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what is the difference between “onerous contract” and “loss making contract under ias 11 construction contracts” ? and their treatment?
Onerous – provide for the least loss of the various options available.
Construction contracts – provide in full for the anticipated loss
Onerous is a “guaranteed” loss situation
Contract losses are merely estimates
in onerous contarct loss is “to be incurred” and in construction loss making contrcat loss “has been incurred”… is this correct?
No, not really. In both situations, a loss is forecast. But in an onerous contract situation, there is no way of avoiding the loss – to quote Freddie Mercury “Whichever way you turn, you’re bound to lose”
In a construction contract, although a loss is forecast overall for the contract, the ultimate outcome is dependent upon substantially uncertain future events not within the control of the company and, if they happen, then a loss may be suffered (or not). So, in a construction contract situation, we are merely being cautious / prudent whereas in an onerous contract situation, the loss sufferance is a certainty – only the extent of the loss is variable
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