Question
A company issues a $20,000, non-interest-bearing, 1-year note payable to purchase equipment, when the market rate for similar borrowing is 8%. The equipment (and the note) should be initially recorded at approximately:
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IFRS 9 — financial liabilities
Interest accrues on the outstanding principal for the time the note has been outstanding, whether or not it has been paid. At the period end split the obligation between the current and non-current portions if the note runs beyond twelve months.
Common mistakes
- Omitting accrued interest at the period end because no payment has fallen due.
- Presenting the whole balance as non-current when part matures within a year.
- Applying the annual rate without pro-rating for the months outstanding.