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Teas R Us Co. is a global distributor of specialty teas and coffee beans and is registered with the SEC in the United States.

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is a global distributor of specialty teas and coffee beans and is registered with the SEC in the United States. The Company’s operations are primarily located in the United States, Canada, and . In March 2018, Teas R Uslooking to refocus efforts to only produce teas, entered into an agreement (the “Agreement”) with National Beverage, a coffee distributor in the United States looking to expand its international presence. National Beverage also is registered with the SEC in the United States.

Pursuant to the Agreement, Teas R Us provided a sublicense to National Beverage for the distribution rights of Teas R Us coffee brand Café Mex, whereby National Beverage will distribute Café Mex in Canada. Under the Agreement, Teas R Us Co. transferred the existing customer contracts in Canada to National Beverage and an at-market supply contract with the producer of Café Mex. Teas R Us Co. retained all of its employees and distribution capabilities.

The transaction closed on March 1, 2018.

Additional Facts:

Ø National Beverage incurred certain costs to acquire the sublicense of the distribution rights and a license to use the Café Mex brand. The costs included legal, accounting, and other professional or consulting fees totaling $50,000.

Ø National Beverage agreed to transfer to Teas R Us Co. $3 million for the sublicense of the distribution rights of Café Mex.

Ø Assume both companies have adopted FASB Accounting Standards Update No. 2017-01, Business Combinations: Clarifying the Definition of a Business.

Ø When appropriate be sure to include ASC reference points. Use them (and cite them) whenever possible. Properly cite all references to articles, journals, websites.


1.  Does the acquisition of the sublicense by National Beverage to distribute Café Mex meet the definition of a business?

2.  How should National Beverage account for the acquisition, including the treatment of the transaction costs? (Note that the response will be dependent on the response to Question 1.)

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