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Chapter 8

2.2 Specific applications regarding uncertain liabilities

Certain specific circumstances are accounted for as per IAS 37 Provisions,
contingent liabilities and contingent assets as follows:

(1) Future operating losses

 No obligation to incur future operating losses.

 No provision allowed.

(2) Onerous Contracts (loss making contracts)

 Obligation exists with probable outflow of resources.

 Record provision recognised at the lower of:

– cost of fulfilling contract

– cost of compensation for failing to fulfil contract.

(3) Restructuring

 A provision can only be made if:

– a detailed formal plan regarding the restructuring exists

– a valid expectation in those affected has been created.

(4) Decommissioning costs

 If an obligation exists to restore land that is being built upon by an entity, a
provision can be made for the future costs of restoration.

 The costs are capitalised as part of the cost of the asset.

Dr PPE/Asset

Cr Provision

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