The chapter contains the following sections:
In Oracle Lending, you can define the different types of charges or fees that apply on a product as “classes”. A charge class is a specific type of charge component (For example, ‘Charges for amending the terms of a loan’).
When defining a product, you merely have to attach the required classes. In this manner, a contract processed under a particular product acquires the classes (components) associated with the product.
A discount accrual fee class can be made applicable for loans and bills processed in Oracle Lending. To apply a discount accrual fee, you should first define attributes for each of the components.
Steps involved in processing discount accrual fees
The following steps are involved in processing discount accrual fees:
A discount accrual fee class specifies the accrual parameters for interest, charges and fees.
You can define the attributes of a discount accrual fee class in the ‘Discount Accrual Preference Class Maintenance’ screen.
You can invoke the ‘Discount Accrual Maintenance’ screen by typing ‘OLDACRCL’ in the field at the top right corner of the Application tool bar and clicking the adjoining arrow button.
Before defining the attributes of a discount accrual fee class, you should assign the class a unique identifier, called the Class Code and briefly describe the class. A description would help you easily identify the class.
When building a discount accrual fee class, you define certain attributes such as:
After building discount accrual fee classes you can associate the
class with loans or bills products. Click the
’Discount Accrual’ in the ‘Product Definition’
screen. The ‘Discount Accrual Preference Association’ screen
is invoked.
To associate discount accrual fee class with a product, click ‘Default From Class’ in the ‘Discount Accrual Preference Association’ screen. Select the appropriate discount accrual fee class from the list of classes.
The attributes defined for the discount accrual fee class defaults to the product. You have the option to modify the attributes defined for the class, to suit the requirement of the product you are creating.
Alternatively, you can choose to define the discount accrual details for the product.
Note
While defining the accounting entries for the Loans and Bills modules you must identify the events and accounting entries that are required for discount accrual fee accounting. One of these is the YTM based Discount Accrual (YACR) event. It is meant to indicate the periodic discount accruals for the contract.
The Accounting Roles that should be associated with the event YACR are:
Accounting Role |
Description |
Acquisition Type |
Product Type |
EIMDISCRIA |
Effective Interest Based Discount To Be Accrued |
Discount |
Asset |
EIMDISCINC |
Effective Interest Based Discount Accrued Till Date |
Discount |
Asset |
EIMPREMPIA |
XX? |
Premium |
Asset |
EIMPREMEXP |
|
Premium |
Asset |
EIMINTADJREC |
|
Par |
Asset |
EIMINTADJINC |
|
Par |
Asset |
EIMDISCPIA |
|
Discount |
Liability |
EIMDISCEXP |
|
Discount |
Liability |
EIMPREMRIA |
|
Premium |
Liability |
EIMPREMINC |
|
Premium |
Liability |
EIMINTADJPAY |
|
Par |
Liability |
EIMINTADJEXP |
|
Par |
Liability |
The Amount Tags for the YACR event:
Amount Tag |
Description |
EIMDISC_ACCR |
Net Discount Accrual amount for the processing day |
EIMDISC_ADJ |
Discount Accrual Refund Amount |
The following entries should be maintained for the YACR event:
Accounting Role |
Amount Tag |
Dr/Cr Indicator |
EIMDISCRIA |
EIMDISC_ACCR |
Debit |
EIMDISCINC |
EIMDISC_ACCR |
Credit |
Note
The account head mapped to the accounting role ‘EIBDISCOUNT_RIA’ and account heads mapped to the subsystem specific RIA (Received in Advance) accounting roles should be maintained as the same account. For discount accrual, you must also maintain the following accounting set-up for the Charge Liquidation (LIQD/INIT/VAMI/ROLL/CAMD) event. This is in addition to the normal accounting set-up that you would define for the charge liquidation event.
Accounting Role |
Description |
component_RIA* |
Charge amount Received in Advance |
Charge comp_RIA |
Charge amount Received in Advance |
<Charge Comp>PIA |
Charge amount Paid in Advance |
<Fee Comp>RIA |
Fee Amount Received in Advance |
* The component is replaced by the appropriate Charge Rule.
Amount Tag |
Description |
component_DISC* |
Charge Amount to be discounted |
<Charge comp>_DISC(Existing Tag) |
Charge Discount Amount |
<Charge Comp>_PREM |
Charge Premium Amount |
<Fee Comp>_DISC |
Fee Discount Amount |
* The component is replaced by the appropriate Charge Rule.
You should maintain the following for the normal accounting entry setup for LIQD event:
Amount Tag |
Description |
EIMDISC_ADJ - (Existing Tag) |
Discount Accrual Refund Amount |
EIMPREM_ACCR |
Net Premium Accrual amount for the processing day |
EIMINTADJ_ACCR |
Interest Adjustment Amount |
EIMPREM_ADJ |
Premium Accrual Refund Amount |
You should maintain the following accounting roles for setting up accounting entries for the YACR event:
Along with the normal accounting entry setup for the LIQD event, you must also maintain the following accounting entries:
Accounting Role |
Amount Tag |
Dr/Cr Indicator |
EIMDISCRIA |
EIMDISC_ADJ |
Debit |
CUSTOMER |
EIMDISC_ADJ |
Credit |
EIMDISCRIA |
EIMDISC_ADJ |
Debit |
CUSTOMER |
EIMDISC_ADJ |
Credit |
CUSTOMER |
EIMPREM_ADJ |
Debit |
EIMPREMPIA |
EIMPREM_ADJ |
Credit |
EIMPREMRIA |
EIMPREM_ADJ |
Debit |
CUSTOMER |
EIMPREM_ADJ |
Credit |
CUSTOMER |
EIMDISC_ADJ |
Debit |
EIMDISCPIA |
EIMDISC_ADJ |
Credit |
The following entries should be maintained for the liquidation event.
Accounting Role |
Amount Tag |
Dr/Cr |
<Charge rule>_RIA |
<Charge rule>_DISC |
Credit |
CUSTOMER |
<Charge rule>_DISC |
Debit |
<Charge rule>_INC |
<Charge rule>_LIQD |
Credit |
CUSTOMER |
<Charge rule>_LIQD |
Debit |
CUSTOMER |
<Charge rule>_DISC |
Debit |
<Charge rule>_RIA |
<Charge rule>_DISC |
Credit |
CUSTOMER |
<Charge rule>_PREM |
Credit |
<Charge rule>_PIA |
<Charge rule>_PREM |
Debit |
CUSTOMER |
<Charge rule>_PREM |
Debit |
<Charge rule>_RIA |
<Charge rule>_PREM |
Credit |
CUSTOMER |
<Charge rule>_DISC |
Credit |
<Charge rule>_PIA |
<Charge rule>_DISC |
Debit |
You should maintain the following accounting entries for the YACR event:
Accounting Role |
Amount Tag |
Dr/Cr |
EIMDISCRIA |
EIMDISC_ACCR |
Debit |
EIMDISCINC |
EIMDISC_ACCR |
Credit |
EIMPREMEXP |
EIMPREM_ACCR |
Debit |
EIMPREMPIA |
EIMPREM_ACCR |
Credit |
EIMINTADJREC |
EIMINTADJ_ACCR |
Debit |
EIMINTADJINC |
EIMINTADJ_ACCR |
Credit |
EIMPREMRIA |
EIMPREM_ACCR |
Debit |
EIMPREMINC |
EIMPREM_ACCR |
Credit |
EIMDISCEXP |
EIMDISC_ACCR |
Debit |
EIMDISCPIA |
EIMDISC_ACCR |
Credit |
EIMINTADJEXP |
EIMINTADJ_ACCR |
Debit |
EIMINTADJPAY |
EIMINTADJ_ACCR |
Credit |
Discount accruals in respect of a loan or a bill could result in status changes. You must maintain the following details as part of status maintenance for loans and bills, for discount accruals:
You can specify the following roles as part of the transfer GLs:
Accounting Role |
Description |
EIMDISCRIA |
Effective Interest Based Discount To Be Accrued |
EIMDISCINC |
Effective Interest Based Discount Accrued Till Date |
Note
The accounting roles for discount accrual are available to indicate the transfer GL as part of status change.
The impact of status change of contracts on Transfer of Balances, Stop Accruals and Reverse Accruals is as follows:
Transfer of Balances
The following balances are transferred to new GL:
Stop of Accruals
YACR does not pass any entries.
Reverse of Accruals
The following balances are reversed:
This section contains the following topics:
The Acquisition Type specified at the Discount Accrual Preference Class Maintenance is recognized during IRR calculation and stored in the IRR tables. During contract save, the acquisition type is derived using the following logic:
Product |
Inflow/Outflow |
Acquisition Type |
Asset* |
Inflow>Outflow |
Discount |
Asset |
Inflow<Outflow |
Premium |
Asset |
Inflow=Outflow |
Par |
Liability* |
Inflow>Outflow |
Premium |
Liability |
Inflow<Outflow |
Discount |
Liability |
Inflow=Outflow |
Par |
The following information is stored for every IRR Effective Date when the IRR calculation/recalculation happens and also during the Discount Accrual Batch:
In case of Bearing contracts, IRR recalculation is done using a new effective date, during the following events:
Contract Amendment without Schedule Re-definition:
Rollover:
In case of Discounted contracts, IRR recalculation is done using a new effective date, during the following events:
Contract Amendment without Schedule Re-definition:
Note
The NPV calculation is different for different acquisition types.
If the acquisition type is Discount:
NPV = O/S Principal
+O/S Bearing Interest Accrued*
+O/S Acquired Interest
+ (Expense Fee TBA –Expense Fee Accrued)
- (Income Fee TBA –Income Fee Accrued)
- (Discounted Interest TBA – Discounted Interest Accrued)*
- (Discount TBA – Discount Accrued)
If Acquisition type is Premium:
NPV = O/S Principal
+O/S Bearing Interest Accrued*
+O/S Acquired Interest
+ (Expense Fee TBA –Expense Fee Accrued)
- (Income Fee TBA –Income Fee Accrued)
- (Discounted Interest TBA – Discounted Interest Accrued)*
+ (Premium TBA – Premium Accrued)
If Acquisition type is Par
NPV = O/S Principal
+O/S Bearing Interest Accrued*
+O/S Acquired Interest
+ (Expense Fee TBA –Expense Fee Accrued)
- (Income Fee TBA –Income Fee Accrued)
- (Discounted Interest TBA – Discounted Interest Accrued)*
+ (Interest Adjustment Accrued Already + Interest Adjustment Accrued)
Note
The net discount accrual amount for a processing day is computed as follows:
Where,
The difference between the ‘Till date discount accrual’ amount as of the previous processing day and the ‘Till date discount accrual’ amount as of the current processing day is the ‘Net Discount accrual’ amount that is realized as income as of the processing day. The expression used would be
Where,
Let us consider a Loan contract with following parameters
Loan Amount |
USD 1,000,000 |
Value Date |
01-Jan-2003 |
Maturity Date |
01-Jan-2004 |
Interest Rate |
12% |
Commission Rate |
6% |
Commission Value Date |
01-Jan-2003 |
Interest Repayment Frequency |
Monthly (Month Ends) |
Principal Repayment Frequency |
Bullet |
Interest Basis |
Actual/365 |
Discount Accrual Day count Numerator Method |
Actual |
Discount Accrual Day count Denominator method |
365 |
Interest Payment Method |
Bearing |
IRR |
20.30% |
The projected cash flow for the contract would be:
Due Date |
Component |
Amount (USD) |
01-Jan-2003 |
Principal |
-1,000,000 |
01-Jan-2003 |
Commission |
60,000 |
01-Feb-2003 |
Interest |
10,191.78 |
01-Mar-2003 |
Interest |
9,205.48 |
01-Apr-2003 |
Interest |
10,191.78 |
01-May-2003 |
Interest |
9,863.01 |
01-Jun-2003 |
Interest |
10,191.78 |
01-Jul-2003 |
Interest |
9,863.01 |
01-Aug-2003 |
Interest |
10,191.78 |
01-Sep-2003 |
Interest |
10,191.78 |
01-Oct-2003 |
Interest |
9,863.01 |
01-Nov-2003 |
Interest |
10,191.78 |
01-Dec-2003 |
Interest |
9,863.01 |
01-Jan-2004 |
Interest |
10,191.78 |
01-Jan-2004 |
Principal |
1,000,000 |
If the Discount Accrual Processing Date is 15-Feb-2003, the processing for discount accrual is as follows:
Step 1
NPV of the contract is computed as of 15-Feb-2003 by discounting the future cash flows as shown below:
Due Date |
Amount |
(di-d1)/D |
1+IRR |
(1+IRR)^( (di-d1)/D) |
Discount CF |
01-Mar-03 |
9205.48 |
0.038 |
1.203 |
1.0071 |
9140.46 |
01-Apr-03 |
10191.78 |
0.123 |
1.203 |
1.023 |
9962.22 |
01-May-03 |
9863.01 |
0.205 |
1.203 |
1.0387 |
9495.54 |
01-Jun-03 |
10191.78 |
0.29 |
1.203 |
1.0551 |
9659.27 |
01-Jul-03 |
9863.01 |
0.373 |
1.203 |
1.0713 |
9206.78 |
01-Aug-03 |
10191.78 |
0.458 |
1.203 |
1.0882 |
9365.53 |
01-Sep-03 |
10191.78 |
0.542 |
1.203 |
1.1054 |
9219.70 |
01-Oct-03 |
9863.01 |
0.625 |
1.203 |
1.1224 |
8787.80 |
01-Nov-03 |
10191.78 |
0.71 |
1.203 |
1.1401 |
8939.02 |
01-Dec-03 |
9863.01 |
0.792 |
1.203 |
1.5755 |
8520.56 |
01-Jan-04 |
1010191.78 |
0.877 |
1.203 |
1.1759 |
859105.75 |
|
|
|
|
|
951402.94 |
The NPV of the Contract as of 15-Feb-2003 = USD 951,402.94
Step 2
IRR Start date = 01-Jan-2003
Outstanding Principal as of 12-Feb-2003 = USD 1,000,000
Discount to be accrued as of 01-Jan-2003 = USD 60,000
Accrued Interest as of 15-Feb-2003 = USD 4602.74
Discount Accrued as of 01-Jan-2003 = USD 0.00
Previous process till date = 14-Feb-2003
Till Date Accrual as of 14-Feb-2003 (TDAn-1) = USD 6647.43
TDAn = 951402.94 – (1000000-60000)-4602.74+0
TDAn = 6800.2
Net Discount Accrual = TDAn – TDAn-1
Net Discount Accrual = 6800.20 – 6647.43
Net Discount Accrual = 152.77