Page 129 - Microsoft Word - 00 P1 IW Prelims.docx
P. 129
Events after the reporting period, provisions and contingencies
Specific situations
3.1 Future operating losses
An entity has no obligation to incur future operating losses.
Therefore, per IAS 37, no provision is recognised.
3.2 Onerous contracts
An onerous contract is where the unavoidable costs of the contract
exceed the benefits that will be obtained.
An onerous contract is a contractual obligation that will cause a measurable outflow
of economic benefits. A provision should be recorded at the lower of:
the cost of fulfilling the contract
the cost of terminating the contract.
3.3 Restructuring
An obligation to restructure a business exists if:
there is a detailed plan
employees affected are aware of the plan.
If an obligation exists, a provision should be recognised for the direct costs of the
restructuring.
123
