Tom's Tractors

As per your request, we have researched the results of the transactions that are to take place with our client Tom’s Tractors. The issue we will address in this memorandum is how to record the acquisitions made by Tom’s Tractors under both US GAAP and IFRS. In order to determine the treatment of the acquisitions, we need to consider the contract that the two companies that Tom’s Tractors is acquiring. Under GAAP, the contractual relationships for both companies will be considered separate from goodwill, while under IFRS all of the contractual relationships are included as goodwill. More detail will be provided later in this memorandum.

Relevant Facts

• Tom’s Tractors is making an offer to purchase all shares of the Rural Life Supply Co. (RLS) and Tractor Heaven.

• RLS has two exclusive contracts, one with Farming Depot and one with Cattle Callers

• Under the contract with Farming Depot, RLS is to be the exclusive provider of farming power equipment. However, there is not a contract for the supply of power tools to Farming Depot even though routine purchases exist.

• There is an expectation that the contract will be renewed between RLS and Farming Depot.

• The contract with Cattle Caller is for RLS to be the exclusive provider of power tools for the company.

• They do not have an exclusive contract to supply farming power equipment. However, they have a backlog of orders that are scheduled to be produced during the upcoming year.

• Tractor Heaven has strong customer relations with Bonanza Farming, but no contractual agreements exist.

• Tractor Heaven also has valuable customer lists that contain important customer contact information. Approximately half of the lists have confidentiality agreements attached to them.

Analysis

First, the definition of goodwill under US GAAP states that it is measured by the excess of the aggregate of three different fair value measurements over the net of the acquisition-date amounts of the identifiable assets acquired. [1] However, the contracts that RLS and Tractor Heaven currently have are considered separate from goodwill. According to GAAP, the contract between RLS and Farming Depot regarding the power equipment will be treated as an intangible asset. [2] Also, even though there is not a contract between the two companies for the supply of power tools, this is