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IAS 37 and IAS 10

Specific situations

2.1 Future operating losses

An entity has no obligation to incur future operating losses and therefore, per IAS 37,
no provision is recognised.

2.2 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.

2.3 Restructuring

An obligation to restructure a business exists if:

 there is an approved 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, and not for any costs of the ongoing business.

2.4 Environmental provisions

A provision will be made for future environmental costs if there is either a legal or
constructive obligation to carry out the work.

Illustrations and further practice

Now try TYU 1 from Chapter 15.

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