You, a CA, are a senior accountant employed by Terrazas & Boyer, Chartered Accountants. On a Monday morning in March 2013, Joseph Terrazas, a partner in the firm, walked into your office and announced: “Mary, you have been assigned to a special engagement that I believe you will find very interesting. I have a meeting set for 11:00 a.m. with Peter
Norwood, president of Aba cass Company Ltd. (ACL). We will need to leave by 10:30 a.m. In the meantime, have a look at this file (a)). It provides some background information concerning Mr. Norwood’s company.”
Following your arrival at ACL, Mr. Norwood got right to the point. “I have been approached by Mrs. Helen
Shewchuk, who is interested in selling her company, Taft Publications Incorporated (TPI). Mrs. Shewchuk assumed ownership of TPI after the sudden death of her husband, Professor Hugh Shewchuk, in August 2011. Since that time, the company has been managed by her son, Ryan. Ryan recently graduated in computer programming at a technical college and was beginning his career when he had to take over for his father. I am excited about the acquisition of TPI.
The book business is a perfect fit with my magazine business. I believe that ACL’s business strengths can easily be applied to TPI. One of the benefits ACL gains with the acquisition of TPI is access to new authors and new contacts.”
Mr. Norwood continued to describe the attributes of TPI as you took notes (see Exhibit CA2-3(b)). He then presented Joseph Terrazas with the documents he had received to date from Mrs. Shewchuk. They included TPI’s financial statements for the years ended July 31, 2011, and 2012, and interim statements for the six months ended January 31, 2013, as well as budgeted quarterly income statements for 2013. Mr. Norwood also provided additional notes from Jack Anasz, the accountant who prepared review engagement reports for TPI’s 2011 and 2012 financial statements, and a copy of the financial statements of ACL (see Exhibit CA2-3(f)).
Mr. Norwood went on to say: “I believe that the draft agreement proposed by Mrs. Shewchuk is a good starting point in light of the valuation prepared by her consultant. I would like Terrazas
& Boyer to provide a report that assesses the appropriateness of ACL making this purchase. It should analyze how the purchase would fit with ACL.” Mr. Norwood continued, “I’ll need to consider how to finance this deal. Mrs. Shewchuk has indicated she is very flexible. She has no immediate needs for the cash. She is more concerned about ensuring Ryan plays a less demanding role in the company and in preserving the legacy of her late husband’s company.” During the return trip to the office, Joseph Terrazas said to you, “Provide me with a draft report on the proposed TPI purchase.”
Required
Write the report requested by Joseph Terrazas.