Question

Terrier Enterprises (TE) is a family-owned company founded by Bob Terrier that owns and operates many well-known consumer product brands that are sold throughout Canada. Its head office is located in Montreal and it is considering going public in the near future. As such, TE would like to present favorable financial statements. In anticipation of going public, it has already adopted IFRS. TE sells goods to Canadian retailers and in order to expand, it is going to start selling internationally.
During the past year, TE has entered into three new transactions and Bob Terrier has asked you, CA controller, for assistance on how they should be accounted for. He would also like to know what the impacts are due to these being foreign transactions, as this is the first time the company has done such transactions. He would like to continue to make foreign investments in the future as he feels it is a good expansion strategy. He would like you to remember that TE is considering going public and that when a competitor recently went public, its financial statements, especially its net income figure, were heavily scrutinized.
TE's first transaction was an investment of 19% in Dachsund Incorporated (DI), a company located in the United States. In addition, TE also obtained two of the eight seats on the board of directors. DI operates a chain of pet stores in the United States that has always been profitable and TE intends to use this investment as an opportunity to start selling its brands of dog toys and accessories in DI's stores in the United States, among the many other brands of pet products carried by DI. Goods supplied by TE are payable in U.S. dollars by DI. TE believes that this will be a strong foundation to creating a presence for itself in the United States.
The second transaction was an investment of a 100% interest in Bernard Industries (BI), a company located in Brazil that sells children's toys in its retail stores and worldwide on its website. TE took out debt, payable in Brazilian reals, in order to pay for this acquisition from a bank in Brazil to help stimulate foreign investment in Brazil. TE will be helping to build a new plant for manufacturing in Brazil. The bank account balances will be maintained in Brazilian reals and then transferred weekly to the Canadian bank account so that the accounting functions can be done centrally by TE. TE will send management from Canada to help teach BI the TE way of doing business and to help integrate them within the company. BI will stop selling TE's competitors' products and instead will focus exclusively on selling TE's goods, both in its retail stores and on BI's website. TE will invoice BI in Canadian dollars.
In addition to expanding by making foreign investments, TE has also started selling goods directly to a leading low-cost mass retailer in the United States, which will be invoiced and will pay TE in U.S. dollars.
Required
Prepare the analysis requested by Bob Terrier.


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  • CreatedJune 09, 2015
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