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In the lecture, future operating losses are not provided for. In bpp question, signing of non cancellable contract (1 month before year end) to supply goods, resulting in a loss made, has been marked as to be recognised liability for year end. Could you explain it please?
Hi,
Because in this instance you have an onerous contract, where the cost of incurring it exceed the benefits from it. As it is contractual then the onerous contract is provided for. There is no obligation to make future operating losses and hence they cannot be recognised.
Thanks
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