Cinema Ltd. (the Company) is a small Canadian company that develops children movies. Although its shares are traded on the Toronto Stock Exchange, the most significant investor, M. Weal, owns 40% of the common shares. M. Weal is looking forward to selling her shares and has communicated her expectation that the Company report a strong profit.

The Company is currently undergoing restructuring and employee union negotiations. The Chief Financial Officer (CFO) is committed to reducing costs and bringing the company back to profitability in the future. In a recent news release the CFO was quoted saying this year, we expect to incur a net loss of and will likely breach our debt-to-equity banking covenant...the union needs to understand that the

Company cannot operate at this level and salary concessions will need to be made....

The union is skeptical about the statements made by the CFO and has hired you to prepare a draft report outlining any accounting issues you discover, analysis of those issues, and your recommended solutions.

For your consideration, the union has outlined the following:

For the year-ended March 31, 2019, the Company is reporting an unaudited net loss of $100,000.

To reduce costs, the Company is considering potentially restructuring operations (e.g., changing processes, terminating employees etc.). The specifics of any plan are still draft, and no details have been determined nor has the decision to restructure been finalized. To support conservative and prudent accounting, in March 2019 the Company accrued 250,000 of restructuring expenses.

The Company sells a variety of movie related merchandise, including t-shirts. One of its most popular t-shirts Lil P - has recently experienced a decline in sales resulting in the Company lowering the selling prices between $2.50 - $5.00 per t-shirt. Because of the decreased future benefit inherent in the lower selling price, the Company determined all 20,000 Lil P t-shirts are impaired and need to be written-off. In March 2019, a $60,000 inventory impairment loss was recorded.

The Company purchased a bankrupted drive-in movie theater center. Given the financial distress, the Company was able to purchase the land and theater (e.g., movie screen) for a lump sum of $5.8 million dollars, which included a $0.8 million land transfer fee. It is estimated the building itself is worth somewhere between $2.1 $2.8 million dollars. The CFO recorded the purchase as a non-current depreciable capital asset for $5.8 million dollars.