This issue discusses the application of MFRS 137 Provisions, Contingent Liabilities and Contingent Assets to onerous operating leases for the lessee.

This Hot Topic provides guidance on:

• determining when a lessee’s operating lease is an onerous contract

• recording provisions for onerous operating leases, including:

  a) income available from sub-letting

  b) the distinction between onerous contracts and future operating losses

  c) the relationship between onerous contracts and asset impairment.