MOF Invites Comments on IASB Onerous Contracts - Cost of Fulfilling a Contract

The Accounting Department of the Ministry of Finance ("MOF") has recently issued the International Accounting Standards Board: Onerous Contracts – Cost of Fulfilling a Contract (Draft for Comment) (the "Draft for Comment") to seek comments from the entities concerned by April 8, 2019, and meanwhile, encourages various enterprises to submit their comments in their own name directly to the International Accounting Standards Board ("IASB").

The Draft for Comment proposes clear and detailed amendments to clarify the cost of fulling a contract when whether the contract will be loss-making is assessed, and advises on the transition and the effective date of such amendments. Specifically, the first is adding the provision, reading "the cost of fulfilling a contract comprises the costs that relate directly to the contract", to Paragraph 68 of International Accounting Standard (IAS) 37, and adding paragraphs 68A and 68B. Paragraph 68A lists costs that relate directly to a contract, inclusive of costs of the direct labor, costs of direct materials, allocations of costs that relate directly to the contract, costs explicitly chargeable to the counterparty under the contract, and other costs incurred only because an entity enters into the contract. The second is setting forth the transitional provisions. And the third is permitting earlier application.



(Source: http://kjs.mof.gov.cn/zhengwuxinxi/gongzuotongzhi/201903/t20190312_3188098.html)

Note: The link to the Chinese official website of the document is for your reference.