To: CEO
From: Asif Majarani, CGA

RE: Consolidated Reporting Adjustments and Recommendations

The first issue we have encountered is the valuation of the goodwill being inappropriately reported. Under IFRS, all identifiable assets and liabilities are to be recognized at fair value. Therefore the adjustment required would reporting the machine at fair value ($750,000) and the goodwill should be calculated by subtracting the fair value from the acquisition cost and be depreciated over the useful life of the machine.

The next issue involves the classification of employees being transferred to Abruzzi. The company has labelled these workers as consultants and are not applying source deductions. These workers would seem to me to be employees and should be paid as consultants and the company must pay any source deductions immediately or there could be penalties involved. The one manager that decided to take his wife and children with him to Italy for two years will cease to be a resident of Canada. He will no longer pay income tax in Canada when he ceases to be a resident. This date will need to be determined for the income tax implications.
The next issue involves the company loan relating to the purchase of the labelling machine. The labelling machine that was bought and then transferred to Abruzzi will have to be recorded by both companies. Because Abruzzi is a related company the note should be should be treated like a shareholder loan. In order for Abruzzi to not pay any interest, the note will have to be repaid within one year of the date issued with a bonafide repayment schedule. If it is not repaid by the one year, than deemed interest will must be included.
Being a foreign company, Abruzzi will have to translate all of its accounts to the functional currency of GPI,