Question
Ellesmere Machinery has a year end of December 31.
- Nov 1, 2026 — a customer who owes $60,000 on account asks for more time. Ellesmere accepts a 6-month, 9% note receivable for the full amount; interest is due with the principal at maturity.
- Dec 31, 2026 — Ellesmere accrues the interest earned to date.
- May 1, 2027 — the note matures. The customer fails to pay (dishonours the note), but Ellesmere still expects to collect and pursues the full amount owed.
Required:
- Maturity Value — the amount due from the customer on May 1, 2027.
- Journal Entries — all three dates. Use Notes Receivable, Accounts Receivable, Interest Receivable and Interest Revenue.
- Effect of the Accrual — the effect of the December 31, 2026 entry on the financial statements.
Statements in this challenge
- Maturity ValueNumeric Answer
- Journal EntriesJournal Entry
- Effect of the AccrualStatement Impact
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IFRS 9 — Financial Instruments
A note receivable carries an explicit interest element, so interest accrues over time regardless of when it is received. Establish the principal, the rate and the exact number of days or months in the period before computing the accrual.
Common mistakes
- Computing interest for a full year on a note outstanding for only part of it.
- Recognising interest only on receipt rather than accruing it at the period end.
- Confusing the maturity value with the principal when recording the note.
Further readingIFRS 9: expected credit losses