The costs under an onerous contract are measured using which valuation method?

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Quizplus · Accepted Answer

According to IAS 37, costs under an onerous contract should be measured as the lower of the cost of fulfilling the contract and the penalties arising from failure to fulfill the contract. This is because an onerous contract is one in which the unavoidable costs of meeting the obligations exceed the expected economic benefits arising from the contract. Therefore, the entity recognizes a provision for the expected present obligation under the onerous contract, which is measured at the lower of the cost of fulfilling the contract and the penalties arising from failure to fulfill the contract.

The Costs Under an Onerous Contract Are Measured Using Which