Covers the different accrual methods for Precomputed, Simple Interest, and Operating leases, as well as Interest Bearing Loans (IBLs).
The term accrual refers to the monthly recognition of income earned by the leasing company. LeasePak provides many methods of accruing income for the lease. The income recognition method is specified at the lease level when the lease is booked.
Each accrual method may have payments due in advance or in arrears. If payments are due in advance, the first payment is due on the commencement date of the lease. If payments are due in arrears, the first payment is due one period after the commencement date. Any accrual method which begins with an A (i.e., AAPR, AR78, etc.) signifies that payments are due in advance. Any accrual method which begins with an R (i.e., RAPR, RR78, etc.) signifies that payments are due in arrears.
This type includes Level or Constant Yield (FASB method), Rule of 12/78ths, Rule of 12/78ths Half Month Convention, and Straight Line. Precomputed interest leases are characterized by the use of Contract Receivable and Unearned Income General Ledger accounts. An amortization schedule of income to be earned each month can always be calculated at the start of the lease if a precomputed interest method is used.
The Level Yield accrual methods include:
The Level Yield accrual method earns income based on the calculated implicit rate or Internal Rate of Return (IRR) of the lease. The implicit rate is the discount rate that causes the present value at the inception of the lease (using the minimum lease payments and any unguaranteed residual) to be equal to the fair market value of the leased equipment. The fair market value must be reduced by any Investment Tax Credit retained by the lessor.
The implicit rate is calculated using a cash flow which includes:
This cash flow is used to calculate the implicit rate, which is found via a series of complex calculations. In each calculation, the implicit rate is estimated and used to determine the net present value (NPV) of the cash flow. If the NPV is (or is very near) zero, then the estimated implicit rate is the desired rate.
For the AADA/RADA method, a file named tolerance.dat can be added to the user's data directory which contains the number of basis points which is an allowable variance between the IRR in period 1 of the payment schedule and the IRR in the final period.
This rate is used to calculate earned income. For AAPR/RAPR accrual method, income is calculated twelve times a year. For AADA/RADA method, it is calculated daily.
NET INVESTMENT * YIELD / 12
If applicable, this earned income is allocated to the various income participants (lessor, vendor, investor, ITC) on a proportional basis.
PAYMENT AMOUNT
- EARNED INCOME
OLD NET INVESTMENT
- NET INVESTMENT REDUCTION
The following is a sample amortization schedule using the AAPR/RAPR Level Yield accrual method (with payments due in advance and in arrears).
| Acquisition cost | = $10,000.00 |
| Residual | = $ 1,000.00 |
| Yield | = 12% |
| Payment schedule | = 12 monthly payments of $801.62 (in advance) or $809.64 (in arrears) |
| Commencement | = January 1, 1996 |
| Date | Advance | Arrears | ||||
| Net Investment Reduction | Income | Net Investment | Net Investment Reduction | Income | Net Investment | |
| 801.62 | 9,198.38 | 10,000.00 | ||||
| 1/96 | 709.64 | 91.98 | 8,488.74 | 709.64 | 100.00 | 9,290.36 |
| 2/96 | 716.74 | 84.88 | 7,772.00 | 716.74 | 92.90 | 8,573.62 |
| 3/96 | 723.90 | 77.72 | 7,048.10 | 723.90 | 85.74 | 7,849.72 |
| 4/96 | 731.14 | 70.48 | 6,316.96 | 731.14 | 78.50 | 7,118.58 |
| 5/96 | 738.45 | 63.17 | 5,578.51 | 738.45 | 71.19 | 6,380.13 |
| 6/96 | 745.84 | 55.78 | 4,832.67 | 745.84 | 63.80 | 5,634.29 |
| 7/96 | 753.30 | 48.32 | 4,079.37 | 753.30 | 56.34 | 4,880.99 |
| 8/96 | 760.83 | 40.79 | 3,318.54 | 760.83 | 48.81 | 4,120.16 |
| 9/96 | 768.44 | 33.18 | 2,550.10 | 768.44 | 41.20 | 3,351.72 |
| 10/96 | 776.12 | 25.50 | 1,773.98 | 776.12 | 33.52 | 2,575.60 |
| 11/96 | 783.88 | 17.74 | 990.10 | 783.88 | 25.76 | 1,791.72 |
| 12/96 | -9.90 | 9.90 | 1,000.00 | 791.72 | 17.92 | 1,000.00 |
| 9,000.00 | 619.44 | 9,000.00 | 715.68 | |||
The Rule of 12/78ths accrual method code list consists of:
The Rule of 12/78ths accrual method earns income based upon a proportional method with higher earnings recognized in the earlier stages of the lease. The remaining months in the lease and the current unearned income of the lease are used to compute the monthly earned income:
EARNED INCOME = NUMBER OF REMAINING MONTHS IN LEASE
/ SUM OF THE DIGITS OF REMAINING MONTHS
* CURRENT UNEARNED RENTAL INCOME
The sum of the digits of digits "x" is a simple addition of the numbers from 1 to 'x'. For example, the sum of the digits of 36 is calculated as follows:
1 + 2 + 3 + . . . + 35 + 36 or, in general,
1 + 2 + 3 + . . . + (x - 1) + x
A formula method for the above calculation is: x * (x + 1) / 2
In essence, a declining percentage of the total income to be earned over the life of the lease is recognized each month. A 12-month lease term, for example, would recognize 12/78ths of the total income in month 1, 11/78ths in month 2, 10/78ths in month 3, and so on. (The first period's income calculation ration lends its name to this method.) A 36-month lease term would recognize 36/666ths of the total income in month 1, 35/666ths in month 2, 34/666ths in month 3, and so on.
Compared to the Level Yield method, the Rule of 12/78ths method earns income at a faster rate.
Note: The earned income calculation, by virtue of using the remaining months in the lease and the current unearned rental income, automatically compensates for midterm income adjustments in the lease. Midterm income adjustments result from changes in the remaining payment schedule, such as through the Payment Reschedule update [U0104], the Asset Payoff or Termination options of the Payoff update [U0103], and the Asset Add-on update [U0113].
The following is a sample amortization schedule using the Rule of 12/78ths accrual method (with payments due in advance and in arrears).
| Acquisition cost | = $10,000.00 |
| Residual | = $ 1,000.00 |
| Yield | = 12% |
| Payment schedule | = 12 monthly payments of $801.62 (in advance) or $809.64 (in arrears) |
| Commencement | = January 1, 1996 |
| Date | Advance | Arrears | ||||
| Net Investment Reduction | Income | Net Investment | Net Investment Reduction | Income | Net Investment | |
| 801.62 | 9,198.38 | 10,000.00 | ||||
| 1/96 | 706.32 | 95.30 | 8,492.06 | 699.54 | 110.10 | 9,300.46 |
| 2/96 | 714.26 | 87.36 | 7,777.80 | 708.71 | 100.93 | 8,591.75 |
| 3/96 | 722.20 | 79.42 | 7,055.60 | 717.89 | 91.75 | 7,873.86 |
| 4/96 | 730.15 | 71.47 | 6,325.45 | 727.06 | 82.58 | 7,146.80 |
| 5/96 | 738.09 | 63.53 | 5,587.36 | 736.24 | 73.40 | 6,410.56 |
| 6/96 | 746.03 | 55.59 | 4,841.33 | 745.41 | 64.23 | 5,665.15 |
| 7/96 | 753.97 | 47.65 | 4,087.36 | 754.59 | 55.05 | 4,910.56 |
| 8/96 | 761.91 | 39.71 | 3,325.45 | 763.76 | 45.88 | 4,146.80 |
| 9/96 | 769.85 | 31.77 | 2,555.60 | 772.94 | 36.70 | 3,373.86 |
| 10/96 | 777.80 | 23.82 | 1,777.80 | 782.11 | 27.53 | 2,591.75 |
| 11/96 | 785.74 | 15.88 | 992.06 | 791.29 | 18.35 | 1,800.46 |
| 12/96 | -7.94 | 7.94 | 1,000.00 | 800.46 | 9.18 | 1,000.00 |
| 9,000.00 | 619.44 | 9,000.00 | 715.68 | |||
The Rule of 12/78ths Half Month Convention accrual method code list consists of:
The Rule of 12/78ths Half Month Convention accrual method is a variation of the Rule of 12/78ths accrual method. The Half Month Convention does not earn income as fast as the regular Rule of 12/78ths method, however, it may be more representative of income earned on a calendar month basis.
The remaining months in the lease, the original term, and the original unearned income of the lease are used to compute the monthly earned income:
EARNED INCOME =
(NUMBER OF REMAINING MONTHS IN LEASE)2
/ TERM * (TERM + 1)
* ORIGINAL UNEARNED RENTAL INCOME
Compared to the Rule of 12/78ths method, the Half Month Convention method produces a smaller income accrual in the first month and larger income accruals in the succeeding months. Also, the recognition of income is spread over an additional accrual period (the lease maturity month). The remaining net investment is less than the residual in the month before maturity. A side-by-side comparison of the Rule of 12/78ths and the Rule of 12/ 78ths Half Month Convention methods follows:
| Acquisition cost | = $1,100.00 |
| Payment schedule | = 12 monthly payments $100.00 (in arrears) |
| Commencement | = January 10, 1996 |
| Date | Rule of 12/78ths | Rule of 12/78ths Half Month | ||||||
| Net Inv Redctn | Income | Current Unearned | Net Invest | Net Inv Redctn | Income | Current Unearned | Net Invest | |
| 100.00 | 1,100.00 | 100.00 | 1,100.00 | |||||
| 1/96 | 84.62 | 15.38 | 84.62 | 1,015.38 | 92.31 | 7.69 | 92.31 | 1,007.69 |
| 2/96 | 85.90 | 14.10 | 70.52 | 929.48 | 85.25 | 14.75 | 77.56 | 922.44 |
| 3/96 | 87.18 | 12.82 | 57.70 | 842.30 | 86.54 | 13.46 | 64.10 | 835.90 |
| 4/96 | 88.46 | 11.54 | 46.16 | 753.84 | 87.82 | 12.18 | 51.92 | 748.08 |
| 5/96 | 89.74 | 10.26 | 35.90 | 664.10 | 89.11 | 10.89 | 41.03 | 658.97 |
| 6/96 | 91.03 | 8.97 | 26.93 | 573.07 | 90.38 | 9.62 | 31.41 | 568.59 |
| 7/96 | 92.31 | 7.69 | 19.24 | 480.76 | 91.67 | 8.33 | 23.08 | 476.92 |
| 8/96 | 93.59 | 6.41 | 12.83 | 387.17 | 92.95 | 7.05 | 16.03 | 383.97 |
| 9/96 | 94.87 | 5.13 | 7.70 | 292.30 | 94.23 | 5.77 | 10.26 | 289.74 |
| 10/96 | 96.15 | 3.85 | 3.85 | 196.15 | 95.51 | 4.49 | 5.77 | 194.23 |
| 11/96 | 97.44 | 2.56 | 1.29 | 98.71 | 96.79 | 3.21 | 2.56 | 97.44 |
| 12/96 | 98.71 | 1.29 | 0.00 | 0.00 | 98.08 | 1.92 | 0.64 | -0.64 |
| 1/97 | -0.64 | 0.64 | 0.00 | 0.00 | ||||
| 1,100.00 | 100.00 | 1,100.00 | 100.00 | |||||
It should be noted that the calculation of income each month is based upon a specific fraction of a constant original unearned income amount (where, over the life of the lease, 100% of the original unearned income is recognized as income). However, midpoint changes in the lease, such as through the Asset Add-on update [U0113], the Asset Payoff or Termination option of the Payoff update [U0103], or the Payment Reschedule update [U0104], adjust the original unearned income amount. Income accruals (continuing under the Half Month Convention) subsequent to a midpoint lease change do not smoothly amortize the remaining unearned.
Using the same information as the previous example to illustrate this point, assume an asset is added onto the lease after the 6/96 accrual, increasing the current unearned by $10.00. The following table shows the original Rule of 12/78ths Half Month Convention amortization and the amortization following the $10.00 adjustment in unearned income. Notice the fluctuation in income under the ADJUSTMENT amortization in 7/96.
| Date | Rule of 12/78ths Half Month | Adjustment | ||||
| Net Inv Reduction | Income | Current Unearned | Net Investment | Income | Current Unearned | |
| 100.00 | 1,100.00 | |||||
| 1/96 | 92.31 | 7.69 | 92.31 | 1,007.69 | ||
| 2/96 | 85.25 | 14.75 | 77.56 | 922.44 | ||
| 3/96 | 86.54 | 13.46 | 64.10 | 835.90 | ||
| 4/96 | 87.82 | 12.18 | 51.92 | 748.08 | ||
| 5/96 | 89.11 | 10.89 | 41.03 | 658.97 | ||
| 6/96 | 90.38 | 9.62 | 31.41 | 568.59 | 41.41 | |
| 7/96 | 91.67 | 8.33 | 23.08 | 476.92 | 16.03 | 25.38 |
| 8/96 | 92.95 | 7.05 | 16.03 | 383.97 | 7.75 | 17.63 |
| 9/96 | 94.23 | 5.77 | 10.26 | 289.74 | 6.35 | 11.28 |
| 10/96 | 95.51 | 4.49 | 5.77 | 194.23 | 4.93 | 6.35 |
| 11/96 | 96.79 | 3.21 | 2.56 | 97.44 | 3.53 | 2.82 |
| 12/96 | 98.08 | 1.92 | 0.64 | -0.64 | 2.11 | 0.71 |
| 1/97 | 99.36 | 0.64 | 0.00 | 0.00 | 0.71 | 0.00 |
| 1,100.00 | 100.00 | 110.00 | ||||
NOTE: The numbers enclosed by grey area in the preceding example are for comparison purposes.
To approximate a correction for this problem, the accrual method will automatically switch from the Rule of 12/78ths Half Month Convention method to the Rule of 12/78ths method when the original unearned income amount is changed through the Asset Add-on update [U0113], the Asset Payoff or Termination options of the Payoff update [U0103], or the Payment Reschedule update [U0104].
Again using the same information as before, the following accrual will result. Notice that the income now smoothly amortizes over the remaining period.
| Date | Rule of 12/78ths Half Month | Adjustment | Rule of 12/78ths | ||||
| Income Accrued | Current Unearned | Net Investment | Income Accrued | Current Unearned | Income Accrued | Current Unearned | |
| 100.00 | 1,100.00 | ||||||
| 1/96 | 7.69 | 92.31 | 1,007.69 | ||||
| 2/96 | 14.75 | 77.56 | 922.44 | ||||
| 3/96 | 13.46 | 64.10 | 835.90 | ||||
| 4/96 | 12.18 | 51.92 | 748.08 | ||||
| 5/96 | 10.89 | 41.03 | 658.97 | ||||
| 6/96 | 9.62 | 31.41 | 568.59 | 41.41 | 41.41 | ||
| 7/96 | 8.33 | 23.08 | 476.92 | 16.03 | 25.38 | 10.35 | 31.06 |
| 8/96 | 7.05 | 16.03 | 383.97 | 7.75 | 17.63 | 8.87 | 22.19 |
| 9/96 | 5.77 | 10.26 | 289.74 | 6.35 | 11.28 | 7.40 | 14.79 |
| 10/96 | 4.49 | 5.77 | 194.23 | 4.93 | 6.35 | 5.92 | 8.87 |
| 11/96 | 3.21 | 2.56 | 97.44 | 3.53 | 2.82 | 4.44 | 4.43 |
| 12/96 | 1.92 | 0.64 | -0.64 | 2.11 | 0.71 | 2.95 | 1.48 |
| 1/97 | 0.64 | 0.00 | 0.00 | 0.71 | 0.00 | 1.48 | 0.00 |
| 100.00 | 110.00 | 110.00 | |||||
The Straight Line accrual method code list consists of:
The Straight Line accrual method earns income in equal increments over the term of the lease. Each month's earned income is calculated as follows:
EARNED INCOME = ORIGINAL UNEARNED INCOME / TERM
The following is a sample amortization schedule using the Straight Line accrual method (with payments due in advance and in arrears).
| Acquisition cost | = $10,000.00 |
| Residual | = $ 1,000.00 |
| Yield | = 12% |
| Payment schedule | = 12 monthly payments of $801.62 (in advance) or $809.64 (in arrears) |
| Commencement | = January 1, 1996 |
| Date | Advance | Arrears | ||||
| Net Investment Reduction | Income | Net Investment | Net Investment Reduction | Income | Net Investment | |
| 801.62 | 9,198.38 | 10,000.00 | ||||
| 1/96 | 750.00 | 51.62 | 8,448.38 | 750.00 | 59.64 | 9,250.00 |
| 2/96 | 750.00 | 51.62 | 7,698.38 | 750.00 | 59.64 | 8,500.00 |
| 3/96 | 750.00 | 51.62 | 6,948.38 | 750.00 | 59.64 | 7,750.00 |
| 4/96 | 750.00 | 51.62 | 6,198.38 | 750.00 | 59.64 | 7,000.00 |
| 5/96 | 750.00 | 51.62 | 5,448.38 | 750.00 | 59.64 | 6,250.00 |
| 6/96 | 750.00 | 51.62 | 4,698.38 | 750.00 | 59.64 | 5,500.00 |
| 7/96 | 750.00 | 51.62 | 3,948.38 | 750.00 | 59.64 | 4,750.00 |
| 8/96 | 750.00 | 51.62 | 3,198.38 | 750.00 | 59.64 | 4,000.00 |
| 9/96 | 750.00 | 51.62 | 2,448.38 | 750.00 | 59.64 | 3,250.00 |
| 10/96 | 750.00 | 51.62 | 1,698.38 | 750.00 | 59.64 | 2,500.00 |
| 11/96 | 750.00 | 51.62 | 948.38 | 750.00 | 59.64 | 1,750.00 |
| 12/96 | 750.00 | 51.62 | 1,000.00 | 750.00 | 59.64 | 1,000.00 |
| 9,000.00 | 619.44 | 9,000.00 | 715.68 | |||
This type includes Precomputed Simple, Fixed and Floating interest rates (with level or variable payments) and interest bearing loans. Simple interest leases are generally characterized by the use of the Principal General Ledger account. Income can not necessarily be calculated for each month at the start of the lease.
The Precomputed Simple accrual methods include:
The Precomputed Simple accrual method earns income based upon a fixed interest rate applied against the outstanding balance of the lease using a 360 or 365 day basis. The 360 day basis uses 12 equal months of 30 days. The 365 day basis uses the actual number of days in the month and a 365 day year. Under all methods, lease payments are assumed to be received on their payment due dates (therefore, there are no variations of income accrued due to the early or late receipt of the payment).
Using a 360 day basis (30 day months), income is calculated as follows:
PRINCIPAL BALANCE * INTEREST RATE / 12
Using a 365 day basis, income is calculated as follows:
PRINCIPAL BALANCE * INTEREST RATE * ACTUAL NUMBER OF DAYS IN MONTH / 365
The outstanding balance of the lease assumes that lease payments are received on their payment due dates. That is, income calculations are not based upon the day that the lease payments are actually received. Therefore, the interest to be earned each month can actually be predicted, hence the term 'precomputed'.
The Principal Outstanding General Ledger account is used for this method. Contract Receivable and Unearned Income are not used.
The following is a sample amortization schedule using the Precomputed Simple accrual method.
| Accrual method | = APX0 |
| Acquisition cost | = $10,000.00 |
| Residual | = $ 0.00 |
| Yield | = 12% |
| Payment schedule | = 12 monthly payments of $879.69 (in advance) |
| Commencement | = January 1, 1996 |
| Date | Net Investment Reduction | Income | Net Investment |
| 879.69 | 9,120.31 | ||
| 1/96 | 788.49 | 91.20 | 8,331.82 |
| 2/96 | 796.37 | 83.32 | 7,535.45 |
| 3/96 | 804.34 | 75.35 | 6,731.11 |
| 4/96 | 812.38 | 67.31 | 5,918.73 |
| 5/96 | 820.50 | 59.19 | 5,098.23 |
| 6/96 | 828.71 | 50.98 | 4,269.52 |
| 7/96 | 836.99 | 42.70 | 3,432.53 |
| 8/96 | 845.36 | 34.33 | 2,587.17 |
| 9/96 | 853.82 | 25.87 | 1,733.35 |
| 10/96 | 862.36 | 17.33 | 870.99 |
| 11/96 | 870.99 | 8.70 | 0.00 |
| 12/96 | 0.00 | 0.00 | 0.00 |
| 10,000.00 | 556.28 |
The Floating Simple Interest accrual method code list consists of:
Floating simple interest leases may have fixed or variable payments and may be based upon a 360, 365, actual day, or 30/360 year. Under all methods, lease payments are assumed to be received on their payment due dates (therefore, there are no variations of income accrued due to the early or late receipt of the payment). The base interest rate may vary with any rate on the Base Rate (DRPR) file. The contract rate entered for the lease (through the Book Lease option of the New Lease update [U0101]) represents the percentage over the base rate specified (e.g., entering 2% for the lease indicates that the interest rate should be 200 basis points over the floating base rate specified for the lease).
There are several floating rate methods available. The following sections describe each method.
The VT method is characterized by variable payment amounts (Variable payment floaT), which consist of principal plus interest. The amount of the principal portion of the payment is specified through the lease's payment schedule. Interest is calculated by LeasePak (in arrears). Interest is neither calculated, accrued nor billed until the due date at the end of the billing period.
This method accrues interest differently from all other methods. It does not accrue payments until their due dates (i.e., behaves as though ACCRUAL DEFERRAL DAYS is set to 31). Thus interest calculation is truly in arrears. All base rates for the period are known when interest is calculated, so no interest adjustment is ever necessary.
The interest rate is calculated by:
SUM OF (ADD-ON RATE + BASE RATE FOR EACH DAY OF THE MONTH) / 360 OR 365
Notice that if the 360 day method is used then base rate is calculated using the actual number of days in the month divided by 360, rather than assuming equal 30 day months. The interest amount, then, is calculated as follows:
INTEREST RATE * PRINCIPAL BALANCE
The Principal Outstanding General Ledger account is used for this method. Contract Receivable and Unearned Income are not used.
Step and interest-only payments may be entered for this method. Interest- only payments are entered by specifying a zero principal amount in the payment schedule.
The following is a sample amortization schedule using the VT simple interest floating rate accrual method. The actual interest rate shown in the schedule consists of the base rate plus the add-on rate.
| Accrual method | = RVT0 |
| Acquisition cost | = $50,000.00 |
| Yield | = 15% |
| Payment schedule | = 12 monthly payments of $4,166.67 |
| Commencement | = January 1, 1984 |
| Accrue Date | Number Days | Act Int Rate | Actual Income | Scheduled Principal | Principal Outstanding | Payment | Pmt due Date |
| 50,000.00 | |||||||
| 1/84 | 31 | 15.00% | 645.83 | 4,166.67 | 45,833.33 | 4,812.50 | 2/84 |
| 2/84 | 29 | 15.00% | 553.82 | 4,166.67 | 41,666.66 | 4,720.49 | 3/84 |
| 3/84 | 31 | 15.25% | 547.16 | 4,166.67 | 37,499.99 | 4,713.83 | 4/84 |
| 4/84 | 30 | 15.25% | 476.56 | 4,166.67 | 33,333.32 | 4,643.23 | 5/84 |
| 5/84 | 31 | 15.75% | 452.08 | 4,166.67 | 29,166.65 | 4,618.75 | 6/84 |
| 6/84 | 30 | 15.50% | 376.74 | 4,166.67 | 24,999.98 | 4,543.41 | 7/84 |
| 7/84 | 31 | 15.00% | 322.92 | 4,166.67 | 20,833.31 | 4,489.59 | 8/84 |
| 8/84 | 31 | 15.00% | 269.10 | 4,166.67 | 16,666.64 | 4,435.77 | 9/84 |
| 9/84 | 30 | 14.50% | 201.39 | 4,166.67 | 12,499.97 | 4,368.06 | 10/84 |
| 10/84 | 31 | 14.25% | 153.39 | 4,166.67 | 8,333.30 | 4,320.06 | 11/84 |
| 11/84 | 30 | 14.00% | 97.22 | 4,166.67 | 4,166.63 | 4,263.89 | 12/84 |
| 12/84 | 31 | 14.00% | 50.23 | 4,166.63 | 0.00 | 4,216.90 | 1/85 |
| 4,146.44 | 50,000.00 |
This method is characterized by level (or fixed) payment amounts (Level payments floaT), which, like the VT method, consist of principal plus interest. Recall, however, that the VT method adjusts the total amount due (principal plus interest) of each payment. The LT method, in contrast, holds any variations in interest (because of fluctuations in the base rate) until the end of the lease. Midterm adjustments, however, may be made at any time to an LT lease to collect interest shortages (base rate increased) or to refund interest overages (base rate decreased).
The interest rate is calculated by LeasePak (in arrears) using the same calculation as described for the VT method. Accrual takes place on the payment due date, not before.
The amount of the fixed payment is entered into the lease's payment schedule. This is the amount due each period. At the end of the lease, the last payment is adjusted for variations in interest. If the base rate substantially falls from the original rate, it might be possible for the lease to terminate early. This condition is automatically checked during the accrual process.
Based upon the payment schedule entered, a scheduled interest rate can be determined. The principal balance is reduced on this scheduled basis. Any adjustments because of base rate fluctuations are stored in a Principal Receivable account. Principal receivable may be positive or negative and is included in the interest calculation.
The actual interest amount, then, is calculated as follows:
INTEREST RATE * (PRINCIPAL BALANCE + PRINCIPAL RECEIVABLE)
The Principal Outstanding General Ledger account is used for this method. Contract Receivable and Unearned Income are not used.
Step and skip payments may be entered for this method.
The following is a sample amortization schedule using the LT simple interest floating rate accrual method. The actual interest rate shown in the schedule consists of the base rate plus the add-on rate.
| Accrual method | =RLT5 |
| Acquisition cost | = $50,000.00 |
| Yield | = 15% |
| Payment schedule | = 12 monthly payments of $4,512.92 (advance) |
| Commencement | = January 1, 1995 |
| Accrue Date | Num Dys | Act Int Rate | Actual Income | Sched Income | Int. Adjust. | Sched Principal | Principal Outstand | Payment | Pmt Due Date |
| 50,000.00 | |||||||||
| 1/95 | 31 | 15.00 | 636.99 | 625.00 | 11.99 | 3,887.92 | 46,112.08 | 4,512.92 | 2/95 |
| 2/95 | 28 | 15.00 | 530.60 | 576.40 | -45.80 | 3,936.51 | 42,175.57 | 4,512.92 | 3/95 |
| 3/95 | 31 | 15.25 | 546.26 | 527.19 | 19.07 | 3,985.72 | 38,189.85 | 4,512.92 | 4/95 |
| 4/95 | 30 | 15.25 | 478.68 | 477.37 | 1.31 | 4,035.54 | 34,154.31 | 4,512.92 | 5/95 |
| 5/95 | 31 | 15.75 | 456.87 | 426.93 | 29.94 | 4,085.99 | 30,068.32 | 4,512.92 | 6/95 |
| 6/95 | 30 | 15.50 | 383.06 | 375.85 | 7.21 | 4,137.06 | 25,931.26 | 4,512.92 | 7/95 |
| 7/95 | 31 | 15.00 | 330.36 | 324.14 | 6.22 | 4,188.77 | 21,742.48 | 4,512.92 | 8/95 |
| 8/95 | 31 | 15.00 | 276.99 | 271.78 | 5.21 | 4,241.13 | 17,501.35 | 4,512.92 | 9/95 |
| 9/95 | 30 | 14.50 | 208.58 | 218.77 | -10.19 | 4,294.15 | 13,207.20 | 4,512.92 | 10/95 |
| 10/95 | 31 | 14.25 | 159.84 | 165.09 | -5.25 | 4,347.83 | 8,859.37 | 4,512.92 | 11/95 |
| 11/95 | 30 | 14.00 | 101.94 | 110.74 | -8.80 | 4,402.17 | 4,457.20 | 4,512.92 | 12/95 |
| 12/95 | 31 | 14.00 | 53.00 | 55.72 | -2.72 | 4,457.20 | 0.00 | ||
| 0.00 | 4,163.18 | 1/96 | |||||||
| 4,163.18 | 4,154.99 | 8.19 | 50,000.00 |
This method is characterized by variable payment amounts, which consist of a level principal amount plus calculated interest (Variable payment, Level principal). The amount of the principal portion of the payment is specified through the lease's payment schedule. The interest is calculated by LeasePak (in advance). Since income is calculated in advance using estimated base rates, an interest adjustment is automatically performed during the next period's accrual, if required. Also, interest may be calculated based upon a 360, 365, actual day, or 30/360 year.
Contract Receivable and Unearned Income General Ledger accounts are used for this method. Principal Outstanding is not used. Both the contract receivable and the unearned income original amounts are estimated at the start of the lease, based upon the base rate at lease commencement (and, assuming that there are no changes to that rate throughout the lease life).
Step, skip, and interest-only payments may be entered for this method. Interest-only payments are entered by specifying a zero principal amount in the payment schedule. Skip and non-monthly payments result in the storage of the accrued but not yet due income in the Income Receivable account; this amount is used in the next period's income calculation (i.e., it is capitalized).
The following is a sample amortization schedule using the VL simple interest floating rate accrual method. The actual interest rate shown in the schedule consists of the base rate plus the add-on rate.
| Accrual method | = AVL6 |
| Acquisition cost | = $50,000.00 |
| Yield | = 15% |
| Payment schedule | = 3 monthly payments of $2,500.00 |
| Scheduled receivable | = $53,931.57 |
| Scheduled income | = $3,931.57 |
| Commencement | = January 1, 1984 |
| Accrue Date | Num Days | Act Int Rate | Actual Income | Scheduled Income | Scheduled Principal | Principal Outstanding | Payment | Pmt Due Date |
| 47,500.00 | 2,500.00 | 1/84 | ||||||
| 1/84 | 31 | 15.00% | 603.48 | 564.55 | 2,500.00 | 45,000.00 | 3,103.48 | 2/84 |
| 2/84 | 29 | 15.00% | 534.84 | 571.72 | 2,500.00 | 42,500.00 | 3,034.84 | 3/84 |
| 3/84 | 31 | 15.25% | 548.96 | 522.54 | 4,000.00 | 38,500.00 | 4,548.96 | 4/84 |
| 4/84 | 30 | 15.25% | 481.25 | 489.14 | 4,000.00 | 34,500.00 | 4,481.25 | 5/84 |
| 5/84 | 31 | 15.75% | 460.24 | 424.18 | 4,000.00 | 30,500.00 | 4,460.24 | 6/84 |
| 6/84 | 30 | 15.50% | 387.50 | 387.50 | 5,000.00 | 25,500.00 | 5,387.50 | 7/84 |
| 7/84 | 31 | 15.00% | 323.98 | 323.98 | 5,000.00 | 20,500.00 | 5,323.98 | 8/84 |
| 8/84 | 31 | 15.00% | 260.45 | 252.05 | 5,000.00 | 15,500.00 | 5,260.45 | 9/84 |
| 9/84 | 30 | 14.50% | 184.22 | 196.93 | 5,000.00 | 10,500.00 | 5,184.22 | 10/84 |
| 10/84 | 31 | 14.25% | 126.73 | 129.10 | 5,000.00 | 5,500.00 | 5,126.73 | 11/84 |
| 11/84 | 30 | 14.00% | 63.11 | 69.88 | 5,500.00 | 0.00 | 5,563.11 | 12/84 |
| 12/84 | 31 | 14.00% | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |
| 3,974.76 | 3,931.57 | 50,000.00 |
This method is characterized by variable payment amounts, which consist of a variable principal amount plus calculated interest (Variable payment, Variable principal). The entire lease payment amount which yields the agreed upon rate is entered into the payment schedule for the lease. The interest is calculated by LeasePak (in advance). Since income is calculated in advance using estimated base rates, an interest adjustment is automatically performed during the next period's accrual, if required. Also, income may be calculated based upon a 360, 365, actual day, or 30 day month/360 day year.
The actual lease payment is the amortized principal portion of the agreed upon (or, initial) payment schedule plus the actual interest calculated. Therefore, the lease payment entered in the payment schedule may not necessarily be the actual payment amount accrued and invoiced. The difference results from variances in the base rate.
Contract Receivable and Unearned Income General Ledger accounts are used for this method. Principal Outstanding is not used. Both the contract receivable and the unearned income original amounts are estimated at the start of the lease, based upon the base rate at lease commencement (and, assuming that there are no changes to that rate throughout the lease life).
Step, skip, and interest-only payments may be entered for this method. Interest-only payments are entered by specifying a zero principal amount in the payment schedule. Skip and non-monthly payments result in the storage of the accrued but not yet due income in the Income Receivable account; this amount is used in the next period's income calculation (i.e., it is capitalized).
The following is a sample amortization schedule using the VV simple interest floating rate accrual method. The actual interest rate shown in the schedule consists of the base rate plus the add-on rate.
| Accrual Method | = RVVO |
| Acquisition Cost | = $50,000.00 |
| Yield | = 15% |
| Payment Schedule | = 12 monthly payments of $4,512.92 |
| Scheduled Receivable | = $54,155.04 |
| Scheduled income | = $4,155.04 |
| Commencement | = January 1, 1995 |
| Accrue Date | Num Days | Act Int Rate | Actual Income | Scheduled Income | Scheduled Principal | Principal Outstanding | Payment | Pmt Due Date |
| 50,000.00 | ||||||||
| 1/95 | 31 | 15.00% | 645.83 | 625.00 | 3,887.92 | 46,112.09 | 4533.75 | 2/95 |
| 2/95 | 28 | 15.00% | 537.97 | 576.40 | 3,936.51 | 42,175.57 | 4474.49 | 3/95 |
| 3/95 | 31 | 15.25% | 553.85 | 527.19 | 3,985.72 | 38,189.85 | 4539.57 | 4/95 |
| 4/95 | 30 | 15.25% | 485.33 | 477.38 | 4,035.54 | 34,154.31 | 4520.87 | 5/95 |
| 5/95 | 31 | 15.75% | 463.22 | 426.93 | 4,085.99 | 30,068.32 | 4549.20 | 6/95 |
| 6/95 | 30 | 15.50% | 388.38 | 375.85 | 4,137.06 | 25,931.26 | 4525.44 | 7/95 |
| 7/95 | 31 | 15.00% | 334.95 | 324.14 | 4,188.77 | 21,742.48 | 4523.72 | 8/95 |
| 8/95 | 31 | 15.00% | 280.84 | 271.78 | 4,241.13 | 17,501.35 | 4521.97 | 9/95 |
| 9/95 | 30 | 14.50% | 211.47 | 218.77 | 4,294.15 | 13,207.20 | 4505.62 | 10/95 |
| 10/95 | 31 | 14.25% | 162.06 | 165.09 | 4,347.83 | 8,859.37 | 4509.89 | 11/95 |
| 11/95 | 30 | 14.00% | 103.36 | 110.74 | 4,402.17 | 4,457.20 | 4505.53 | 12/95 |
| 12/95 | 31 | 14.00% | 53.73 | 55.72 | 4,457.20 | 0.00 | 4510.93 | 1/96 |
| 4,221.00 | 4,154.99 | 50,000.00 |
The Interest Bearing Loan enhancement provides actual daily balance outstanding interest calculations under both fixed and floating rate methods. These methods differ from other LeasePak simple interest accrual methods in that adjustments to earned interest are made due to early or late receipt of payment.
Two repayment plans are available:
Principal and Interest (P&I)
This plan calls for the periodic repayment of scheduled (fixed) amounts,
as stated in the promissory note. The payment schedule includes both principal
and interest. Billing includes the scheduled (fixed) payment amount and
previous unpaid invoices. Although the payment amount is fixed, the interest
accrued is still adjusted due to early or late receipt of the payment.
Therefore, under this method, the amount of the reduction of the principal
balance is the variable factor. Accordingly, the final payment is the
remaining unpaid principal balance plus accrued interest. It may be different
from the scheduled last payment because of the variable principal reduction.
Generally, late charges need not be calculated, as additional interest is charged automatically if the payment is not made on its due date. However, some Interest Bearing Loans are written which allow the assessment of late charges.
For P&I methods, during the process of applying a payment interest is recalculated. For P+I methods, any recalculated interest amount greater than the billed interest amount is billed on the next invoice. Principal and interest payments must be applied in most delinquent due order. Payment reversals must be made in most recent due order.
Prepayments may be applied as credit memos or principal paydowns, or entered into suspense. Overpayment of interest may be applied as an interest credit and will be automatically applied the next time interest is billed. Interest credits are always applied to interest, never to principal.
For each of the four IBL accrual methods (xIXx, xIFx, xAXx and xAFx), two basic day calculations are available: actual and 30-day months. Under the actual days method, all actual days elapsed are counted, including the 31st of appropriate months and the 29th of February in leap years. For example:
| PERIOD (exclusive of start day) | NUMBER OF DAYS | |
| January 27 | to February 2 | 6 |
| February 27 | to March 2 | 3 (no leap year) |
| February 27 | to March 2 | 4 (leap year) |
| March 27 | to April 2 | 6 |
| April 27 | to May 2 | 5 |
The actual days method may be based upon a 360, 365, or 366 day year.
Under the 30-day months method, every month is considered to have 30 days (and the total number of days in the year is always 360). No interest is charged on the 31st of any month; a payment received on the 31st is treated as if it were received on the 30th. There are always five days between the 27th of one month and the 2nd of the next month, regardless of the two months in question. There are three days from February 28 to March 1. On leap years, there are two days from February 29 to March 1.
Interest accruals are always calculated in advance of the payment due. Interest is not charged on the day a loan starts, but is charged on the day it is paid off. Accordingly, normal monthly interest accruals accrue from the previous month's payment due day + 1 day to the current month's payment due day. Interest adjustments are made, as necessary, when the payment is actually received or when the next accrual occurs, whichever happens first.
Since interest accruals are performed in advance, certain assumptions must be made. These assumptions are based upon projected information. For example, assume that the current date is January 1, and that the payment due February 1 is to be accrued. The accrued interest is calculated assuming that the February 1 payment will be paid on February 1. In other words, the
accrued interest is for the period January 2 through February 1, and is calculated based upon the current principal balance outstanding. If the loan is floating on a specified base rate, the interest accrued also assumes that the projected base rates for the January 2 - February 1 period will be the actual rates. If any of these assumptions do not hold true, the interest accrued (on January 1) must be adjusted.The adjustment is added to interest on the next invoice accrued after the adjustment is calculated.
If any portion of interest remains unpaid, the invoice remains open. The full amount invoiced, principal and interest, must be paid before an invoice is closed.
Note: In earlier releases of LeasePak, before version 2.1a, all interest through the effective date of the payment had to be paid before any principal could be paid. Interest adjustments were created for the interest due between the due date and the effective date of the payment. These adjustments would zero the interest on all invoices due between the oldest outstanding invoice and the effective date of the payment, whether or not the entire amount of interest was actually received.
With version 2.1a and above, interest on unpaid principal is calculated and billed the next time a new invoice accrues. Fewer adjustments to previous invoices are necessary. Also with version 2.1a, the entire amount invoiced must be paid before an invoice is closed.
If an interest credit exists, it will be applied automatically against future interest billings. Interest credits are always applied to interest, never to principal.
Interest is calculated monthly in advance, during the normal accrual process. It is also calculated (or recalculated) each time the principal balance changes (e.g., payments made or reversed, mid-term changes, or payoffs/ terminations).
The interest accrual calculation for fixed rate contracts is as follows:
PRINCIPAL BALANCE * (ANNUAL RATE / DAYS IN YEAR) * DAYS
PRINCIPAL BALANCE is the current principal balance of the loan as shown in the principal balance list.
ANNUAL RATE is the interest rate stated in the loan agreement and entered as the rate during New Lease Booking.
DAYS IN YEAR is the contractual year base stated in the loan agreement and entered as part of the accrual method. It may be fixed at 360, 365, or be the actual number of days in the year (365 or 366).
DAYS is the number of days of the period from the last payment or accrual to the current date. For 30/360 accrual methods, the number of days in the month is fixed at 30. For all other methods, the actual number of days between the begin date to the end date of the accrual period should be used.
Interest is calculated monthly in advance, during the normal accrual process. It is also calculated (or recalculated) each time the principal balance changes (e.g., payments made or reversed, mid-term changes, or payoffs/ terminations).
The following interest accrual calculation for floating rate contracts is performed for each day in the accrual period. This repetition of the interest calculation for each day in the accrual period effectively is performing a daily interest calculation. Therefore, base rate changes during the period are automatically taken into account.
PRINCIPAL BALANCE * (BASE RATE + ADD-ON) / DAYS IN YEAR
PRINCIPAL BALANCE is the current principal balance of the loan as shown in the principal balance list.
BASE RATE is the annual rate on which the loan is floating, as stated in the loan agreement and entered during the New Lease Booking update [U0101]. Loan agreements may have different base rates.
ADD-ON is the number of basis points over or under the BASE RATE, as stated in the loan agreement and entered during the New Lease Booking
[U0101]. BASE RATE + ADD-ON represents the actual interest rate for the loan for the day. A maximum and/or minimum annual rate may be specified for each loan during the New Lease Booking [U0101].
DAYS IN YEAR is the contractual year base stated in the loan agreement and entered as part of the accrual method. It may be fixed at 360, 365, or be the actual number of days in the year (365 or 366).
The scheduled principal amount of the payment only is entered into the payment schedule during New Lease Booking [U0101]. Step, skip, and zero (interest- only) payments are entered as normal. The actual amount due is the scheduled principal amount plus the calculated interest (including the effects of early or late receipt of payments due). No payment – principal or interest –is due for a skip payment.
The following is a sample amortization schedule using Principal plus Interest fixed actual/365 (AIX5) accrual method.
| Outstanding Principal Balance | = $10,000 |
| Rate | = 12% (fixed) |
| Payment Schedule | = 12 principal payments of $833.33(advance) |
| Commencement | = December 30, 1995 |
| Date | # | Int Rate | Prin Bal | Int | Prin | Pmt Due Date | Pmt Recd Date | Intr Paid | Prin Paid | New Prin Bal |
| 12/95 | 10,000.00 | 833.33 | 12/30 | 12/30 | 833.33 | 9,166.67 | ||||
| 01/96 | 31 | 12% | 9,166.67 | 93.42 | 833.33 | 01/30 | 01/30 | 93.42 | 833.33 | 8,333.34 |
| 02/96 | 30 | 12% | 8,333.34 | 79.45 | 833.33 | 02/28 | 02/28 | 79.45 | 833.33 | 7,500.01 |
| 03/96 | 30 | 12% | 7,500.01 | 73.97 | 833.33 | 03/30 | 03/31 | 76.44 | 830.86 | 6,669.15 |
| 04/96 | 30 | 12% | 6,669.15 | 65.75 | 833.33 | 04/30 | 04/30 | 65.75 | 835.80 | 5,833.35 |
| 05/96 | 30 | 12% | 5,833.35 | 57.53 | 833.33 | 05/30 | 05/30 | 57.53 | 833.33 | 5,000.02 |
| 06/96 | 31 | 12% | 5,000.02 | 50.96 | 833.33 | 06/30 | 06/30 | 50.96 | 833.33 | 4,166.69 |
| 07/96 | 30 | 12% | 4,166.69 | 41.10 | 833.33 | 07/30 | 07/30 | 41.10 | 833.33 | 3,333.36 |
| 08/96 | 31 | 12% | 3,333.36 | 33.97 | 833.33 | 08/30 | 08/30 | 33.97 | 833.33 | 2,500.03 |
| 09/96 | 31 | 12% | 2,500.03 | 25.48 | 833.33 | 09/30 | 09/30 | 25.48 | 833.33 | 1,666.70 |
| 10/96 | 30 | 12% | 1,666.70 | 16.44 | 833.33 | 10/30 | 10/30 | 16.44 | 833.33 | 833.37 |
| 11/96 | 31 | 12% | 833.37 | 8.49 | 833.33 | 11/30 | 11/30 | 8.49 | 833.33 | 0 |
| 546.56 | 10000.00 | 549.03 | 10000.00 |
The scheduled full payment amount (principal and interest) is entered into the payment schedule for the lease during New Lease Booking [U0101]. Step and skip payments are entered as normal. No payment – principal or interest – is due for a skip payment. Interest-only payments are not allowed for this method.
The following is a sample amortization schedule using Principal and Interest fixed 30/360 (AAXE) accrual method.
| Outstanding Principal Balance | = $10,000 |
| Rate | = 12% (fixed) |
| Payment Schedule | = 12 monthly payments of $879.69 (advance) |
| Commencement | = December 15, 1995 |
| Date | # | Int Rate | Prin Bal | Int | Prin | Pmt Due Date | Pmt Recd Date | Intr Paid | Prin Paid | New Prin Bal |
| 12/95 | 30 | 10,000.00 | 879.69 | 12/15 | 12/15 | 879.69 | 9,120.31 | |||
| 01/96 | 30 | 12% | 9,120.31 | 91.20 | 788.49 | 01/15 | 01/15 | 91.20 | 788.49 | 8,331.82 |
| 02/96 | 30 | 12% | 8,331.82 | 83.32 | 796.37 | 02/15 | 02/15 | 83.32 | 796.37 | 7,535.45 |
| 03/96 | 30 | 12% | 7,535.45 | 75.35 | 804.34 | 03/15 | 03/15 | 75.35 | 804.34 | 6,731.11 |
| 04/96 | 30 | 12% | 6,731.11 | 67.31 | 812.38 | 04/15 | 04/15 | 67.31 | 812.38 | 5,918.73 |
| 05/96 | 30 | 12% | 5,918.73 | 59.19 | 820.50 | 05/15 | 05/15 | 59.19 | 820.50 | 5,098.23 |
| 06/96 | 30 | 12% | 5,098.23 | 50.98 | 828.71 | 06/15 | 06/15 | 50.98 | 828.71 | 4,269.52 |
| 07/96 | 30 | 12% | 4,269.52 | 42.70 | 836.99 | 07/15 | 07/15 | 42.70 | 836.99 | 3,432.53 |
| 08/96 | 30 | 12% | 3,432.53 | 34.33 | 845.36 | 08/15 | 08/15 | 34.33 | 845.36 | 2,587.17 |
| 09/96 | 30 | 12% | 2,587.17 | 25.87 | 853.82 | 09/15 | 09/15 | 25.87 | 853.82 | 1,733.35 |
| 10/96 | 30 | 12% | 1,733.35 | 17.33 | 862.36 | 10/15 | 10/15 | 17.33 | 862.36 | 870.99 |
| 11/96 | 30 | 12% | 870.99 | 8.71 | 870.99 | 11/15 | 11/15 | 8.71 | 870.99 | 0 |
| 556.29 | 10000.00 | 556.29 | 10000.00 |
The scheduled principal amount of the payment only is entered into the payment schedule during New Lease Booking [U0101]. Step, skip, and zero (interest- only) payments are entered as normal. The actual amount due is the scheduled
principal amount plus the calculated interest (including the effects of early or late receipt of payments due). No payment – principal or interest – is due for a skip payment.
The following is a sample amortization schedule using Principal plus Interest floating actual/actual (RIF6) accrual method.
| Outstanding Principal Balance | = $10,000.00 |
| Rate | = 12% (floating) |
| Payment Schedule | = 12 principal payments of $833.33 (arrears) |
| Commencement | = December 30, 1995 |
| Date | # | Int Rate | Prin Bal | Int | Prin | Pmt Due Date | Pmt Recd Date | Intr Paid | Prin Paid | New Prin Bal |
| 01/96 | 31 | 12.0 | 10,000.00 | 101.92 | 833.33 | 01/30 | 01/30 | 101.92 | 833.33 | 9,166.67 |
| 02/96 | 29 | 12.0 | 9,166.67 | 87.40 | 833.33 | 02/28 | 02/28 | 87.40 | 833.33 | 8,333.34 |
| 03/96 | 30 | 12.0 | 8,333.34 | 82.19 | 833.33 | 03/30 | 03/30 | 82.19 | 833.33 | 7,500.01 |
| 04/96 | 31 | 12.0 | 7,500.01 | 76.44 | 833.33 | 04/30 | 05/01 | 78.91 | 830.86 | 6,669.15 |
| 05/96 | 29 | 12.0 | 6,669.15 | 63.56 | 833.33 | 05/30 | 05/30 | 63.56 | 835.80 | 5,833.35 |
| 06/96 | 31 | 12.0 | 5,833.35 | 59.45 | 833.33 | 06/30 | 06/30 | 59.45 | 833.33 | 5,000.02 |
| 07/96 | 30 | 12.0 | 5,000.02 | 49.32 | 833.33 | 07/30 | 07/30 | 49.32 | 833.33 | 4,166.69 |
| 08/96 | 31 | 12.0 | 4,166.69 | 42.47 | 833.33 | 08/30 | 08/30 | 42.47 | 833.33 | 3,333.36 |
| 09/96 | 31 | 12.0 | 3,333.36 | 33.97 | 833.33 | 09/30 | 09/30 | 33.97 | 833.33 | 2,500.03 |
| 10/96 | 30 | 12.0 | 2,500.03 | 24.66 | 833.33 | 10/30 | 10/30 | 24.66 | 833.33 | 1,666.70 |
| 11/96 | 31 | 12.0 | 1,666.70 | 16.99 | 833.33 | 11/30 | 11/30 | 16.99 | 833.33 | 833.37 |
| 12/96 | 30 | 12.0 | 833.37 | 8.22 | 833.33 | 12/30 | 12/30 | 8.22 | 833.33 | 0 |
| 646.59 | 10000.00 | 649.06 | 10000.00 |
The scheduled full payment amount (principal and interest) is entered into the payment schedule for the lease during New Lease Booking [U0101]. Step and skip payments are entered as normal. No payment - principal or interest - is due for a skip payment. Interest-only payments are not allowed for this method.
The following is a sample amortization schedule using Principal and Interest floating actual/360 (RAF0) accrual method.
| Outstanding Principal Balance | = $10,000 |
| Rate | = floating |
| Payment Schedule | = 12 monthly payments of $900.00 (arrears) |
| Commencement | = December 30, 1995 |
| Date | # | Int Rate | Prin Bal | Int | Prin | Pmt Due Date | Pmt Recd Date | Intr Paid | Prin Paid | New Prin Bal |
| 01/96 | 31 | 12.0 | 10,000.00 | 103.33 | 796.67 | 01/30 | 01/30 | 103.33 | 796.67 | 9,203.33 |
| 02/96 | 29 | 12.0 | 9,203.33 | 88.97 | 811.03 | 02/28 | 02/28 | 88.97 | 811.03 | 8,392.30 |
| 03/96 | 30 | 12.0 | 8,329.03 | 83.92 | 816.08 | 03/30 | 03/31 | 86.72 | 813.28 | 7,579.02 |
| 04/96 | 30 | 12.0 | 7,579.02 | 75.79 | 824.21 | 04/30 | 04/30 | 75.79 | 824.21 | 6,754.81 |
| 05/96 | 30 | 12.0 | 6,754.81 | 67.55 | 832.45 | 05/30 | 05/30 | 67.55 | 832.45 | 5,922.36 |
| 06/96 | 31 | 12.5 | 5,922.36 | 63.75 | 836.25 | 06/30 | 06/30 | 63.75 | 836.25 | 5,086.11 |
| 07/96 | 30 | 12.5 | 5,086.11 | 52.98 | 847.02 | 07/30 | 07/30 | 52.98 | 847.02 | 4,239.09 |
| 08/96 | 31 | 12.5 | 4,239.09 | 45.63 | 854.37 | 08/30 | 08/30 | 45.63 | 854.37 | 3,384.72 |
| 09/96 | 31 | 12.5 | 3,384.72 | 36.43 | 863.57 | 09/30 | 09/30 | 36.43 | 863.57 | 2,521.15 |
| 10/96 | 30 | 12.5 | 2,521.15 | 26.26 | 873.74 | 10/30 | 10/30 | 26.26 | 873.74 | 1,647.41 |
| 11/96 | 31 | 12.5 | 1,647.41 | 17.73 | 882.27 | 11/30 | 11/30 | 17.73 | 882.27 | 765.14 |
| 12/96 | 30 | 12.5 | 765.14 | 7.97 | 765.14 | 12/30 | 12/30 | 7.97 | 765.14 | 0 |
| 670.31 | 10002.80 | 673.11 | 10000.00 |
A 1993 JULE Fund enhancement created a switch at the lease level which allows interest to be capitalized during SKIP payments. The switch appears on Book Lease or Application screens only if the accrual type indicates an interest bearing loan. If the switch is set to Y, interest which would normally accrue for a skip period is added to the principal. A principal write-up automatically occurs, effective on the due date of the skip.
Note: As a principal adjustment will be recorded effective one month in the future, no other principal changes may be posted prior to this date. This includes overpayments with a principal write-down component, but not straight payments. If a principal adjustment becomes necessary, accruals must be reversed, the adjustment made, then the loan re-accrued.
Following is a sample amortization schedule using Principal plus Interest
floating Actual/365 (AIF5) accrual method. This version uses the interest
only option:
| Outstanding Principal Balance | = $5,000 |
| Rate | = 12% (floating) |
| Payment Schedule | = Interest only, 12 months alternating skips |
| Commencement | = December 1, 1989 |
| Date | # | Int Rate | Prin Bal | Int Due | Prin Due | Pmt Due Date | Pmt Recd Date | Intr Paid | Prin Paid | New Prin Bal |
| 01/89 | 31 | 12.0 | 5,000.00 | 50.96 | 01/01 | 01/01 | 50.96 | 5,000.00 | ||
| 02/89 | 31 | 12.0 | 5,000.00 | 50.96 | 02/01 | 02/01 | SKIP | 5,000.00 | ||
| 03/89 | 28 | 12.5 | 5,000.00 | 47.95 | 03/01 | 03/05 | 98.91 | 5,000.00 | ||
| 04/89 | 31 | 12.5 | 5,000.00 | 53.08 | 04/01 | 04/01 | SKIP | 5,000.00 | ||
| 05/89 | 30 | 13.0 | 5,000.00 | 53.43 | 05/01 | 05/01 | 106.51 | 5,000.00 | ||
| 06/89 | 31 | 13.0 | 5,000.00 | 55.21 | 06/01 | 06/01 | SKIP | 5,000.00 | ||
| 07/89 | 30 | 13.0 | 5,000.00 | 53.43 | 07/01 | 07/01 | 108.64 | 5,000.00 | ||
| 08/89 | 31 | 13.0 | 5,000.00 | 55.21 | 08/01 | 08/01 | SKIP | 5,000.00 | ||
| 09/89 | 31 | 13.0 | 5,000.00 | 55.21 | 09/01 | 09/01 | 110.42 | 5,000.00 | ||
| 10/89 | 30 | 13.0 | 5,000.00 | 53.43 | 10/01 | 10/01 | SKIP | 5,000.00 | ||
| 11/89 | 31 | 13.0 | 5,000.00 | 55.21 | 11/01 | 11/01 | 108.64 | 5,000.00 | ||
| 12/89 | 30 | 13.0 | 5,000.00 | 53.43 | 5,000.00 | 12/01 | 12/01 | 53.43 | 5,000.00 | 0 |
| 637.51 | 5,000.00 | 637.51 | 5,000.00 |
The year's payment schedule calls for 7 monthly interest-only payments and 5 skips. With the CAPITALIZE INTEREST switch set to Y, every other month a principal write-up is performed effective on the payment due date. For example, on 9/1, the 10/1 skip is accrued. Instead of holding the $53.43 and billing it on the 11/1 invoice, a principal write-up will occur and generate the following G/L transactions:
| GENERAL LEDGER ACCOUNT | AMOUNT | |
| CR | Lessor Income - Simple (6081) | INTEREST ($53.43) |
| DR | Lease Income Receivable (1005) | |
| CR | Lease Income Receivable (1005) | PRINCIPAL ADJ ($53.43) |
| DR | Principal Outstanding (1023) | |
Note: The Lease Income Receivable account applies to both leases and loans; it can either represent lease income or loan interest.
The model amortization will now look like this:
| Date | # | Int Rate | Prin Bal | Int Due | Prin Due | Pmt Due Date | Pmt Recd Date | Intr Paid | Prin Paid | New Prin Bal |
| 01/89 | 31 | 12.0 | 5,000.00 | 50.96 | 01/01 | 01/01 | 50.96 | 5,000.00 | ||
| 02/89 | 31 | 12.0 | 5,000.00 | 50.96 | 02/01 | 02/01 | SKIP | 5,050.96 | ||
| 03/89 | 28 | 12.5 | 5,050.96 | 48.43 | 03/01 | 03/05 | 48.43 | 5,050.96 | ||
| 04/89 | 31 | 12.5 | 5,050.96 | 53.62 | 04/01 | 04/01 | SKIP | 5,104.58 | ||
| 05/89 | 30 | 13.0 | 5,104.58 | 54.54 | 05/01 | 05/01 | 54.54 | 5.104.58 | ||
| 06/89 | 31 | 13.0 | 5,104.58 | 56.36 | 06/01 | 06/01 | SKIP | 5,160.94 | ||
| 07/89 | 30 | 13.0 | 5,160.94 | 55.14 | 07/01 | 07/01 | 55.14 | 5,160.94 | ||
| 08/89 | 31 | 13.0 | 5,160.94 | 56.98 | 08/01 | 08/01 | SKIP | 5,217.92 | ||
| 09/89 | 31 | 13.0 | 5,217.92 | 57.61 | 09/01 | 09/01 | 57.61 | 5,217.92 | ||
| 10/89 | 30 | 13.0 | 5,217.92 | 55.75 | 10/01 | 10/01 | SKIP | 5,273.67 | ||
| 11/89 | 31 | 13.0 | 5,273.67 | 58.23 | 11/01 | 11/01 | 58.23 | 5,273.67 | ||
| 12/89 | 30 | 13.0 | 5,273.67 | 56.35 | 5,000.00 | 12/01 | 12/01 | 56.35 | 5,273.67 | 0 |
| 654.93 | 5,000.00 | 381.26 | 5,273.67 |
The Residual accrual method codes are:
The residual accrual method may be used for leases extended past their original maturity. Income may be recognized on either a cash or an accrual basis. A default is entered on the Portfolio update [U0212MO], Modules customization screen. The default, C(ash) or A(ccrual), appears on the Lease Extension [U0108] screen, and may be overridden for an individual lease.
The Lease Extension [U0108] update has been modified to include three new accrual methods:
*REP can only be used if the lease is a pre-computed lease prior to the
extension
*REO can only be used if the lease is an operating lease prior to the extension
*REI can only be use if the lease is a simple interest lease prior to the
extension.
These new accrual methods will work similar to the ARES/RRES accrual method, but will only be used with Income on a Cash Basis. Additionally, month to month payment schedules are also supported by these accrual methods. For more detailed information pertaining to these three new accrual methods refer to the Lease Extension [U0108] update.
With the accrual option, as lease payments are billed and accrued after the lease has been extended, unguaranteed residual is reduced to zero before any residual income is recognized. Once unguaranteed residual is zero, any amount billed and accrued will be considered residual income.
With the cash option, residual reduction and residual income are not recognized until cash has actually been received and applied to an open invoice. LeasePak accrues amounts billed into two holding accounts; Deferred Residual Reduction and Deferred Extension Income. Deferred Residual Reduction represents the reduction to unguaranteed residual which has been billed but not yet paid. Deferred Extension Income represents billed but unpaid amounts on extended leases in excess of the unguaranteed residual.
As these two G/L accounts are updated, detail fields are stored on the Master Financial Lease record (DLS). This allows reconciliation of the General Ledger Balances [R0406], General Ledger Reconciliation [R0403] and the Accounts Receivable Balancing [R0404] reports. The [R0403] will reconcile these two accounts and the [R0404] will tie to the [R0406] at the office level.
This extension method allows either a month-to-month extension or an extension for a specific term. A month-to-month extension continues accruing and invoicing indefinitely, until the lease is terminated of paid off.
The following is a sample amortization schedule using the Residual accrual method for an extended lease.
| Starting residual value | = $1,000.00 |
| Payment schedule | = 12 monthly payments of $110.00 |
| Commencement | = January 1, 1995 |
| Date | Residual Reduction | Income | Residual |
| 1,000.00 | |||
| 1/95 | 110.00 | 0.00 | 890.00 |
| 2/95 | 110.00 | 0.00 | 780.00 |
| 3/95 | 110.00 | 0.00 | 670.00 |
| 4/95 | 110.00 | 0.00 | 560.00 |
| 5/95 | 110.00 | 0.00 | 450.00 |
| 6/95 | 110.00 | 0.00 | 340.00 |
| 7/95 | 110.00 | 0.00 | 230.00 |
| 8/95 | 110.00 | 0.00 | 120.00 |
| 9/95 | 110.00 | 0.00 | 10.00 |
| 10/95 | 10.00 | 100.00 | 0.00 |
| 11/95 | 0.00 | 110.00 | 0.00 |
| 12/95 | 0.00 | 110.00 | 0.00 |
| 1,000.00 | 320.00 |
This type includes the straight-line (AOSL, ROSL) payments (AOPM, ROPM), and variable rate (AOVE, ROVE) accrual methods. Operating leases are characterized by the use of the Leased Assets, Accumulated Depreciation, and Operating Income General Ledger accounts. In the straight-line method, an average monthly payment is recorded as income, while in the payments and variable rate methods income is recorded as the payment becomes due. Book depreciation on assets under operating leases is recorded in the General Ledger.
The Operating Straight Line accrual method code list consists of:
The Operating Straight Line accrual method earns income in equal monthly increments over the term of the lease. Each month's operating income is calculated as follows:
OPERATING INCOME = TOTAL PAYMENTS / TERM (MONTHS)
If the actual payment is different from the average monthly payment calculated above, the amount of the difference is recorded as unbilled operating lease income. Since straight-line operating leases recognize income in even amounts, unbilled income occurs when the billed payment amount is either less than or greater than the straight-line amount. If the billed payment is less (for example, in a step-down schedule), the account holds a positive amount. If the billed payment is greater (for example a step-up schedule), the account holds a negative amount. The net result at the end of the term, however, should be zero.
The following is a sample amortization schedule for the AOSL accrual method:
| Payment Schedule | = 2 monthly payments of $1,000 2 monthly payments of $3,000 2 monthly payments of $2,000 |
| Scheduled Receivable | = $12,000 |
| Scheduled Income | = $12,000 |
| Average Monthly Pmt | = $2,000 |
| Commencement | = January 1, 1996 |
| Accrual Date | Lease Payments Receivable | Deferred OP Lease Revenue | Unbilled OP Lease Income | Operating Lease Income | Payment Due Date |
| BOOK | 1,000.00 | 1,000.00 | 1/96 | ||
| 1/96 | 1,000.00 | 1,000.00 | 2,000.00 | 2/96 | |
| 2/96 | 3,000.00 | 2,000.00 | 1,000.00 | 2,000.00 | 3/96 |
| 3/96 | 3,000.00 | -1,000.00 | 2,000.00 | 4/96 | |
| 4/96 | 2,000.00 | -1,000.00 | -1,000.00 | 2,000.00 | 5/96 |
| 5/96 | 2,000.00 | 2,000.00 | 6/96 | ||
| 6/96 | -2,000.00 | 2,000.00 |
The following is a sample amortization schedule for the ROSL accrual method:
| Payment Schedule | = 3 monthly payments of $200 3 monthly payments of $400 |
| Scheduled Receivable | = $1,800 |
| Scheduled Income | = $1,800 |
| Average Monthly Pmt | = $300 |
| Commencement | = January 1, 1996 |
| Accrual Date | Lease Payments Receivable | Deferred OP Lease Revenue | Unbilled OP Lease Income | Operating Lease Income | Payment Due Date |
| Book | |||||
| 1/96 | 200.00 | 100.00 | 300.00 | 1/96 | |
| 2/96 | 200.00 | 100.00 | 300.00 | 2/96 | |
| 3/96 | 200.00 | 100.00 | 300.00 | 3/96 | |
| 4/96 | 400.00 | -100.00 | 300.00 | 4/96 | |
| 5/96 | 400.00 | -100.00 | 300.00 | 5/96 | |
| 6/96 | 400.00 | -100.00 | 300.00 | 6/96 |
The Operating Payments accrual method code list consists of:
The Operating Payments accrual method earns the full payment amount as operating income as it becomes due. For example, if the lease has a stepped payment schedule, the payment amount is recognized as income, not an average monthly amount as in the operating straight line method.
If the lease is a month-to-month operating lease, i.e., an operating lease without a fixed maturity date, the operating payments accrual method is the only method that may be used.
The following is a sample amortization schedule for the AOPM accrual method:
| Accrual Method | = AOPM |
| Payment Schedule | = 3 monthly payments of $200 |
| Scheduled Receivable | = $1,500 |
| Scheduled Income | = $1,500 |
| Commencement | = January 1, 1996 |
| Accrual Date | Lease Payments Receivable | Deferred OP Lease Revenue | Operating Lease Income | Payment Due Date |
| Book | 200.00 | 200.00 | 1/96 | |
| 1/96 | 200.00 | 200.00 | 2/96 | |
| 2/96 | 200.00 | 200.00 | 3/96 | |
| 3/96 | 300.00 | 100.00 | 200.00 | 4/96 |
| 4/96 | 300.00 | 300.00 | 5/96 | |
| 5/96 | 300.00 | 300.00 | 6/96 | |
| 6/96 | -300.00 | 300.00 |
The following is a sample amortization schedule for the ROPM accrual method:
| Payment Schedule | = 3 monthly payments of $300 3 monthly payments of $200 |
| Scheduled Receivable | = $1,500 |
| Scheduled Income | = $1,500 |
| Commencement | = January 1, 1996 |
| Accrual Date | Lease Payments Receivable | Unbilled OP Lease Revenue | Operating Lease Income | Payment Due Date |
| BOOK | ||||
| 1/96 | 300.00 | -300.00 | 2/96 | |
| 2/96 | 300.00 | 300.00 | 3/96 | |
| 3/96 | 300.00 | 300.00 | 4/96 | |
| 4/96 | 200.00 | 100.00 | 300.00 | 5/96 |
| 5/96 | 200.00 | 200.00 | 6/96 | |
| 6/96 | 200.00 | 200.00 | 7/96 | |
| 7/96 | 200.00 | 200.00 |
The Variable Rate Operating Lease accrual method codes are:
These accrual methods accrue income much like the VV floating simple interest methods. Payments consist of principal, interest and interest adjustments based on a floating rate index. The entire payment amount which results in the agreed upon yield is entered into the payment schedule for the lease. Since income is calculated at the beginning of the lease term using estimated base rates, an interest adjustment is automatically performed during each period's accrual, if required. Income is calculated based on a 30 day month/360 day year.
The actual lease payment is the amortized principal portion of the initial payment schedule plus the actual interest calculated. The lease payment entered into the payment schedule may differ from the amount accrued and invoiced, due to variances in the base rate.
Step and non-monthly payments may be entered for these methods. Skip payments may be entered when the payment frequency remains constant, but are not allowed when frequency varies (e.g., monthly to quarterly).
The following is a sample amortization schedule using the OV variable rate operating lease accrual method.
| Accrual method | = ROVE |
| Acquisition cost | = $50,000.00 |
| Yield | = 15% |
| Payment schedule | = 12 monthly payments of $4,512.92 |
| Scheduled receivable | = $54,155.04 |
| Scheduled income | = $4,155.04 |
| Commencement | = January 1, 1995 |
| Accrue Date | Num Days | Act Int Rate | Actual Income | Scheduled Income | Scheduled Principal | Principal Outstanding | Payment | Pmt Due Date |
| 50,000.00 | ||||||||
| 1/95 | 30 | 15.00% | 645.83 | 625.01 | 3,887.91 | 46,112.09 | 4,533.74 | 2/95 |
| 2/95 | 30 | 15.00% | 537.97 | 576.41 | 3,936.51 | 42,175.58 | 3,064.55 | 3/95 |
| 3/95 | 30 | 15.25% | 553.85 | 527.20 | 3,985.72 | 38,189.86 | 3,081.25 | 4/95 |
| 4/95 | 30 | 15.25% | 485.33 | 477.38 | 4,035.54 | 34,154.32 | 4,531.25 | 5/95 |
| 5/95 | 30 | 15.75% | 463.22 | 426.93 | 4,085.99 | 30,068.33 | 4,513.60 | 6/95 |
| 6/95 | 30 | 15.50% | 388.38 | 375.86 | 4,137.06 | 25,931.27 | 4,438.32 | 7/95 |
| 7/95 | 30 | 15.00% | 334.95 | 324.14 | 4,188.78 | 21,742.49 | 5,387.50 | 8/95 |
| 8/95 | 30 | 15.00% | 280.84 | 271.78 | 4,241.14 | 17,501.35 | 5,323.98 | 9/95 |
| 9/95 | 30 | 14.50% | 211.47 | 218.77 | 4,294.15 | 13,207.20 | 5,184.22 | 10/95 |
| 10/95 | 30 | 14.25% | 162.06 | 165.09 | 4,347.83 | 8,859.37 | 5,187.08 | 11/95 |
| 11/95 | 30 | 14.00% | 103.36 | 110.74 | 4,402.18 | 4,457.19 | 5,120.49 | 12/95 |
| 12/95 | 30 | 14.00% | 53.73 | 55.73 | 4,457.19 | 0.00 | 5,565.22 | 1/96 |
| 4,220.99 | 4,155.04 | 50,000.00 |
LeasePak Documentation Suite
© by NetSol Technologies Inc. All rights reserved.
The information contained in this document is the property of NetSol Technologies Inc. Use of the information contained herein is restricted. Conditions of use are subject to change without notice. NetSol Technologies Inc. assumes no liability for any inaccuracy that may appear in this document; the contents of this document do not constitute a promise or warranty.The software described in this document is furnished under license and may be used or copied only in accordance with the terms of said license. Unauthorized use, alteration, or reproduction of this document without the written consent of NetSol Technologies Inc. is prohibited.
This message should disappear within 5-15 seconds, depending on the size of the document and the speed of your connection to the Documentation Suite.
If you can still see this message after 20 seconds, try clicking the Refresh or Reload button on your Web browser.
If your document still does not load, refer to Document Load Troubleshooting for instructions on how to fix possible problems with either your Documentation Suite installation or Web browser setup.
If you do not have read access to the parent docsuite directory, you will not be able to load the Document Load Troubleshooting document. In this case, contact your network administrator for assistance.