Capricorn Carpet Corporation (CCC) is a private enterprise manufacturer of broadloom carpeting. The company's head office and manufacturing facilities are located in Winnipeg, Manitoba. The company was founded 26 years ago by three entrepreneurs. In the second decade of CCC's operations, the founders sought a substantial amount of additional capital to expand production. The capital was obtained via a private-equity transaction with the venture capital unit of Professional Pension Plan (PPP), a large Canadian pension plan. In return for its investment, PPP received new shares amounting to 60% of the total outstanding shares. The other 40% continued to be held by the original founders, who now are retired from the business.

CCC enjoys a good reputation for its product, but unfortunately has not been very profitable in recent years owing to increasing imports of cheaper carpeting. To combat this threat, in 20X1, CCC invested substantial sums of money in new state-of-the-art equipment to improve efficiency. Again, the money for the equipment was provided by the venture capital unit of PPP, but this time via a private placement of secured debentures; the security was a lien on all of CCC's tangible capital assets.
Efficiency did improve significantly after CCC acquired the new equipment. Nevertheless, CCC still confronted intense competition from Asian competitors who had less efficient equipment but lower labour costs. The competitive environment for CCC continued to decline, largely because most of CCC's output had been destined for real estate property developers in the USA. These developers had little need for large-scale commercial and industrial carpeting due to the weak US economy. As a result, the non US world market became especially important to CCC.
In late 20X3, PPP decided that CCC was too small to continue to compete effectively in the non-US world market. Therefore, in 20X4, PPP sold its 60% interest to Unified Enterprises Ltd. (UEL), a publicly traded British carpet manufacturer. UEL planned to integrate CCC into its own operations, so that CCC would both (1) manufacture certain types of carpet sold through UEL's overseas distributors and (2) be the North American distributor of UEL's British-made carpets. CCC would, of course, continue to be a Canadian corporation, with its own board of directors.
As a Canadian private enterprise, CCC has followed the CICA's Accounting Standards for Private Enterprises. In contrast, UEL was required to use IFRS as adopted in the EU.
Two months after UEL purchased control over CCC, the UEL financial vicepresident sent a letter to David Blasé, the controller of CCC, in which he detailed three changes in accounting policy that CCC should institute to make its reporting practices consistent with those of UEL, for purposes of consolidation and divisional performance appraisal. Included in the letter were the following:
1. CCC should change its accounting policy for land and buildings from the historical cost method to the revaluation method, wherein each type of asset is revalued perio dically to its estimated fair value.4 Feasible methods of determining the fair values would include:

(1) periodic assessment by professional appraisers;

(2) indexing by reference to other property (for land and buildings) or to price indices;

(3) resale value for assets with a resale market; and

(4) replacement cost or reproduction cost, depreciated to reflect the age of CCCs assets.
UEL should be consulted concerning values assigned to the various assets so that CCC's accounting reflects UEL's reporting objectives.
2. Carpeting sold to UEL and its other subsidiaries should be billed at standard cost plus 10%, rather than at full list price less 15%, as is now the case. In effect, the gross margin on the intercompany transfers would be reduced from 35% of cost to 10% of cost. Carpet purchased by CCC from the UEL group of companies would also be invoiced to CCC at cost plus 10%.
3. Depreciation on the equipment (at revalued amounts) should be increased from 8% per year (straight-line) to 12.5% per year. Standard costs would be adjusted to reflect the higher rate.
The financial vice-president, in his letter to Mr. Blasé, has asked for a report that specifically identifies and describes any problems that may arise in implementing the suggested changes in accounting, and provides solutions to any problems that exist.

Required
Assume that you are David Blasé. Draft the report for the vice-president on the suggested changes to the accounting policies.