rights
Brands $3.68 $1.24 $2.44
Other $0.56 $0.28 $0.28
Identifiable
Intangibles

• Amortization schedules for future years.

Year Amortization Expense (in
millions)
2024 72
2025 70
2026 62
2027 60
2028 59

• Details of impairment losses, especially for goodwill and indefinite-lived intangibles

like SodaStream.
Year Description Pre-tax Impairment After-tax Impact Division
(Intangible Assets)
2023 Impairment of $0.6 billion (brands) $0.5 billion Europe
SodaStream brand and and $0.3 billion (brands) and $0.3
goodwill (goodwill) billion (goodwill)
2022 Impairment related to $1.2 billion $958 million Europe
juice and dairy brands
in Russia
2022 Impairment related to $1.6 billion $1.3 billion Europe
the SodaStream brand
2022 Other impairments Various (totaling $1.033 billion Various
(e.g., baked fruit $1.248 billion) Divisions
brand, investment in
TBG)
 IAS 38 provides PepsiCo with a structured method for managing intangible assets, ensuring that
changes in market dynamics are accurately reflected in its financial results. This standard aids in
strategic decision-making around brand investments and helps maintain the integrity of
PepsiCo's financial position in a competitive market.