Sheet1
Does the acquisition of the sublicense by Nature’s Beverage to distribute He
al T
meet the definition of a business?
YES or NO
Support your by explaining
iefly, and citing appropriate ASC text
[Text will wrap]
SUPPORTING STATEMENT(s) ASC(s)
INPUTS
PROCESSES
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Case 18-1
Coffee Co.
Coffee Co. (the “Company”) is a global distributor of organic coffee beans and teas that
is registered with the SEC in the United States. The Company’s operations are primarily
located in the United States, Canada, and South America. In March 20X8, Coffee Co.,
looking to refocus efforts to only produce coffee products, entered into an agreement (the
“Agreement”) with Nature’s Beverage, a food distributor in the United States looking to
expand its international footprint (the “Transaction”). Nature’s Beverage is registered
with the SEC in the United States.
Pursuant to the Agreement, Coffee Co. provided a sublicense to Nature’s Beverage for
the distribution rights of Coffee Co.’s South American local tea
and, He
al T, whereby
Nature’s Beverage will distribute He
al T in South America. Under the Agreement,
Coffee Co. transfe
ed the existing customer contracts in South America to Nature’s
Beverage and an at-market supply contract with the producer of He
al T. Coffee Co.
etained all of its employees and distribution capabilities.
The Transaction closed on March 1, 20X8 (the “Closing”).
Additional Facts:
• Nature’s Beverage incu
ed certain costs to acquire the sublicense of the
distribution rights and a license to use the He
al T
and. The costs included
legal, accounting, and other professional or consulting fees totaling $50,000.
• Nature’s Beverage agreed to transfer to Coffee Co. $3 million for the sublicense
of the distribution rights of He
al T.
• Assume both companies have adopted FASB Accounting Standards Update No.
2017-01, Business Combinations (Topic 805): Clarifying the Definition of a
Business.
Required:
1. Does the acquisition of the sublicense by Nature’s Beverage to distribute He
al T
meet the definition of a business?
2. How should Nature’s Beverage account for the acquisition, including the
treatment of the transaction costs? (Note that the response will be dependent on
the response to Question 1.)