Manitoba Peat Moss (MPM) was the first Canadian company to provide a reliable supply of high-quality peat moss to be used for greenhouse operations. Owned by Paul Parker, the company's founder and president, MPM began operations approximately 30 years ago when demand for peat moss was high. It has shown consistently high profits and stable growth for over 20 years. Parker holds all of the 50,000 outstanding common shares in MPM.
Prairie Greenhouses (PG), a publicly traded company that purchases over 70% of MPM's output, provides tree seedlings to various government agencies and logging companies for reforestation projects. In Year 5, PG approached MPM with an offer to buy all of the company's outstanding shares in exchange for a part ownership in PG, with a view to integrating vertically. Parker was very interested in the offer, since he hoped to retire soon. PG currently has 100,000 shares outstanding, and they are widely distributed. It would issue 100,000 new common shares to Paul Parker in a two-for-one exchange for all of MPM's shares. PG's shares are currently trading on the TSX at $65 per share.
The board of directors of PG is uncertain as to the accounting implications of the proposed share exchange. They believe that since they are purchasing all of the outstanding common shares of MPM, it is similar to buying the company outright. As a result, they want to report all of MPM's assets on PG's consolidated financial statements at fair value. This will be very advantageous to PG because the land carried on MPM's books was purchased 30 years ago and has appreciated substantially in value over the years.
The board has asked you, its accounting adviser, to prepare a report explaining how PG's purchase of shares should be reported. They are particularly interested in how the increase in the value of the land will be shown on the consolidated statements. The condensed balance sheets of the two companies at the time of the offer are shown below:

Required:
Prepare the report to the board of directors.

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PG $ 870,000 8,210,000 $9,080,000 MPM Current assets Property, plant & equipment $ 450,000 2,050,000 $2,500,000 Current liabilities Long-term debt Common shares Retained earnings 525,000 2,325,000 4,000,000 2,230,000 $9,080,000 S 200,000 1,300,000 500,000 500,000 $2,500,000