From: To: Subject: Date:.

From: BURTON, RICHARD N.
To: Commentletters
Subject: Onerous contracts - cost of fulfilling a contract
Date: 11 April 2019 16:59:07
IASB Staff and Board Members
Onerous contracts - cost of fulfilling a contract
Proposed amendments to IAS 37
I note that this exposure draft was proposed as a consequence of withdrawing IAS 11, but that
the principles are expected to apply to other contracts. I have reviewed the proposed
amendment in the context of a manufacturer of goods, some of which may be sold on annual
contracts.
Question 1
I do agree that paragraph 68 should specify that the cost of fulfilling a contract comprises the
costs that relate directly to the contract including the costs of manufacturing goods measured in
accordance with IAS 2.
Question 2
Cost of goods comprise costs of purchase and costs of conversion. Costs of conversion include
direct costs and allocation of fixed and variable production overhead. Production overheads are
indirect costs of production. (IAS 2 p11-12). Paragraph BC26 of the Basis for Conclusions of the
exposure draft indicates that the intent of the exposure draft is to measure the cost of producing
goods to fulfill a contract at the same cost as the cost of producing goods to hold as inventory.
However in the proposed amendment to the standard there is no mention of allocation of
indirect costs other than depreciation. I believe the proposed changes could be clarified by
specifically including in p 68A “systematic allocation of indirect costs of production”. Without
such a specific reference I believe there may be diversity in practice interpreting whether
indirect costs “directly relate to a contract”.
Yours sincerely,
Richard N Burton CPA, CA
Vice President & Corporate Controller | McCain Foods Limited
t. [phone] | e. [e-mail]
5th Floor, 439 King Street West | Toronto, ON | M5V 1K4 | Canada
www.mccain.com