Splitting of Investment in Bonds entries for Face value and premium value

[rohankamat1985]

Dear Friends,

We have a requirement in unit quoted Bonds  - 04K where the accounting entries has to be split for the face value investment and premium amount investment when the bonds are purchased from secondary market.

I will give one example:-

1)

Nominal value of bond - 100

Market value - 101 (premium of 1)

Number of units - 3000

Ideally, The entry on investment is as follows:-

Investment Account Dr.   303000

Bank Account          Cr.   303000

(I am not showing here the accrued interest entry)

But the requirement is that , they want the entries to be split for the nominal value and for premium value

Investment Account               Dr.  300000

Premium on investment Ac    Dr.      3000

Bank Account                         Cr   303000

Same things goes when the bonds are purchased at DISCOUNT.

2)

Once this is done, they want to WRITE OFF this premium/discount amount over the period of 10 years.

Accounting entry for that is:-

Revenue/Income & Expenditure Ac  Dr.

Premium on Investment Ac               Cr.

The amount of premium is amortized over the remaining duration of bond

How can we achieve this requirement?

Regards,

Rohan

[former_member680621]

Dear Friend,

We have Facing the Same Issue. Let us know the Solution if the above requirement is Resolved.

[rohankamat1985]

Hi Friends,

I am still looking for the solution. Please let me know if anyone of you has any solution to give.

Regards,

Rohan

[Former Member]

Hi Rohan,

The other option is , Create 2 flow types for premium and discount with other flow category, set the effects of Position component for discount flow opposite to your structure flow and for premium similar to your structure flow in node - Set Effects of Position components . This will make sure the position is updated correctly, also an amortization procedure in PMP. Now you will have 2 different flows as per your requirement. The only criteria here will be to calculate and add the Premium / Discount Flow manually in the other flows tab.

Regards,

Nikhil

[Former Member]

HI Rohan,

This can be done in standard. In your Amortization procedure, select a Gross procedure instead on Net. Once this is done for the new position the system will split and generate a discount / premium flow which can be posted separately.

Following this entry the premium / Discount can then be amortized via TPM1 over the tenure of the bond.

Regards,

Nikhil

[rohankamat1985]

Hi Nikhil,

I have selected gross procedure instead of net. I have selected procedure 2000 - LAC Gross. But in cash flow tab, I cant see separate entries for face value amount and premium amount.

Am I missing any other step?

Regards,

Rohan

[Former Member]

HI Rohan,

THe premium /Dis count flow is not considered as a structural flow and hence it will not appear in cash flow tab. Check report TPM13 , you should see the flow there.

REgards,

NIkhil

[rohankamat1985]

Hi Nikhil,

Please check the screenshot of TPM13.

Here, what we can see is that as of purchase date of 15.05.2014, we can see purchase amount as face value + premium amount = 5,179,500. We can also see a separate flow for premium amount INR 179,500 as of 15.05.2014.

Wont it post the premium amount twice as per above flows?

You can check the FTR_EDIT and TPM13 screenshots below.

Regards,

Rohan

[Former Member]

HI Rohan,

The amount which will be posted is correct is inclusive of Premium / discount. This component will then be amortized over the tenure of the bond and if you see your final repayment flow , its the original amount.

So while accounting of this, on leg will post to record premium / discount and other amortize that value from your position account.

regards,

Nikhil

[rohankamat1985]

Hi Nikhil,

As per the investment day, what amount will go in what GLs?

How can we maintain separate GL postings for investment and for premium/discount?

As per our requirement, 5,000,000 should go in investment GL and 179,500 in Premium GL. (on investment day)

For premium write off, the entry to be posted is:-

Dr.  Expenditure A/c

Cr.  Premium A/c

How we will achieve this?

Regards,

Rohan

[Former Member]

Hi Rohan,

Accounting entries are usually like this :

Dr Investment - 5,179,500

Cr Bank

Premium

Dr Premium  179,500

Cr Investment

Month end

Dr Expenses

Cr Premium

Not sure if this is suitable for your requirement !!

If this not suitable, another option is to create a other flow which will be relevant for position and in set effects of update types on position components node assign a appropriate position change category.

Regards,

Nikhil

[rohankamat1985]

Hi Nikhil,

Premium is the expense that we pay.

So the accounting entry for the same should be similar to the investment account.

Dr. Premium 179,500

Cr. Bank

That's why, we will need the investment entry of only 5,000,000 as:-

Dr. Investment 5,000,000

Cr. Bank

We have to achieve this separate entries as on investment day. i.e we have to post premium and investment in separate GLs. How can we achieve this?

Regards,

Rohan

[rohankamat1985]

Thanks for your reply Prasad.

Please note that we will be using product 04I (Fixed Interest Bonds)

But the requirement of splitting the amount still remains the same i.e. splitting of face value and premium/discount amount from the total purchase amount.

Do I need to make any configurations in Assign Update types to DBT?

As seen below, the cash flow amount of purchase transaction should get split into 5000000 & 179500 (face value and premium respectively)

Regards,

Rohan

[sourabh_muthreja]

hi rohan,

I think you have to change your  calculation category may be TA , OR other one  

[prasadraju]

Hi Rohan,

Assigning DBT transactions cannot full fill your requirement, because as per your requirement need to generate premium and discount cash flows so that accounting entries will trigger.

Try to assign flow types (7007 and 7008) in the combination of product type and TT Type, then i guess you can enter discount and premium flows in other flows tab.

Not sure because i haven't worked in this particular scenario  you can give a try both which is sourabh also suggested.

[rohankamat1985]

Hi Prasad,

Thanks for your reply.

I tried the above settings. But the flows 7007 & 7008 are greyed out. We are not able to edit them.

Please check if its the same case with you.

Also, as of now, when we post the investment, it is posting both investment+premium amount in the flow type 0100. How can we separate out the premium component from it? (Else premium will get posted twice)

Regards,

Rohan

[prasadraju]

Hi Rohan,

premium and discount flows automatically generates through DBT when you perform key date valuation.But if your looking for specific account entries please check the posting specification in section amortization.

Regards,