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Why onerous contracts are considered as a provision, even though they do not always come with a high probability of being an obligation?

Why onerous contracts are considered as a provision, even though they do not always come with a high probability of being an obligation?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Why onerous contracts are considered as a provision, even though they do not always come with a high probability of being an obligation? "A contract is assigned on 31st March, 2015 to render the bookkeeping service to company A before the end of June 2016. The agreed price is $120. according to the agreement, if the service is not rendered by end of June, 2016, then you should pay company A the penalty of $100. At the end of June 2015, you find that the minimum cost incurred to render the service is increased to $150." Recording at the end of 2015 and 2016? What if the penalty is $10?
Transcribed Image Text:Why onerous contracts are considered as a provision, even though they do not always come with a high probability of being an obligation? "A contract is assigned on 31st March, 2015 to render the bookkeeping service to company A before the end of June 2016. The agreed price is $120. according to the agreement, if the service is not rendered by end of June, 2016, then you should pay company A the penalty of $100. At the end of June 2015, you find that the minimum cost incurred to render the service is increased to $150." Recording at the end of 2015 and 2016? What if the penalty is $10?
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