Login Registrieren

Warning: foreach() argument must be of type array|object, bool given in /var/www/html/web/app/themes/studypress-core-theme/template-parts/header/mobile-offcanvas.php on line 20

Chapter 13: Question 6IFRS (page 715)

What is an onerous contract? Give two examples of an onerous contract.

Short Answer

Expert verified

An onerous contract is a contract where the predetermined costs required for settling the debts included in the contract surpass the financial benefits that are supposed to be obtained under it.

Two examples of the onerous contract are:

Contract for renting a property of no use.
Contract made for renting a piece of land and equipment to drill for oil.

Step by step solution

01

Meaning of Onerous contract

An onerous contract is a contract where the investment of the business will be more than its return.

Contracts can be onerous initially, or they can turn into onerous afterward with the fluctuation in situations resulting from a rise in expected costs or a reduction in the anticipated cash benefits related to the contract.

02

Examples of onerous contract

Examples of the onerous contract are:

Lessee still paying under the terms of an operating lease even though the asset is of no use for him.
Revenue from contracts with customers when a contract becomes onerous due to a penalty clause.

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Under IFRS, a provision is the same as:

(a) a contingent liability (c) a contingent gain

(b) an estimated liability (d) None of the above

In determining the amount of a provision, a company using IFRS should generally measure:

(a) Using the midpoint of the range between the lowest possible loss and the highest possible loss.

(b) Using the minimum amount of the loss in the range.

(c) Using the best estimate of the amount of the loss expected to occur.

(d) Using the maximum amount of the loss in the range.

E13-5 (L01) (Adjusting Entry for Sales Tax) During the month of June, Rowling Boutique recorded cash sales of \(233,200 and credit sales of \)153,700, both of which include the 6% sales tax that must be remitted to the state by July 15.

Instructions

Prepare the adjusting entries that should be recorded to fairly present the June 30 financial statements.

Question: When should liabilities for each of the following items be recorded on the books of an ordinary business corporation?

Acquisition of goods by purchase on credit.
Officers’ salaries.
Special bonus to employees.
Dividends.
Purchase commitments.

(Available-for-Sale and Held-to-Maturity Debt Securities Entries) The following information relates to the debt

securities investments of Wildcat Company.

1. On February 1, the company purchased 10% bonds of Gibbons Co. having a par value of \(300,000 at 100 plus accrued interest.

Interest is payable on April 1 and October 1.

2. On April 1, semiannual interest is received

3. On July 1, 9% of bonds of Sampson, Inc. were purchased. These bonds with a par value of \)200,000 were purchased at 100

plus accrued interest. Interest dates are June 1 and December 1.

4. On September 1, bonds with a par value of $60,000, purchased on February 1, are sold at 99 plus accrued interest.

5. On October 1, semiannual interest is received.

6. On December 1, semiannual interest is received.

7. On December 31, the fair value of the bonds purchased February 1 and July 1 were 95 and 93, respectively.

Instructions

(a) Prepare any journal entries you consider necessary, including year-end entries (December 31), assuming these are

available-for-sale securities.

(b) If Wildcat classified these as held-to-maturity investments, explain how the journal entries would differ from those in part (a).

See all solutions

Recommended explanations on Business Studies Textbooks

Organizational Behavior

Read Explanation

International Business

Read Explanation

Human Resources

Read Explanation

Corporate Finance

Read Explanation

Finance Literacy (Business Studies)

Read Explanation

Strategic Analysis

Read Explanation

View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free