6. Annexure A - Accounting Entries and Advices

This section contains details of the suggested accounting entries that can be set up, for the Islamic Fixed Asset module of Oracle FLEXCUBE. The details of the suggested accounting entries are listed event-wise.

This chapter contains the following sections:

• Section 6.1, "Events"
• Section 6.2, "Amount Tags"
• Section 6.3, "Accounting Roles"
• Section 6.4, "Event-wise Accounting Entries and Advices"

6.1 Events

The following is an exhaustive list of events that can take place during the lifecycle of a contract. In the subsequent paragraphs we shall examine the accounting entries and advices for each of the events listed below.

	Event Code		Event Description		Remarks
	BOOK		Booking an Islamic Fixed Asset contract (Mandatory)		All Types
	CAPT		Capitalization of an asset		All Types
	DEPR		Depreciation Processing for Booking		All Types
	AMND		Amendment of a contract		All Types
	SALE		Sale of an asset		All Types
	WROF		Islamic Fixed Asset Write off		All Types
	DPTX		Depreciation for Tax purposes (no accounting entries are passed for this event)		All Types
	REVC		Reversal of a contract		All Types
	TSFR		Transfer of Asset
	DEAW		Depreciation Wash
	DEWR		Depreciation Wash Reversal

6.2 Amount Tags

The amount tags listed below are hard-coded in Oracle FLEXCUBE.

	Amount Tag		Description
	FA_CAPT_AMT		Asset Cost Capitalized
	FA_DEPR_ACC		Accumulated depreciation
	FA_DEPR_ADD		Additional depreciation to be charged
	FA_DEPR_RED		Reduction in depreciation amount already charged
	FA_SALE_AMT		Net Sale Value
	FA_SALE_LOS		Loss on account of sale (Book Value-Sale Value)
	FA_SALE_PFT		Profit on account of Sale
	FA_WRTO_AMT		Amount Written Off (Book Value)
	FA_TSFR_AMT		Transfer Amount (Asset Amount – Accumulated Depreciation)
	FA_ASST_AMT		Asset Cost Capitalized
	FA_DEPR_ACQ		Acquired depreciation to be charged
	FA_­DEPR_WASH		Depreciation Wash Amount

In addition to these you can define amount tags as per your requirements for charges that will be attached to the product.

Amount Tags and their Usage during Various Events

Listed below are the various Events along with the Amount Tags that would be used during the respective events.

	Event		Amount Tag		Explanation of the Amount Tags
	BOOK		FA_CAP­T_AMT		Asset Cost
	DEPR		FA_­DEPR_ADD		Additional depreciation to be charged on account of increase in depreciation rate or change in depreciation method or change in capitalization date
		FA_­DEPR_RED		Reduction in cumulative depreciation on account of reduction in rate, change in capitalization date or change in depreciation method
	CAPT		FA_CAP­T_AMT		Asset Cost capitalized
	AMND		-		-
	SALE		FA_­SALE_AMT		Net Sale Value
		FA_­SALE_LOS		Loss on Account of Sale (Book Value-Net Sale Value)
		FA_­SALE_PFT		Profit on Account of Sale (Net Sale Value-Book Value)
		FA_­DEPR_ACC		Accumulated depreciation
	WRTO		FA_WR­TO_AMT		Amount Written off (Book Value)
		FA_CAP­T_AMT		Asset Cost capitalized
		FA_­DEPR_ACC		Accumulated depreciation
	TSFR		FA_­DEPR_ACC		Accumulated depreciation
		FA_TS­FR_AMT		Transfer Amount (Asset Amount – Accumulated Depre­ciation)

6.3 Accounting Roles

In this section we have provided a list of sample accounting roles that can be used for all types of products in the Islamic Fixed Asset module:

	Accounting Role		Description		Role Type
	FAASSETACC		Asset Account		Asset
	FAWIPACC		Work-In-Progress Account		Liability
	FACUSTACC		Customer Account		Customer
	FADEPREXP		Depreciation Account		Expense
	FAACCDEPRLIB		Accumulated depreciation Acct		Liability
	FASALEEXP		Loss on Sale Account		Expense
	FASALEINC		Profit on Sale Account		Income
	FAWRTOEXP		Asset Written Off Account		Expense
	FATSFRACC		Transfer Account		Asset

6.4 Event-wise Accounting Entries and Advices

In the subsequent sections we have defined suggested accounting entries and advices for each of the events in the life-cycle of a contract.

BOOK: Booking

Accounting Entries

	Condition		Accounting Role		Amount Tag		Dr/Cr
	No PO required		FAWIPACC		FA_ASST_AMT		Dr
	for Pur­chase		FACUSTACC		FA_ASST_AMT		Cr

 

The following accounting entries are passed for this event for Islamic inventory tracking:

	Accounting Role		Amount Tag		Dr/Cr
	FAWIPACC		FA_ASST_AMT		Dr
	FACUSTACC		FA_ASST_AMT		Cr

CAPT: Capitalization of Asset

Accounting Entries

	Condition		Accounting Role		Amount Tag		Dr/Cr
	None		FAASSETACC		FA_CAPT_AMT		Dr
			FAWIPACC		FA_CAPT_AMT		Cr

 

DEPR: Depreciation Processing

	Condition		Accounting Role		Amount Tag		Dr/Cr
	Increase in depreciation		FADEPREXP		FA_DEPR_ADD		Dr
		FAACCDEPRLIB		FA_DEPR_ADD		Cr
	Decrease in depreciation		FAACCDEPRLIB		FA_DEPR_RED		Dr
		FADEPREXP		FA_DEPR_RED		Cr
	If Acquired depreciation is entered		FAWIPACC		FA_DEPR_ACQ		Dr
		FAACCDEPRLIB		FA_DEPR_ACQ		Cr

DEAW: Depreciation Wash

This event is used to wash off the depreciation that has been accumulated because of the depreciation entries posted during every principal payment schedule in the loan transaction and this event would be triggered from Manual or auto liquidation of a loan resulting in the final liquidation of the loan account.

The following accounting entries are passed for this event:

	Accounting Role		Amount Tag		Dr /Cr
	FAACCDEPRLIB WASH (Accumulated Leasing Depreciation Account)		FA_DEPR		Dr
	FAASSETACC		FAASSETACC		Cr

DEWR: Depreciation Wash Reversal

This event is used to reverse the wash entries posted during the final settlement of the loan. This will be invoked when we reverse the final payment of the loan and this event would be triggered from on reversing of the liquidation of a loan which had resulted in the final liquidation of the loan.

The following accounting entries are passed for this event:

	Accounting Role		Amount Tag		Dr /Cr
	FAACCDEPRLIB(Accumulated Leasing Depreciation Account)		-FA_DEPR_WASH		Dr
	FAASSETACC		-FA_DEPR_WASH		Cr

AMND: Amendment of the Contract

No Accounting Entries need to be captured at this stage since all the adjustments to be done will be taken care of by the depreciation processing event.

SALE: Sale of Asset

	Condition		Accounting Role		Amount Tag		Dr/Cr
	Loss on Sale		FAACCDEPRLIB		FA_DEPR_ACC		Dr
		FACUSTACC		FA_SALE_AMT		Dr
		FASALEEXP		FA_SALE_AMT		Dr
		FAASSETACC		FA_CAPT_AMT		Cr
	Profit on Sale		FAACCDEPRLIB		FA_DEPR_ACC		Dr
		FACUSTACC		FA_SALE_AMT		Dr
		FASALEINC		FA_SALE_AMT		Cr
		FAASSETACC		FA_CAPT_AMT		Cr

In Oracle FLEXCUBE, all Credit and Debit entries have to be paired up. So the entries will be as follows:

	Condition		Accounting Role		Amount Tag		Dr/Cr
	Loss on Sale		FACUSTACC		FA_CAPT_AMT		Dr
		FAASSETACC		FA_CAPT_AMT		Cr
		FAACCDEPRLIB		FA_DEPR_ACC		Dr
		FACUSTACC		FA_DEPR_ACC		Cr
		FASALEEXP		FA_SALE_AMT		Dr
		FACUSTACC		FA_SALE_AMT		Cr
	Profit on Sale		FACUSTACC		FA_CAPT_AMT		Dr
		FAASSETACC		FA_CAPT_AMT		Cr
		FAACCDEPRLIB		FA_DEPR_ACC		Dr
		FACUSTACC		FA_DEPR_ACC		Cr
			FACUSTACC		FA_SALE_AMT		Dr
			FASALEINC		FA_SALE_AMT		Cr

The following accounting entries are passed for this event for Islamic inventory tracking:

	Accounting Role		Amount Tag		Dr/Cr
	FACUSTACC		FA_SALE_AMT		Dr
	FAWIPACC		FA_SALE_AMT		Cr

Advices

A Payment message would be generated for the customer to whom the asset is sold.

WRTO: Islamic Fixed Asset Write off

	Condition		Accounting Role		Amount Tag		Dr/Cr
	None		FAACCDEPRLIB		FA_DEPR_ACC		Dr
		FAWRTOEXP		FA_WRTO_AMT		Dr
		FAASSETACC		FA_CAPT_AMT		Cr

Since all debit and credit entries have to paired up in Oracle FLEXCUBE, the entries will be reflected as follows:

	Condition		Accounting Role		Amount Tag		Dr/Cr
	None		FAWRTOEXP		FA_CAPT_AMT		Dr
		FAASSETACC		FA_CAPT_AMT		Cr
		FAACCDEPRLIB		FA_DEPR_ACC		Dr
		FAWRTOEXP		FA_DEPR_ACC		Cr

TSFR: Transfer of Asset from One Branch/Location to another

The Transfer event is automated and the transferred asset will be automatically created in the branch/location on save of transfer.

This event will be triggered when the asset is transferred from one branch/ location to another.

The Accounting entry setup for the asset in Transferor and Transferee branch will be as described below.

1) Asset still in WIP stage

Transferor branch – Event TSFR

	DR/CR			Accounting Role			Amount Tag
			Role		Description		Tag		Description
	DR		FATS­FRACC		Transfer Account (Transferee Branch)		FA_ASST_AMT		Original Asset cost
	CR		FAWI­PACC		Work in Progress Account (Transferor Branch)		FA_ASST_AMT		Original Asset cost

Transferee Branch – Event BOOK

	DR/CR			Accounting Role			Amount Tag
			Role		Description		Tag		Description
	DR		FAWIPACC		Work in Progress Account (Trans­feree Branch)		FA_ASST_AMT		Original Asset cost
	CR		FACUSTACC		Customer Account		FA_ASST_AMT		Original Asset cost
	DR		FAWIPACC		Work in Progress Account (Trans­feree Branch)		FA_TSFR_AMT		Original Asset cost
	CR		FATSFRACC		Transfer Account (Transferor Branch)		FA_TSFR_AMT		Original Asset cost

Only the second set of entries will be passed in case of an asset transfer.

1) Capitalized Asset

Transferor branch – Event TSFR

	DR/CR			Accounting Role			Amount Tag
			Role		Description		Tag		Description
	DR		FATSFRACC		Transfer Account (Transferee Branch)		FA_ASST_AMT		Original Asset cost
	CR		FASSTACC		Asset Account (Transferor Branch)		FA_ASST_AMT		Original Asset cost
	DR		FAACCDEPRLIB		Accumulated depreciation Account		FA_DEPR_ACC		Accu­mulated Dep.
	CR		FATSFRACC		Transfer Account (Transferee Branch)		FA_DEPR_ACC		Accu­mulated Dep.

Transferor Branch – Event DEPR (Along with TSFR)

	DR/ CR			Accounting Role			Amount Tag
			Role		Description		Tag		Description
	DR		FADEPREXP		Dep. Expense		FA_DEPR_ADD		Depreciation Addi­tion
	CR		FAAC­CDEPRLIB		Accumulated depreciation Account		FA_DEPR_ADD		Depreciation Addi­tion
	DR		FAAC­CDEPRLIB		Accumulated depreciation Account		FA_DEPR_RED		Depreciation Reduction
	CR		FADEPREXP		Dep. Expense		FA_DEPR_RED		Depreciation Reduction

Transferee Branch – Event BOOK

	DR/ CR			Accounting Role			Amount Tag
			Role		Description		Tag		Description
	DR		FAWI­PACC		Work in Progress Account (Trans­feree Branch)		FA_ASST_AMT		Original Asset cost
	CR		FACUSTACC		Customer Account		FA_ASST_AMT		Original Asset cost
	DR		FAWI­PACC		Work in Progress Account (Trans­feree Branch)		FA_TSFR_AMT		Original Asset cost – Acquired Deprecia­tion
	CR		FATS­FRACC		Transfer Account ( Transferor Branch)		FA_TSFR_AMT		Original Asset cost - Acquired Deprecia­tion

Only the second set of entries will be passed in case of an asset transfer.

Transferee Branch – Event DEPR (Along with BOOK)

	DR/ CR			Accounting Role			Amount Tag
			Role		Description		Tag		Description
	DR		FAWIPACC		Work in Progress Account (Transferee Branch)		FA_­DEPR_ACQ		Acquired Depreciation
	CR		FAACCDEPRLIB		Accumulated depreci­ation Account		FA_­DEPR_ACQ		Acquired Depreciation

Capitalization entries will be passed as usual for the new asset.

Advices

The following details the possible advices and the stage at which the advices are generated for the Accounting entries:

	Advice Code		Advice Description		Receiver
	PAYMENT_MESSAGE		Payment Message		Counterparty

This advice is generated on Book Event (If PO required is ‘N” at product level) and on Sale Event.

On transfer of an asset, a transfer advice called FA_TRANSFER will be generated. Following details will be available in the transfer advice –

• Original asset reference
• Transferor Branch
• Transferee Branch
• Accumulated depreciation
• Asset Cost
• Current Book Value
• Date of Transfer

The receiver of the advice will be the Walk in Customer for the Transferor Branch.