Zero Coupon bond from collateral money

[former_member195434]

I need some help in setting up zero-coupon bond that is different from standard zero coupon bond because it from collateral money and not an own investment. So the cash flows for original investment (at discounted amount) and final maturity (at nominal amount) is not recognized in accounting.

The expected system behavior is as below:

Par value [A] : $100 Face value [B] : $88 Discount [A] – [B] : $12 Coupon : 0% Tenor : 12 months Interest income to accrue per month : $12 / 12 months = $1 / month

Cash flows:

Purchase: No accounting document

Monthly accrual and reversal: Dr Interest receivable $1

Cr Interest revenue $1

Upon maturity: Dr Bank account $12

Cr Interest revenue $12

So far I have been able to:

• 1.Stop FI posting for face value (purchase) and par value (maturity)

• 2.Generate monthly accrual and reversal using amortization.

However, I am stuck where, upon maturity, it is required to post the difference of par value and face value.

Please provide any input. Thanks

AB

[Gustavo_Vazquez · Accepted solution]

Hi,

tx TPM18 ?

You don't accrual on Zero Coupon (as the interest is embedded in the Price) but do valuations (tx TPM1).

Kind Regards

[former_member195434 · Accepted solution]

Thanks a lot Gustavo for this solution.

There is one problem though. TPM18 is posting based on position currency (because my DBT is based on position) but I want to debit the bank.

Dr Bank GL

Cr Revenue P&L account

For picking up bank GL based on masking, I need to enter posting category as 'bank posting in payment currency' in the posting specification. But there is no payment currency in DBT_C002 or DBT_E017. So I get the below error

"Account determination: Flow has no payment currency"

Any advice on how to achieve this?

Thanks

AB

[Gustavo_Vazquez · Accepted solution]

Debit the bank ? Have you post the final repayment ? tx FWZE

TPM18 is for DBT update types, not for bank posting. The cashflow would be:

1) Create transaction: tx FTR_CREATE

Bonds 88
Bank - 88

2) Final repayment. tx FWZE

Bank 100
Bonds - 100

3) P/L . Tx TPM18

Bonds 12
Income Interest -12

I have not considered Amortization in PMP but cashflow should be similar.

Kind Regards

[former_member195434 · Accepted solution]

Hi Gustavo,

I agree with what you've written if it was regular investment with own money. However in this case, the money (Rs 88) is collateral money and should not reflect in my accounts. Similarly, Rs 100 repayment does not affect my accounts. Only the difference in value (Rs 12) is my actual income and is received in my bank account.

So this is obviously not a standard process.

Also, I just realized that TPM18 is at security account level and not at transaction level. So in this case, which bank account should be picked up - the one maintained in TRS_SEC_ACC?

Any help if appreciated.

AB

[Gustavo_Vazquez · Accepted solution]

As it is not your money but you collect the interest may be a different AARef would be needed.

You could create a Security Deposit Account (TRS_SEC_ACC) which reflects your situation with a different AARef to collect only interest and reflect accounting. However TPM18 will have to post to P&L .

If it is a zero coupon, interest and capital are paid in one update type (prod type 04J); other bonds split capital and interest (04I, 04H, 04M, 04R)

REPO is another option (Prod Type 73A) but it considers repayment / interest or not (73B).

Yes, the bank account Will be derived from TRS_SEC_ACC.

Kind Regards

[former_member195434 · Accepted solution]

Thanks Gustavo for all your help. I am considering to use posting interface enhancement to change the GL account to house bank GL account from TRS_SEC_ACC during TPM18.

Do you see any issue with this?

[Gustavo_Vazquez · Accepted solution]

No, I don't see a problem. Just keep in mind the product and update type you are going to change.

I prefer to use standard and not badi, but it will work.

Kind Regards

[former_member195434 · Accepted solution]

We have gone ahead with the enhancement. Thanks for your help.