How to Calcualte - Intetest on Arrers (Interest on Interest) in TR-TRM

[Former Member]

Dear Experts,

In TR - TRM  Can any one tell me how to create Interest on Arrears (Interest on Interest)

Loan will be given to customer and Interest will be calculated for the same.

To to calculate normal interest i am using condition type  - 1200  in  (FTR_CREATE - Create Interest Instrument ).

Can any one tell me how to create Interest Arrears ( Interest on Interest).

Regards

Sadiq

[Former Member · Accepted solution]

Dear Juerg Heiz,

Thank you for valuable Input.

I am using Customer loan.

I am using Written Down Value method and as above your are saying pay interest or capitalize interest,

Can you please tell me where i can enable these settings ?

Can you please tell me what accounting entries will be passed for Capitalization?

Kind Regards

Sadiq

[Former Member · Accepted solution]

Hi again

In every transaction of money market you have a button "capitalize interest". Please check in the deal! In this case the interest will be added to the invested amount.

The posting for the capitalized interest is:

Money Market Investment Account (Balance Sheet) against Realized Interest Income

The posting for the interest with the flow 1200 is:

Bank to Realized Interest Income.

Kind regards

Juerg Heiz

juerg.heiz@treascon.com

[Former Member · Accepted solution]

Thank you

[Former Member · Accepted solution]

Dear Juerg Heiz,

Can you please advice me  as i said above for interest on arrears (Interest on interest)  need to whether i need to create different flow type and condition type required or in same interest condition type (normal interest i am using condition type  - 1200) we can include arrears interest.

Kind regards,

Sadiq

[Former Member · Accepted solution]

Hi there

You also need the flow type 1150 interest capitalization. You also have to assign it to Update Type etc. etc.

Regards

Juerg

juerg.heiz@treascon.com

[Former Member · Accepted solution]

Thank you...................

[Former Member]

Hi Sadiq

If you have a loan e.g. 55a product type with floating or fix interest and you come to the end of the period and the loan has to be extended you can at the maturity either pay the interest or capitalize the interest. When you capitalize the interest for the next period the system automatically calculates the interest on interest and shows you this flow in the flow tab. When we talk about interest on interest it is also know under compound interest.

Furthermore you have the pocibility to defer the interest. This means that the payout is also shifted to a later date like above but there is no interest on interest caluclated. To compensate this the interest in the prolongation would then be higher by the effect of the added interest on interest to the new borrowing rate.

Kind regards

Juerg Heiz

juerg.heiz@treascon.com