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Manual of Accounting - UK GAAP: 2012

Onerous contracts

In Chapter 21: Provisions

Manual of Accounting - UK GAAP: 2012

UK Accounting Consulting Services, PricewaterhouseCoopers LLP
Bloomsbury Professional
Publication Date:
Law As Stated At:
1 October 2011
21.168 Under FRS 12 , if a company has a contract that is onerous, the present obligation under the contract should be recognised and measured as a provision. [ FRS 12 para 71 ]. An onerous contract is defined in the standard as a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. [ FRS 12 paras 2 , 73]. 21.169 A typical example of an onerous contract is an operating property lease which has been abandoned by a company and cannot be sub-let. While an operating lease would be regarded as an executory contract (a contract where either neither party has yet performed any obligations or where both parties have performed equally), and executory contracts are generally outside the scope of FRS 12 , an exception exists where such contracts are onerous. In this example it can be seen ...
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