Brian Lulay is a professional accountant who has his own firm. He provides advice on accounting matters to various companies, both publicly accountable companies that report under IFRS and private companies that report under ASPE. He was recently approached by two clients who are seeking advice on contingent liabilities.
The first client is a large publicly traded company, Merit Resources, which reports under IFRS. The company is seeking Brian's advice on two situations:
• The first situation involves a tract of land owned by the company. The land is required to complete an access road, so it is about to be expropriated by the provincial government. Merit has had several discussions with the government and feels confident that they will receive fair value for the property from the government. If so, the company will have an accounting gain of $3,000,000.
• In the second situation, Merit is being sued for breach of contract by a supplier. The company feels that it is probable that the lawsuit will be successful and that Merit will have to pay between $800,000 and $1,200,000 to the supplier.
The second client is a private company, Harris Distribution Inc., which reports under ASPE. It, too, has been told by the provincial government that some of its property will be expropriated, and the company will be compensated at fair value. If so, Harris Distribution will record an accounting gain of $500,000. Both companies are approaching their year ends and have asked for Brian's advice on how to account for and report the transactions.
Required
Assume the role of Brian Lulay and prepare a brief report on how you would report Merit's two situations and Harris's situation in each company's year-end financial statements.