Canada Cola Inc. (CCI) is a public company engaged in the manufacture and distribution of soft drinks across Canada. Its primary product is Cana Cola (“Fresh as a Canadian stream”), which is a top seller in Canada and generates large export sales.
You, CA, met with Jim Mac Namara, the partner in charge of the CCI engagement, to commence planning for the upcoming audit of CCI.
During this meeting, the partner informed you that early this year CCI entered into an agreement with the government of Russia and has commenced the manufacture and sale of Cana Cola in Russia. A short summary of the agreement is contained in Exhibit B. The partner would like you to prepare a detailed report that discusses the accounting and auditing implications of this new division of CCI for this engagement.
Exhibit B Summary of Agreement
1. The Russian government will provide the land and the building for the plant. It will make no further investment.
2. CCI will install bottling machinery costing $ 5 million in the Russian plant. Once installed, the machinery may not be removed from Russia.
3. CCI will be required to provide the funds for the initial working capital. CCI will sell US dollars to the Russian government in exchange for local currency (rubles).
4. CCI will be wholly responsible for the management and daily operations of the plant. Canadian managers will be transferred to Russia.
5. CCI will be permitted to export its cola syrup to Russia at CCI’s Canadian cost.
6. CCI and the Russian government will share equally in the profits from the sale of Cana Cola in Russia.
7. Although foreign currency can be converted into rubles, rubles cannot be converted back into any foreign currency. Therefore, the Russian government will sell vodka to CCI (at the prevailing export price in Russia) in exchange for the rubles CCI earns in profits. CCI will be permitted to export this vodka to Canada, where it may be sold in the Canadian domestic market only.

1. Prepare the report for the partner.

  • CreatedMarch 13, 2015
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