o A new company would be set up called Pipeline Inc. (PI) 0 PCL and DL would both own 10%, with the remaining 80% being owned by CL 0 PI would hire CL to build and manage the pipeline, and borrow money from the bank to nance the construction. The bank granted a ten year loan at prime plus 0.5%. The favourable rate was given due to the good credit ratings of both PCL and DL. 0 The loan from the bank to PI would be jointly guaranteed by PCL and DL and the pipeline would be taken back as security. 0 PCL and DL would use the pipeline and pay PI for the usage. Even if PCL and DL did not use the pipeline, a xed amount would be paid annually by them to PI for the rst ten years. The xed amount is comparable to What PCL would normally pay for the use of someone else's pipeline. 0 The cash payments made by PCL and DL would be used to pay the interest and principal on the loan. A schedule of payments was drawn up that happened to coincide with the loan repayment schedule since initially, PI would not be generating any other cash to make the loan payments. 0 CL would also run the day to day business for PI and it was understood that PCL and DL would have priority in using the pipeline although PI cold rent/lease out the pipeline during downtimes. Usage would be scheduled annually at the beginning of the year, thus enabling CL to sell the use of the pipeline to other companies. At present, it is felt that there would be a fair bit of downtime in the rst year, although PCL feels that it will utilize the pipeline more extensively in successive years. In fact, PCL feels that the pipeline will open up signicant US markets for it. 0 At the end of ten years, both PCL and DL would have the option of buying PI for book value. 0 The pipeline was expected to last for ten years after which it would need signicant repairs and a complete overhaul. Otherwise, it would be dismantled. o The objective of PI is to own, and lease out for use, the pipeline. Otherwise, there will be little activity. It is now December 31, 2009, the pipeline has been built, and PCL is in the process of preparing the year end financial statements. Required: Discuss the recognition, measurement and disclosure issues for PCL with respect to the above situation