Sinking Fund Example

The following example provides several scenarios that demonstrate how the system processes sinking fund payments for a security when you choose different options for the Sinking Fund Payment Redemption Gain/Loss Flag (tag 9923) field at the entity and accounting basis level,

In this example, security ID030287AL0 is purchased with:

Trade Date and Settle Date of 19990710
Price of 101
Original Face of 1,000,000.00
Current Face of 993,541.00
Sinking Fund Factor of 0.99354100

Then:

On July 15, 1999, a sinking payment is processed for 0.045049248, or 45,049.25 Par.
The Life to Date Amortization is - 56.25 (as of 20040714).

Sink Par amount = 45,049.25
(1,000,000.00 Original Face * .045049248)

Sink Receivable = 45,049.25
(1,000,000.00 Original Face * .045049248 Sink Factor) or Sink Par amount * 100

Cost of Investment = 45,497.19
% Current Face Sink * Amortized Cost 0.045342115 * (1,003,476.410 + -56.25)

Treat Gain/Loss from Sinking Fund Payment as Gain/Loss Scenario

In this example, the Sinking Fund with the Sinking Fund Payment Redemption Gain/Loss Flag is set to Treat Gain/Loss from Sinking Fund Payment as Gain/Loss.

Eagle Accounting treats the gain/loss created from the sinking fund corporate transaction as Gain/Loss. Eagle Accounting calculates gain/loss based on a prorated amount, which is in turn based on amortized cost.

Calculation

Gain/loss = Sink Par amount - Cost of Investments

Gain/Loss = 45,049.25 - 45,497.19 = 447.94

General Ledger Entries

If you elect to take Gain/Loss from sinking fund payments, the general ledger entries on 19990715 appear as shown in the following table.

Account Number	Account Name	Debit Amount	Credit Amount

Account Number	Account Name	Debit Amount	Credit Amount
1002000100	Investment Receivable	45,049.25	0.00
1010000100	Cost Of Investments	0.00	45,497.19
3006000112	Realized Loss On Investments Short Term	447.94	0.00

Treat Gain/Loss from Sinking Fund Payment as Accelerated Amortization Scenario

If the value for the Sinking Fund Gain/Loss Payment Redemption Flag is set to Treat Gain/Loss from Sinking Fund Payment as Accelerated Amortization:

Eagle Accounting treats the gain/loss created from the sinking fund corporate transaction as Accelerated Amortization. This field exists at both the entity and accounting basis level. Eagle Accounting calculates gain/loss based on a prorated amount, which is in turn based upon amortized cost.

Calculation

Accelerated Amortization = 45,049.25 - 45,497.19 = 447.94

Accelerated Amortization = Sink Par amount - Cost of Investments

General Ledger Entries

If you elect to take Accelerated Amortization from sinking fund payments, the general ledger entries on 19990715 appear as shown in the following table.

Account Number	Account Name	Debit Amount	Credit Amount

Account Number	Account Name	Debit Amount	Credit Amount
1002000100	Investment Receivable	45,049.25	0.00
1010000100	Cost Of Investments	0.00	45,049.25
1010000100	Cost Of Investments	0	447.94
4001000401	Amortization Of Premium	447.94	0

The daily amortization delta for the sink payment date includes accelerated amortization caused by the sink payment, plus the scheduled amortization for that day.

When processing a sink transaction, if you elected to take accelerated amortization, and you do not have amortization applied for that position, Eagle Accounting treats the gain/loss from a sink transaction as Gain/Loss.

Capitalized Sinking Fund Payment Scenario

If the value of the Sinking Fund Payment Redemption Gain/Loss Flag field is set to Capitalized Sinking Fund Payment, Eagle Accounting calculates gain/loss based on the unit cost of the security. The difference between the cost and the proceeds is classified as a security Gain. The amortization yield takes into account the sinking fund schedule and the impact from the sinking fund payments at unit cost.

General Ledger Entries

Account Number	Account Name	Debit Amount	Credit Amount

Account Number	Account Name	Debit Amount	Credit Amount
1002000100	Investment Receivable	45,049.25	0.00
1010000100	Cost Of Investments	0.00	45,049.25

Eagle Accounting recognizes a sink corporate action by the PMT Event Type.