If the unavoidable costs of completing a purchase commitment are higher than the expected benefits from receiving the contracted goods or services, IFRS requires a loss provision to be recognized. This is known as a(n)
A) executory contract.
B) purchase commitment.
C) onerous contract.
D) impaired contract.

Question

Quizplus · Accepted Answer

This scenario describes an onerous contract, which is a contract where the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected from fulfilling those obligations. IFRS requires that a provision for the expected loss be recognized in the financial statements.

If the Unavoidable Costs of Completing a Purchase Commitment Are