Non-Credit Discounts

The application also computes the Non-Credit discount. In general, discounts are of two types: Credit and Non-Credit. While the Credit-related discount can be assumed to be equal to the ECL, the Non-Credit value needs to be determined using the Deferred Balance approach.

The first step for Non-Credit discounts is to determine the amortized cost as the sum of the Adjusted Purchased Price and the ECL. The difference between the amortized cost and the outstanding or carrying amount is the Total Deferred Balance.

Total Deferred Balance is comprised of Fee, Cost, and Non-Credit Discount. This Non-Credit Discount is computed as the residual of the Deferred Balance deducted for Fee and Cost.