Our house has been engaged with GPI for digest battles for the past two old ages. For twelvemonth stoping September 30. 20X0. a readying of amalgamate fiscal statements are required due to acquisition of foreign subordinate on August 15. 20X0. This study addresses issues environing the readying of the amalgamate statements for Gourmet Products Inc. ( GPI ) and Abruzzi Oils Inc. . and provides suggested accommodations every bit good as recommendations on other issues. Since GPI is a publically traded company. IFRS commissariats for coverage and presentations of fiscal statements must be adhered.
Evaluation of good will
The current rating of good will from the bottling machine is unsuitably reported. Under IFRS 3. all identifiable assets and liabilities are to be recognized at just value. By non acknowledging at just value. the machine will be understated. good will will be overstated. and income will be overstated due to lower depreciation on the machine. Adjustment required: the machine should be reported at just value and good will should be calculated by deducting the just value from the acquisition cost and be depreciated over the utile life of the machine.
Employees re-located to Italy
Some employees were temporarily relocated to Italy in order to keep the operations at that place. However. these employees are being treated as advisers instead than GPI’s employees and as such GPI is no longer taking beginning tax write-offs. The employee / contractor position must be determined. as certain demands must be met. The inappropriate categorization of these employees means the company is pretermiting on paysheet tax write-offs. Adjustments required: record paysheet liabilities and paysheet revenue enhancements collectible to avoid mistakes in fiscal coverage. Besides. there is a possibility of mulcts being imposed by CRA due to non remitting paysheet tax write-offs right. Besides. the sums GPI paid to ease the employee’s job-related move are deductible as ordinary and necessary concern disbursals. These tax write-offs will cut down nonexempt income of GPI.
Financing for labelling machine
GPI has purchased a labelling machine by borrowing EUR financess from Banca Cammerata in Italy. The machine is so transferred to Abruzzi for a note similar to the adoption footings with the bank. GPI is choosing non to bear down Abruzzi involvement and states this method reduces foreign currency hazards. However. GPI is still obligated to pay the bank the 7 % involvement rate to the bank. In this state of affairs the loan rule is suitably hedged from foreign exchange hazard exposure. However. the monthly involvement payments are exposed to foreign exchange hazard. as GPI has to pay involvement in Euros to the Italian bank.
Recommendation: to cut down this hazard. GPI should set up a currency barter with Abruzzi or utilize another fudging instrument to extinguish or cut down the currency hazard on involvement payments. To an acceptable degree. Another issue with the loan is possible revenue enhancement turning away by GPI. due to non bear downing involvement on the loan. Interest income is to the full nonexempt at corporate rate in Canada. This issue can be resolved by utilizing the currency barter with Abruzzi for the sum of the involvement.
Categorization of Abruzzi
Harmonizing to IAS 21. Abruzzi should be classified as a self-sustained subordinate. and will utilize local currency ( Euro ) as functional currency in its operations.
Recommendations: for consolidation intents. the Current rate method should be used. Under this method. any exchange additions or losingss are deferred and included in OCI. Besides. appropriate revelation in fiscal statements should be included sing presentation currency and functional currency used. every bit good as any exchange additions or losingss recorded in OCI.
Reappraisal of land and edifice
The reappraisal of the land and edifice is inaccurately reported. Revalued sum should non increase the land and edifice histories straight as these sums are non realized.
Adjustment: the addition in value should be credited to other comprehensive income less the loss that was recognized in the anterior twelvemonth. EUR 5K should be recorded as a addition on the income statement because it reverses the antecedently recognized loss. The staying EUR 15K should be recorded in OCI and accumulated in equity under reappraisal excess.
150 % markup of Abruzzi goods
The transportation pricing of Abruzzi goods sold to GPI raises concerns. The markup of 150 % seems remarkably high with no account to back up this determination. Due to the high markup cost. GPI would describe a really low net income border on the gross revenues of these goods. Improper transportation pricing could supply an chance for GPI to income use and income revenue enhancement deductions. The corporate revenue enhancement rate in Italy is much lower than the revenue enhancement rate in Canada so this may propose possible revenue enhancement turning away by GPI. This issue has revenue enhancement deductions due to higher COS recorded in Canadian operations. therefore diminishing the nonexempt income. Recommendation: reexamine the transportation pricing policy by both CFO and CEO. Generally. transportation pricing is set near to the just value market. To postpone from this. there should be support to back-up this determination. There is a possible punishment from CRA due to inappropriate transportation pricing in a non-arm length minutess.
Execution of new paysheet system
The concern on the attack to implementing a new paysheet system was mentioned by you at our meeting. Although the direct cutover transition is faster to implement and costs less. the hazard factor that come with this makes this attack less favourable. Because the passage will be covering with sensitive employee information. the company should be due diligent in managing this information. As good. any mistakes on paysheet will probably to thwart and anger employees even more so than the holds.
Recommendation: It will be more favourable to take a less hazardous parallel transition. Parallel attack would supply a dependable transportation into new system. but it will be more dearly-won due to more resources required for transition.
Users of the amalgamate fiscal statements
In add-on to fixing amalgamate fiscal statements. there is an option to fix FS for each separate entity. However it’ll be more dearly-won to supply another set of fiscal statements to stockholders. The cost of fixing extra set of statements need to be considered.
Harmonizing to IFRS 3 and 12. revelations sing concern combination and Interest in other entities is required.
These are the issues I have come across as I was fixing for the consolidation of the fiscal statements. It is of import that you review these issues and see the accommodations I have suggested. While some of the points will non impact the amalgamate fiscal statements. they will hold some deductions during an audited or income revenue enhancement readying. If you have any inquiries or wish to discourse farther on these affair. delight make non hesitant to reach me.