How should FunSun account for the transaction costs

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Reference no: EM132615684

Question - Please read "Memo Facts" and answer "Questions" with most recent Codification as of 2020.

Memo Facts

1. Larry's Lemonade is a distributor of organic lemonade and lemon powder. It operates mostly in the Western Hemisphere.

2. In March 2020, Larry's Lemonade wanted to focus more on lemonade. To do so, it entered into an agreement on March 31, 2020 with FunSun Foods, a US-based food distributor looking to expand internationally.

3. Larry's Lemonade and FunSun are each registered with the SEC.

4. As part of the agreement, Larry's gave FunSun a sub-license allowing FunSun to distribute Larry's Bolivian Blast brand of lemon powder throughout South America.

5. Also as part of the agreement, Larry's transferred its list of current and former customers and other pertinent contracts in South America to FunSun.

6. Lastly, Larry's also assigned to FunSun its contract with the supplier that had been supplying Larry's with its Bolivian Blast secret ingredient.

7. Larry's did not transfer any of its employees to FunSun.

8. Larry's also did not transfer any portion of its distribution function to FunSun.

9. FunSun paid $66.1 Million to Larry's for the distribution rights and the right to use the Bolivian Blast brand.

10. FunSun also incurred legal, accounting, and other professional and consulting fees of $7.4 million to get the deal done.

Questions to be Answered -

1. When FunSun's acquired the sublicense to distribute Bolivian Blast lemon powder from Larry's, did FunSun acquire a business or did it merely acquire assets?

2. How should FunSun account for the $66.1M cost of the distribution rights?

3. How should FunSun account for the transaction costs it incurred?

4. How would your answer to Provocation 1 change, if at all, if FunSun was under IFRS?

5. How would your answer to Provocation 2 change, if at all, if FunSun was under IFRS?

6. How would your answer to Provocation 3 change, if at all, if FunSun was under IFRS?

Reference no: EM132615684

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