IAS 37 · Workpapers (Step 4 of 5)
Workpaper assignment
- Course
- Exercises
- Case studies
- Workpapers
- Exams
Onerous contract review
Professional file: review of the provisions and contingencies of an industrial group
Section 1 of 9
Objective
Section brief
- What to document
- The engagement, its scope and the working mode chosen.
- Why
- A workpaper answers one precise question: framing it avoids off-topic work.
- How
- Read the objective and the assignment, then choose the mode (guided, semi-guided, professional).
- Expected result
- You know which question the workpaper must settle, and for which reporting date.
- Your role
- Preparer of the IAS 37 workpaper
- Level
- Expert
- Estimated time
- ≈ 40 min
- Progress
- 0 / 5 steps done (review excluded)
Context
The Halvoria group (fictitious entities) designs and manufactures agricultural and industrial equipment: irrigation pumps (Merquin), mechanical parts (Lunvalle Mécanique), a foundry (Vellmont), logistics (Rocbrune) and a distribution subsidiary in Spain (Junquera). You are the preparer of the group's provisions and contingencies review file at 31 December 20X5; the group financial controller is the reviewer. The financial statements will be authorised on 3 March 20X6. The ordinary movements of the year (utilisations) have already been recognised; the closing adjustments remain to be prepared.
Assignment
Onerous contract review workpaper (Oberlin contract).
Purpose of the workpaper
Check that the contract creates obligations that cannot be cancelled without paying compensation, first recognise any impairment loss on the assets used in fulfilling the contract (IAS 36), then determine the cost of fulfilling it (incremental costs and an allocation of other directly related costs). The contract is onerous if that cost exceeds the economic benefits expected. The provision is the least net cost of exiting: the lower of the net cost of fulfilling (cost of fulfilling − expected benefits) and any compensation or penalties arising from failure to fulfil it (reading adopted in this course).
Questions of the file covered by this workpaper
- Impair the test bench and calculate the provision for the Oberlin contract.
- Record the closing entries.
Documents in the file
Open the documents to pick out the relevant information.