Income evaluation for sales contracts according to IFRS—problems of application and assessment from a cost-theoretical perspective

Abstract

This paper focuses on sales contracts governing the rendering of services (IAS 18). For these sales contracts, IFRSs specify—amongst other aspects—that they should regularly be evaluated in respect of potential losses (negative income contributions) resulting from the agreements, which can lead to accounting for provisions for onerous contracts in accordance with IAS 37. Currently, IFRSs do not explicitly detail the scope of costs to be included in the measurement of such provisions. This paper aims to systematically set out the above-mentioned problem of application. We present a proposal based on IFRS regulations and cost theory that shows which range of costs could be used to evaluate the sales agreements mentioned previously in accordance with the provisions of IFRS. The following main results were found: The concept of incremental costs can potentially be used as a suitable principle for calculating unavoidable costs according to IAS 37. The principle of variable direct costs in combination with a decision oriented cost concept can provide helpful guidance for calculating incremental costs, and thereby unavoidable costs according to IAS 37. Unavoidable costs according to IAS 37 are significantly lower (in many cases, close or equal to zero) than the costs which would have to be taken into consideration when applying full costs, for instance.