Gourmet Products Inc Case Study
Preparation of consolidated financial statements – adjustments and other issues
Report to Ed Moore, CEO of Gourmet Products Inc.
Prepared by Asif Majarani, Sr. Audit manager of Majarani Associates, CGAs
Submitted October 31, 20X0
Summary
Our firm has been engaged with GPI for compilation engagements for the past two years. For year ending September 30, 20X0, a preparation of consolidated financial statements are required due to acquisition of foreign subsidiary on August 15, 20X0. This report addresses issues surrounding the preparation of the consolidated statements for Gourmet Products Inc. (GPI) and Abruzzi Oils Inc., and provides suggested adjustments as well as recommendations on other issues. Since GPI is a publicly traded company, IFRS provisions for reporting and presentations of financial statements must be adhered.
Valuation of goodwill
The current valuation of goodwill from the bottling machine is inappropriately reported. Under IFRS 3, all identifiable assets and liabilities are to be recognized at fair value. By not recognizing at fair value, the machine will be understated, goodwill will be overstated, and income will be overstated due to lower depreciation on the machine.
Adjustment required: the machine should be reported at fair value and goodwill should be calculated by subtracting the fair value from the acquisition cost and be depreciated over the useful life of the machine.
Employees re-located to Italy
Some employees were temporarily relocated to Italy in order to maintain the operations there. However, these employees are being treated as consultants rather than GPI’s employees and as such GPI is no longer taking source deductions. The employee / contractor status must be determined, as certain requirements must be met. The inappropriate classification of these employees means the company is neglecting on payroll deductions.
Adjustments required: record payroll liabilities and payroll taxes payable to avoid errors in
Report to Ed Moore, CEO of Gourmet Products Inc.
Prepared by Asif Majarani, Sr. Audit manager of Majarani Associates, CGAs
Submitted October 31, 20X0
Summary
Our firm has been engaged with GPI for compilation engagements for the past two years. For year ending September 30, 20X0, a preparation of consolidated financial statements are required due to acquisition of foreign subsidiary on August 15, 20X0. This report addresses issues surrounding the preparation of the consolidated statements for Gourmet Products Inc. (GPI) and Abruzzi Oils Inc., and provides suggested adjustments as well as recommendations on other issues. Since GPI is a publicly traded company, IFRS provisions for reporting and presentations of financial statements must be adhered.
Valuation of goodwill
The current valuation of goodwill from the bottling machine is inappropriately reported. Under IFRS 3, all identifiable assets and liabilities are to be recognized at fair value. By not recognizing at fair value, the machine will be understated, goodwill will be overstated, and income will be overstated due to lower depreciation on the machine.
Adjustment required: the machine should be reported at fair value and goodwill should be calculated by subtracting the fair value from the acquisition cost and be depreciated over the useful life of the machine.
Employees re-located to Italy
Some employees were temporarily relocated to Italy in order to maintain the operations there. However, these employees are being treated as consultants rather than GPI’s employees and as such GPI is no longer taking source deductions. The employee / contractor status must be determined, as certain requirements must be met. The inappropriate classification of these employees means the company is neglecting on payroll deductions.
Adjustments required: record payroll liabilities and payroll taxes payable to avoid errors in