Unlimited Possibilities Limited (UPL) is finalizing the financial statements for 20X5. The company’s managers are uncertain how each of the following events and situations should be reported:

a. UPL is the guarantor on a $ 10 million bank loan that was obtained by another company controlled by the same shareholders who control UPL. The amount of the guaranteed loan is a material amount for UPL.

b. UPL has a subsidiary in Japan. UPL has reached agreement to sell the Japanese subsidiary to a Taiwanese company, subject to approval by regulators in Japan. When the sale closes, UPL will realize a profit of $ 20 million as the purchase price is $ 20 million higher than the subsidiary’s net book value. Approval is expected, but it will be at least six months before the regulators issue their final ruling.

c. A minority shareholder alleges that UPL’s controlling shareholders entered into transactions that had the effect of reducing the non- controlling shareholder’s equity in the company. (In securities legislation this type of action is known as “shareholder oppression.”) The non-controlling shareholder filed a complaint with the provincial securities commission, claiming damages of $ 50 million. The securities commission ruled in favour of the non-controlling shareholder. UPL is appealing the case and UPL’s lawyers are confident that the court will overturn the ruling in approximately one year.

Required:

Discuss the appropriate reporting for each of these three items on UPL’s 20X5 financial statements.