IAS 37 | Onerous Contract | Contingent Assets | Restructuring Charge International Accounting
Channel: Farhat Lectures. The # 1 CPA & Accounting Courses
Date: 2019-08-06

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IAS 37 requires the recognition of a provision for the present obligation related to an “onerous contract,” that is, a contract in which the unavoidable costs of meeting the obligation of the contract exceed the economic benefits expected to be received from it. However, recognition of a provision for expected future operating losses is not allowed. When an onerous contract exists, a provision should be recognized for the unavoidable costs of the contract, which is the lower of the cost of fulfillment and the penalty that would result from nonfulfillment under the contract. When a contract becomes onerous as a result of an entity’s own action, the resulting provision should not be recognized until that action has actually occurred.

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