We have a 10 yr "long term debt" issued at a discount with semi-annual interest payments. We are using money market product category 550, product type 55A, and ttype 200. To amortize discount, we are using effective interest method (SAC Net) with the following settings:
Include Interest = effective interest method in accordance with IAS 39
Treatment of effective interest = adjust effective interest immediately"
Cut SAC Amortization checked
Question-- Is there a correlation between amortization run date and interest payment date?
Issue-- When I run amortization semi-annually (using same date as interest payment date), my values are correct. When I run amortization monthly, I get incorrect values (higher values). The client books interest monthly, so I need to correct this issue.
Thanks in advance,
That's correct. It is including interest payments to derive amortization. What I don't understand is why my monthly amortization is greater than semi-annual amortization. Below are the values I am using--
Nominal = 500,000,000
Start date - 01/15/2009
End date= 01/15/2014
Int Method= 360/360
6 months, semi-annual payments
6 months interest payment = $14,062,500
My 6 months amortization from 01/15/09 till 7/15/09 is $99,305, which is correct ( based on the SAC Net settings I posted earlier).
But if I try to book amortizationfor one month , from 01/15/09 to 02/15/09, my amount is $2,332,856 (which per my calculation is present value of future cash flows $501,202,860 minus 498,870,000 book value. SAP used effective interest rate to discount cash flows). I am not sure why SAP is calculating amortization this way?
What business want to see is $99,305 / 6 = $16,550 or something close as a monthly amortization.
I am super stuck on this issue and would appreciate any help.