Question about MSD

Former Member — Mon, 09 Jul 2007 10:38:55 GMT

What is d exact process of Amortization in MSD module

Re: Question about MSD

Former Member — Mon, 09 Jul 2007 10:43:24 GMT

Hi,

The functionality of Amortization is as follows:-

I am supplying a tool for making the product to my vendor as the cost of the tool is quite high.

But the cost of tool to be recovered from the vendor, instead of recovering the cost at a single shot. I would like to amorite the tooling cost on every purchase.

Say for Eg the amount payable for a vendor towards the supply of raw materials is Rs. 100 , instead of paying him 100 i will be paying 90 deductin the tooling cost.

This will continue till the tooling cost get recovered

It is actually is the distribution of the difference between the acquisition value and the repayment amount over the term.

A new book value is determined for a position on the valuation key date by calculating the net present value on the key date and generating corresponding interest capitalization flows.

There are 2 methods of doing this:

Linear Amortized Cost (LAC)

and Scientific Amortized Cost (SAC)

For more details about the topic please go to the following link:

http://help.sap.com/saphelp_47x200/helpdata/en/a4/6c28e4aa17014b9ed66af5c6218f17/frameset.htm

<b>Reward points</b>

Regards

Re: Question about MSD

Former Member — Mon, 09 Jul 2007 10:54:58 GMT

Hi,

Use

Amortisation is the distribution of the difference between the acquisition value and the repayment amount over the term.

A new book value is determined for a position on the valuation key date by calculating the net present value on the key date and generating corresponding interest capitalization flows.

Integration

Amortization is supported for the following product categories:

Loans:

· 300 Mortgage

· 310 Borrower’s note loan

· 320 Policy loan

· 330 General loan

Securities:

· 040 Bond

· 041 Bond with redemption schedule

· 060 Warrant bond

· 070 Convertible bond

The amortization function according to LAC and SAC is not released for loans with annuity or instalment repayments, or for securities with annuity or instalment repayments.

Features

· The net present value can be calculated on the key date using the following methods:

¡ Linear Amortized Cost (LAC)

¡ Scientific Amortized Cost (SAC)

The LAC or SAC value is determined in position currency.

The net present value calculated in position currency is compared with the amortized acquisition value in position currency. The difference is the write-up or write-down amount in position currency.

This is then translated to the valuation currency using the book exchange rate.

Flows are generated for the write-up or write-down amount.

The system selects an update type based on the gross/net indicator.

·Net/gross procedure

¡ In the case of the net procedure the position is posted along with its acquisition value (book value = acquisition value) and is amortized over the remaining term (book value = acquisition value + amortization).

¡ In the case of the gross procedure the premium/discount is posted to the position as accrued/deferred assets/liabilities (book value = acquisition value + premium/discount) and as part of the amortization is written back over the remaining period affecting net income (book value = acquisition value + premium/discount ¯ + amortizations ).

¡ net; Net; Separate Balance Sheet Accounts for Amortization

Negative and positive amortizations for a position caused by changes to the position, transfer postings or key date valuations are posted to different accounts in Financial Accounting. After posting the amortizations, the balance of both accounts is automatically compared for this position. If both accounts show a balance for this position, the account with the lower balance is cleared via the account with the higher balance by an adjustment flow.

¡ Gross; Premium/Discount Not Included in Book Value

A special gross procedure case. The premium/discount is posted and written back over the remaining term affecting net income but the book value does not contain the premium/discount (book value = acquisition value + amortizations). This ensures that the amount of the foreign currency write up/down is the same for one position in different valuation areas.

· Deferral item, purchase value

There is an additional position component.

This component is the deferral item for purchase value, used to defer the difference between the purchase value and the intrinsic value for the term of a bond (intrinsic value = value of the issue yield curve on the purchase date according to the defined amortization procedure). When you run a key date valuation or generate derived business transactions, corresponding flows are calculated for the position inflows and outflows.

The deferral item for purchase value is incorporated in the purchase value, which means that the standard amortization is based on the modified acquisition value. The deferral item for purchase value is also deferred on a linear basis for amortization purposes.

This position component may be positive (deferred income) or negative (deferred expenses).

Example:

Purchase of a zero bond (nominal value 100,000 EUR) at a rate of 60%. The imputed value of the issue yield curve according to SAC amortization is 70%.

In this case, the system generates a positive deferral item for the purchase value (deferred income) amounting to 10,000 EUR (= 10% x 100,000 EUR). The acquisition value is adjusted to 70,000 EUR, and the defined SAC amortization defers 30,000 EUR over the remaining term. The 10,000 EUR deferred income is deferred over the remaining term on a linear basis.

· Take interest payments into account

· This valuation step can generate reset flows

Regards,

Padmam.

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