The statement of financial position
. Shameer Rajah, the managing director of Rajah Associates, has been visiting his local car dealer. While there, he test drove a new car and decided it would be perfect for him to use on business trips to his clients. He has therefore agreed a price and entered into a 0% interest arrangement with the dealer, signing all the relevant papers during his visit on behalf of his company. The car costs £24,000 and the written agreement requires Rajah Associates to pay three annual instalments of £8,000 due on the anniversary of purchase in 12, 24 and 36 months' time. Must Rajah Associates recognize a liability for the £24,000 due on the car?
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. Mr Smith, managing director of Smith & Co, has returned from his lunch break. While out of the office, he was looking in the window of his local car dealership at the latest models and the new NNG caught his eye. He had a test drive and likes the car very much but he wants to wait before he makes his decision. The car costs £30,000. Next day, he decides that he will buy the car and use it on business trips. No paperwork has been signed, no money has changed hands and no steps have been taken to place an order with the car dealer yet. Should Smith & Co recognize the liability for the £30,000 on the company's statement of financial position at this point in time?
If Smith and Co cannot recognize the liability right now, when should they recognize a liability for the amounts due for the car?
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