Question
A company accepts a $10,000, non-interest-bearing, 2-year note receivable in exchange for services, when the market rate for a similar note is 10%. The company should initially record the note receivable at:
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