Financial Accounting: IFRS, 3rd Edition

CHAPTER 9Plant Assets, Natural Resources, and Intangible Assets

FEATURE STORY

How Much for a Ride to the Beach?

It’s summer vacation. Your plane has landed, you’ve finally found your bags, and you’re dying to hit the Tylösand beach in Halmstad, Sweden—but first you need a “vehicular unit” to get you there. As you turn away from baggage claim, you see a long row of rental agency booths. First, you see booths for Hertz (USA) and Europcar (FRA). Then, a booth at the far end catches your eye—Rent-A-Wreck (USA). Now there’s a company making a clear statement!

Any company that relies on equipment to generate revenues must make decisions about what kind of equipment to buy, how long to keep it, and how vigorously to maintain it. Rent-A-Wreck has decided to rent used rather than new cars and trucks. While Europcar emphasizes that all its vehicles are new, Rent-A-Wreck competes on price.

Rent-A-Wreck’s message is simple: Rent a used car and save some cash. It’s not a message that appeals to everyone. If you’re a marketing executive wanting to impress a big client, you might choose Europcar instead of Rent-A-Wreck. But if you want to get from point A to point B for the minimum cash per mile, then Rent-A-Wreck is playing your tune. The company’s message seems to be getting across to the right clientele. Revenues have increased significantly.

When you rent a car from Rent-A-Wreck or from Europcar, you are renting from an independent businessperson. This owner has paid a “franchise fee” ...