Working With Interest Adjustments

For an AR Arrangement, the reverse and replay is not done immediately as part of the backdated activity. Instead, it is done as part of next accrual activity which is usually the same day during COB when the back-valued Activities were booked. The system triggers the reverse and replay using the Retrospect Arrangement Activity (ACCOUNTS-RETROSPECT-ARRANGEMENT).

The Retrospect Arrangement Activity (ACCOUNTS-RETROSPECT-ARRANGEMENT) is used to manually trigger reverse and replay in an account on-demand.

The AA.RR.SERVICE can be run to trigger Retrospect Arrangement Activity (ACCOUNTS-RETROSPECT-ARRANGEMENT) for all accounts with a backdated transaction or activity on that day. If an account had more than one backdated transaction/activity, it is possible that more than one reverse and replay is triggered depending on when the transaction/activity happened and the service processed the Retrospect Activity.

The AA.RR.SERVICE TSA service has to be run for this. As a result of any backdated Transaction/Activity on an AR arrangement that has not yet been processed by the AA.RR.SERVICE, reverse and replay is processed in the following accrual.

• April 22
  • The account is initially credited with $1,000,000 with value April 22
  • Account’s Credit Interest Rate: 5%
  • Capitalisation Frequency - Weekly
  • Next Capitalisation Date: April 25

    

• April 25
  • COB
    • Interest Capitalised : 555.56
    • Booking Apr 25 and Value Apr 26

  Given below is the list of entries that will be shown on the Account Statement reflecting the Credit Interest Capitalised

  Book Date	Transaction Reference	Narrative	Value Date	Debit	Credit	Closing Balance
  22 APR	FT16113JJ1TH	Transfer In	22 APR	0.00	1,000,000.00	1,000,000.00
  25 APR	2000003363-20160425	Credit Interest	26 APR	0.00	555.56	1,000,555.56

• April 27
  • Online
    • Backdated Funds Transfer
    • Cr 200,000
    • Value Date - April 22
  • COB
    • Retrospect triggered effective April 22
    • Old entries are reversed and new entries are booked.
• The original Interest posting of 555.56 is reversed during the Reverse Replay process in COB and the correct Interest posting of 666.67 is posted with the original value date.

  RR triggered during April 27 COB is shown below.

  

  Given below, is the list of entries that will be shown on the Account Statement reflecting the Reverse and Replay during COB

  Book Date	Transaction Reference	Narrative	Value Date	Debit	Credit	Closing Balance
  22 APR	FT16113JJ1TH	Transfer In	22 APR	0.00	1,000,000.00	1,000,000.00
  25 APR	2000003363-YYYY0425	Credit Interest	26 APR	0.00	555.56	1,000,555.56
  27 APR	FT16118VYKP	Transfer In	22 APR	0.00	200,000.00	1,200,555.56
  27 APR	2000003363-YYYY0425	Credit Interest	26 APR	555.56	0.00	1,200,000.00
  27 APR	2000003363-YYYY0425	Credit Interest	26 APR	0.00	666.67	1,200,666.67

In a live arrangement, any backdated activity which invokes a financial recalculation (reverse and replay during COB) that is, a backdated rate change, the system updates the defined settlement account and makes correcting entries.

The system creates a contra entry to reverse the previous debit or credit and replaces it with a new one(a delta adjustment is not made). Tax that is previously calculated is also corrected in the same way.

Invoice Bill Generation during Interest Liquidation

Consider a new account arrangement funded on Mar 1, 2019.

It is seen that the interest gets capitalised on the account.

The arrangement balance is updated.

The entire account balance including the capitalised interest is transferred through a backdated activity and subsequently a backdated Retrospect Activity is triggered.

Since the account holds no balance, capitalised interest which is to be recovered from the account is now parked in separate invoice(INV) balance of the account and system prevents the account from moving into negative balance.

The bill is generated for the difference amount. The Savings Account does not move to negative balance and instead a bill is raised for the difference amount.

The EB.CONTRACT.BALANCES record is shown below.

The INV balance can be settled by the user through a suitable FT transaction using an appropriate Transaction Code and Activity Mapping.

The EB.CONTRACT.BALANCES record after the INV bill is settled is shown below.

After the bill gets settled, the account arrangement overview is as shown below.

Auto Settlement of Invoice Bills

In a backdated scenario, when an INV Balance Bill representing the capitalised interest amount is raised, the bill gets settled when Pay In Settlement Account is defined.

It is generated with a Settled status . The bill amount settled is USD 125.

The bill details are shown below.

The Settlement Account is debited for USD 125.

The Savings account overview is shown below.

• April 22
  • The account is initially credited with $1,000,000 with value April 22
  • Account’s Credit Interest Rate: 5%
  • Capitalisation Frequency: Weekly
  • Next Capitalisation Date: April 25

    

• April 25
  • COB
    • Interest Capitalised : 555.56
    • Booking April 25 and Value April 26
• Given below is the list of entries that will be shown on the Account Statement reflecting the Credit Interest Capitalised.

  Book Date	Narrative	Value Date	Debit	Credit	Closing Balance
  22 APR	Transfer In	22 APR	0.00	1,000,000.00	1,000,000.00
  25 APR	Interest – Capitalise	26 APR	0.00	555.56	1,000,555.56

• April 27
  • Online
    • Backdated Funds Transfer
      • Cr 200,000
      • Value Date: April 22

        

  • COB
    • Nothing happens related to the backdated adjustments on this account
• May 02 (Next Capitalisation Date)
  • COB
  • Retrospect Activity triggered effective April 27
  • Interest Correction : USD 111.11 - Booking Date May 02 , Value April 26
  • Interest Posting: USD 1,167.31 - Booking Date May 02 , Value May 03
    • Includes Interest adjustment amount 111.11 (which by now is part of the principal balance)

      Adjustment on the Next Capitalisation Date is shown below.

      

• Given below is the list of entries that will be shown on the Account Statement reflecting the Credit Interest Capitalised.

  The interest posted on May 09,16 is for the subsequent capitalisation period and is shown here only for sake of completeness.

  Book Date	Narrative	Value Date	Debit	Credit	Closing Balance
  27 APR	Transfer In	22 APR	0.00	200,000.00	1,200,555.56
  02 MAY	Interest – Correction	26 APR	0.00	111.11	1,200,666.67
  02 MAY	Interest – Capitalise	03 MAY	0.00	1,167.31	1,201,833.98
  09 MAY	Interest – Capitalise	10 MAY	0.00	1,168.45	1,203,002.43

In this case, the account is set with a liquidation account (settlement account). The proceeds of any account accrual / capitalisation will be processed to this liquidation account.

• June 03
  • Account is initially credited with $500,000 with value June 03
  • Account’s Credit Interest Rate: 5% - Tax on Credit Interest: 20%
  • Capitalisation Frequency: Weekly - Next Capitalisation Date: June 06

    After Capitalisation date, Source account is shown below.

    

• COB is run reaching the June 06 – Make Due Date
  • Interest Payable: 444.44 Cr (PAYCRINTEREST) and Settle Tax : 88.89 Dr
  • Interest Payable net of Tax of USD355.55 posted to the liquidation account
    • Booking date June 06 and Value date June 07
      NOTE: In this example, the Tax Property is configured to be Itemised in the Accounting Condition. Otherwise, a net entry of 355.55 would have been posted to the Interest – Payable.
• Given below is the list of entries that will be shown on the Account Statement for Interest Payable.

  Book Date	Narrative	Value Date	Debit	Credit	Closing Balance
  03 JUN	Transfer In	03 JUN	0.00	500,000.00	500,000.00
  06 JUN	Interest – Payable	07 JUN	0.00	444.44	500,444.44
  06 JUN	Settle – Tax	07 JUN	88.89	0.00	500,355.55
  06 JUN	Settle - Interest	07 JUN	355.55	0.00	500,000.00

• Liquidation account: USD 355.55 Credit is the result of Interest liquidation from the source account.

Book Date	Narrative	Value Date	Debit	Credit	Closing Balance
03 JUN	Transfer In	03 JUN	0.00	100.00	100.00
06 JUN	Credit Arrangement Settle Via Instructions	07 JUN	0.00	355.55	455.55

• June 08
  • Online
    • Backdated Funds Transfer
      • Cr 100,000.00
      • Value Date: June 03

    

  • COB is run till June 14 to reach the Next Cap Date
    • Retrospect Activity triggered effective June 03
  • Interest Correction for previous period : USD 88.89 Cr (PAYCRINTEREST) with Settle Tax of 17.78 - Booking Date 13 Jun, Value June 07
  • Interest Payable: USD 933.33 Cr (PAYCRINTEREST) with a Settle Tax 186.67 - Booking Date June 13 , Value June 14 for the subsequent period
  • The Interest Payable entries are posted to the liquidation account
  • On Next Capitalisation Date – Effect of Back Value entry

    

• Given below is the list of entries that will be shown on the Account Statement for Interest Payable and Corrections.

Book Date	Narrative	Value Date	Debit	Credit	Closing Balance
08 JUN	Transfer In	03 JUN	0.00	100,000.00	600,000.00
13 JUN	Interest – Correction	07 JUN	0.00	88.89	600,088.89
13 JUN	Settle – Tax	07 JUN	17.78	0.00	600,071.11
13 JUN	Settle - Interest	07 JUN	71.11	0.00	600,000.00
13 JUN	Interest – Payable	14 JUN	0.00	933.33	600,933.33
13 JUN	Settle – Tax	14 JUN	186.67	0.00	600,746.66
13 JUN	Settle - Interest	14 JUN	746.66	0.00	600,00.00

• Given below is the list of liquidation entries in Settlement Account

Book Date	Narrative	Value Date	Debit	Credit	Closing Balance
13 JUN	Credit Arrangement Settle Via Instructions	07 JUN	0.00	71.11	526.66
13 JUN	Credit Arrangement Settle Via Instructions	14 JUN	0.00	746.66	1273.32

Consider the scenario where Next Cap is set without Full Adjustment and Back Value Date Activity is within the current period. The following configuration is set in the Accounting product condition:

• Interest Adjustments due to back dated txns is set to as Next. Cap
• Adjust current period interest along with next cap? is not set

  

On April 01, 21,

• The account is opened
• Account’s Credit Interest Rate - 1.5%
• Capitalisation Frequency - 5th of every month

  

On May 03 ,

• Online
  • The account is credited with USD 1,000,000 with value date May 01, 21

    

The AA.ACCOUNT.DETAILS application stores the Pending Adjustment Date for the farthest date of back value dated entry which is May 01, 21. This entry is cleared only after the interest accruals are adjusted.

On May 03,

• During COB,

  • Interest accrual is triggered for the arrangement and
    • This triggers the Retrospect Activity triggered effective from May 01, 21
• Interest Accrual Correction is for USD 104.17
• The Pending Adjustment Date entry in the AA.ACCOUNT.DETAILS is removed.

This is because the back value dated entry is posted in the current interest period.

The screenshot given below shows the interest accruals correction for the back value dated entry posted during COB.

On the capitalisation date, the interest posting is for the balance of 100,000 USD posted on May 01, 21.

The interest accruals for the captialisation date are shown below.

The interest postings for the current period can be seen below.

Consider the scenario where Next Cap is set without Full Adjustment and Back Value Date Activity is beyond the last capitalisation period. The following configuration is set in the Accounting product condition:

• Interest Adjustments due to back dated txns is set to as Next Cap
• Adjust current period interest along with next cap? is not set (checkbox not selected)

  

April 01, 21

• The account is opened
• Account’s Credit Interest Rate - 1.5%
• Capitalisation Frequency - Monthly on the 5th

  

On May 03,

• Online
  • The account is credited with USD 1,000,000 with value date May 01, 21

    

The AA.ACCOUNT.DETAILS stores the Pending Adjustment Date for the farthest date of back value dated entry which is May 01, 21. This entry is cleared only after the interest accruals are adjusted.

On May 03,

• During COB

  • Interest accrual is triggered for the arrangement
    • Interest Accural Correction for the current interest period is for USD 104.17 .
  • The interest adjustment is for the current interest period.
  • The Pending Adjustment Date in AA.ACCOUNT.DETAILS continues till the next capitalisation date.

    

On May 05,

• The interest adjustment for the previous accrual period is posted as an interest correction.
  • Credit interest 138.89 is posted.
• The cascaded impact of previous period interest is also posted as interest correction.
  • Credit interest for previous period is capitalised to the account and opening balance for the current period is 1,000,138.89
• The Pending Adjustment Date entry in the AA.ACCOUNT.DETAILS is removed.

  

The interest accruals for the captialisation date are shown below.

The list below reflects the interest adjustments posted for the previous period and the interest adjustment for the current period based on the previous period’s (corrected/adjusted) capitalised balance.

Consider the scenario where Next Cap is set with Full Adjustment and Back Value Date Activity is within current period. The following configuration is set in the Accounting product condition:

• Interest Adjustments due to back dated txns is set to as Next Cap
• Adjust current period interest along with next cap? is set (checkbox is selected)

  

On April 01, 21

• The account is opened
• Account’s Credit Interest Rate -1.5%
• Capitalisation Frequency - Monthly on the 5th

  

On May 03,

• Online
  • The account is credited with USD 1,000,000 with value date May 01, 21

    

The AA.ACCOUNT.DETAILS stores the Pending Adjustment Date for the farthest date of back value dated entry which is May 01, 21. This entry is cleared only after the interest accruals are adjusted.

On May 03, during COB

• Interest accrual is triggered for the arrangement.
  • Interest Accural for current date is for USD 34.72.
• The interest adjustment is for the current interest period continues till the next capitalisation date.
  • The Pending Adjustment Date in AA.ACCOUNT.DETAILS continues till the next capitalisation date.

    

On May 05,

The interest adjustment for the current accrual period is posted as an interest correction on the captialisation date

The interest postings for the current period are as shown below.

Consider the scenario where Next Cap is set with Full Adjustment and Back Value Date Activity is beyond the last capitalisation period. The following configuration has beenis set in the Accounting product condition:

• Interest Adjustments due to back dated txns is set to as Next Cap
• Adjust current period interest along with next cap? is set (checkbox is selected)

  

On April 01, 21

• The account is opened
• Account’s Credit Interest Rate - 1.5%
• Capitalisation Frequency - Monthly on the 5th

  

On May 03,

• Online
• The account is credited with USD 1,000,000 with value date May 01, 21

  

The AA.ACCOUNT.DETAILS stores the Pending Adjustment Date for the farthest date of back value dated entry which is May 01 , 21. This entry is cleared only after the interest accruals are adjusted.

On May 03, during COB

• Interest accrual is triggered for the arrangement.
  • Interest Accural for current date is for USD 34.72.
• The interest adjustment is for the current interest period and previous period continues till the next capitalisation date.
  • The Pending Adjustment Date in AA.ACCOUNT.DETAILS continues till the next capitalisation date.

    

On May 05,

• The interest adjustment for the previous accrual period is posted as an interest correction
  • Credit interest 138.89 is posted.
• The cascaded impact of previous period interest is also posted as interest correction.
  • Credit interest for previous period is capitalised to the account and opening balance for the current period is 1,000,138.89
• The Pending Adjustment Date entry in the AA.ACCOUNT.DETAILS is removed.

  

The interest accruals for the captialisation date are shown below.

Given below is the list that reflects the interest adjustments posted for the previous period and the interest adjustment for the current period based on the previous period’s (corrected/adjusted) capitalised balance.

For a back-value dated transaction in the account, on the capitalisation date, Retrospect Activity is triggered in the account and Adjust Due Activity posts the difference bill to the liquidation account.

For a back-value dated transaction in the account, on the capitalisation date, Retrospect Activity is triggered in the account and Adjust Cap Activity capitalises the difference in interest.