Question

1. Vincent Hzu is the sole owner of a successful chain of Hakka Indian– Chinese restaurants, Heavenly Hakka Inc., in Canada. Vincent (through Heavenly Hakka) and his two friends, Ibrahim Khan and Venkat Gupta, started a company, Szechwan Samosas Inc. (SS), 15 years ago to manufacture and sell Hakka- style samosas. Heavenly Hakka, Ibrahim, and Venkat each own one- third of the shares of SS. However, given Vincent’s experience running restaurants, it was agreed that the profits would be shared as follows— Heavenly Hakka, 40%, and the other two friends, 30% each. Further, Heavenly Hakka is the sole supplier of all the Hakka- style filling that goes into the samosas of SS. SS has become a great success in Ontario, in no small part due to the invaluable contribution of Vincent and Heavenly Hakka. The relationship between the friends had, by and large, been friendly in the past. However, during the past year differences have cropped up among the three on the future direction of SS. Vincent feels that the successful concept of SS should be expanded to other provinces in Canada. In contrast, both Ibrahim and Venkat feel that doing so might divert their attention from the Ontario operation, thereby potentially jeopardizing it. In the interest of maintaining amity among friends, Vincent has not pressed on the issue of expansion. However, clearly, Vincent has been unhappy these past few months, so much so that he has stopped visiting the SS restaurants completely.
2. Nature’s Harvest (NH) is a petroleum exploration company incorporated in Benezuela; 60% of its voting shares are owned by Mid- West Petroleum, a publicly listed, Alberta-based company. The new nationalistic government of Benezuela recently decided that Benezuelan companies should be managed by Benezuelans and that their profits should be reinvested within Benezuela. Consequently, the Benezuelan government nominated the majority of the board of directors of NH with its own appointees. However, two of Mid-West’s nominees still continue on the board of directors of NH. Further, the government of Benezuela legislated a ban on the repatriation of profits by Benezuelan companies to their foreign shareholders. All technical expertise to NH is, however, still being provided by Mid-West.
3. Premier Inc., a Canada- based public limited company and one of the world’s top manufacturers of manual scooters, holds a 19% equity interest in Crystal Inc., a manufacturer of automatic motor scooters. Premier is represented on Crystal’s board of directors. Further, Premier also has veto and blocking rights in Crystal as set forth in the partner-ship agreement between them. Premier is planning to divest its shares in Crystal by the end of next year.

Required
Discuss the accounting alternatives available to report the investment in each of the three independent situations above. Specify what additional information you would like to have, if any. Recommend an accounting approach and disclosures required for each investment, stating any assumptions that you make in arriving at your recommendations. Refer to appropriate standards for appropriate disclosures relating to each situation above.



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  • CreatedMarch 13, 2015
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