• Assumes the role in the case throughout
• Defines the issue(s)
• Includes an analysis with direct reference(s) to the CPA Handbook (at least ONE directly referenced quote for this case)
• Clearly states your recommendation(s)
• Considers all items that should be addressed based on your role and the situation
• Prepare an appendix for any calculations

Local Distributors Co. (LDC) is based in Moncton and listed the Toronto Stock Exchange. LDC sources local products on a wholesale basis to sell to retail stores. They pride themselves in offering a distribution option for smaller producers.

On July 2, 2020, LDC purchased 45% of the common shares of Vegetarian Premium Stores Inc. (VPS), a privately held company, from the operator Vidya Patel. Vidya is advancing in age and LDC is hoping that this will be a first step to Vidya selling her remaining 40% share of VPS in the future. The remaining holders of the shares are friends and family of Vidya and do not take much interest in the company.

In exchange for the shares, Vidya agreed to accept $250,000 cash on July 2 and payments of $100,000 per year for three years (starting July 2, 2021) in exchange for the shares. At the same time, LDC and VPS signed an agreement where VPS would carry all of LDCs products. LDCs products would comprise approximately 60% of VPS sales.

The fair values of VPS net assets approximated carrying values of $990,000 except for a building which has a remaining useful life of ten years and was assessed to be worth $25,000 less than carrying value. LDC is able to borrow funds currently at 5%.

You are the accounting manager of LDC and have been asked to prepare a memo to the CFO on the accounting for this investment and the effect on the statements for LDCs upcoming October 31, 2020 year end.

Required

Prepare the memo to the CFO.