A contract is onerous when first recognised if the fulfilment cash flows, the acquisition cash flows recognised earlier and any cash flows arising on day one add up to a net outflow. Such contracts form their own group; a loss equal to the net outflow goes to profit or loss, the liability is carried at its fulfilment cash flows, and there is no CSM. A group turns onerous later on when adverse future-service changes in fulfilment cash flows (and, for direct participation contracts, reductions in what the entity is entitled to from the underlying items) are larger than the CSM; the amount by which they exceed it is a loss. The entity sets up or increases a loss component within the LRC; spreads later changes for service expenses incurred, risk adjustment released and finance income or expenses between the loss component and the rest of the LRC on a systematic basis; assigns favourable future-service changes only to the loss component until it reaches nil, adjusting the CSM only with any amount left over; and must choose an allocation that reduces the loss component to nil by the time coverage ends.
The graph holds this control, the 0 it maps to, and the evidence behind each claim, over MCP and REST.