The Conceptual Framework defines liabilities and outlines a number of criteria for their recognition. a-Forden and a-Holden Custom Cars Ltd identifies the following items:

(a) Purchased tyres, glass and steel on account.

(b) Received $100 000 in deposits for custom cars to be built in the next financial period.

(c) Employed two new staff members and agreed to pay them $75 000 per annum. They begin work next week.

(d) One of a-Forden and a-Holden Custom Cars Ltd’s customers is suing the company as he is not happy with the colour scheme the company used to paint the custom car. The customer chose the colour scheme at the time of signing the contract and has now changed his mind. The lawsuit is for $15 000. a-Forden and a-Holden Custom Cars believe they might lose the case.

(e) When constructing a car in the factory, one of a-Forden and a-Holden Custom Cars Ltd’s employees dumped excess paint and other waste products into the local river running behind the factory. The company has been ordered by the court to pay damages; however, the exact amount is yet to be determined.

Required:

For each of the items listed above, explain whether you would recognise it as a liability in the statement of financial position. Refer to the definition and recognition criteria outlined in the Conceptual Framework to support your answer.

Answer rating: 100% (QA)

Lets analyze each item listed based on the Conceptual Frameworks definition and recognition criteria for liabilities a Purchased tires glass and steel ... View the full answer