Gourmet Products Inc. is a Canadian public company and selling its products globally. As on August 15, 20x0, GPI acquired the Abruzzi Oils Inc. for the cash consideration of $6M. So the Purchase price is C$6,000,000 which should be deducted from the NBV of net assets (Retained earnings +common shares value) and then resulted into the Purchase discrepancy from which we should deduct the difference between FV and BV of assets and liabilities to result in goodwill, So here $350000 that is, (FV-BV) . So this value is not relates to goodwill so needs adjustment accordingly. So, the entire purchase discrepancy related to this machine should add to capital asset, also shows the depreciation expense in the income statement and accumulated…show more content… As they transferred this Machine so there will no depreciation in the books of GPI. As the GPI is giving an Interest free loan to the Abruzzi the CRA will calculate deemed Interest on this Loan as it gives a perception that GPI is not showing their interest income from Abruzzi. If they have the ownership of the Machine or they are receiving Interest from Abruzzi in that case they can claim the interest payable to bank as an allowable expense, otherwise there is an issue of matching principle.
Now the GPI is paying any installments so there is no foreign exchange risk. However GPI is still exposed to the foreign risk change risk for interest payable of EUR 200,000 with 7% interest. Therefore, GPI should consider the hedge fund or forward contracts to reduce this risk.
Classification of Abruzzi as a foreign operation:-
The GPI is classifying the Abruzzi as a foreign Operation as it is a self-sustaining entity independent to GPI, so prior to consolidation they have to translate the Abruzzi financial statements into the CAD and use the current rate method. So any gain or loss on foreign exchange will be the part of the other comprehensive income.
Revaluation of Assets:-
Under IAS 16, the increase