Complex Services Clauses Onerous Approach

What is an onerous contract? IAS 37 defines an onerous contract: Onerous contract. A contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.

An onerous contract is an accounting term that refers to a contract that will cost a company more to fulfill than what the company will receive in return. The term is used in many countries worldwide, where international regulators have determined that such contracts must be accounted for on balance sheets.

Per IAS 37, onerous contracts should be classified as provisions. So, if you've identified a specific contract as onerous, you're required to recognize the current obligation as a liability and list it on your company's balance sheet. This action should be taken at the first indication that a loss may be anticipated.

An onerous contract is an accounting term that refers to a contract that will cost a company more to fulfill than what the company will receive in return. The term is used in many countries worldwide, where international regulators have determined that such contracts must be accounted for on balance sheets.

A typical example of an onerous contract would be a lease on a property that is no longer necessary but cannot be sublet. This situation could occur if the company were forced to downsize while the lease was still in effect, meaning that the office space is vacant.

An onerous contract is a contract in which the aggregate cost required to fulfill the agreement is higher than the economic benefit to be obtained from it.Another example of an onerous contract is when a lessee is still obligated to make payments under the terms of an operating lease, but is no longer using the asset.

These requirements specify that a contract is 'onerous' when the unavoidable costs of meeting the contractual obligations i.e. the lower of the costs of fulfilling the contract and the costs of terminating it outweigh the economic benefits.

In onerous contracts something is given or promised as a consideration for the engagement or gift, or some service, interest, or condition is imposed on what is given or promised, although unequal to it in value.