In the Amortization & Accretion Rules panels, you can specify a value for the Stated Interest Processing (tag 16412) field, which determines whether to use stated interest processing and the Stated Interest Recognization (tag 1613) field, which Indicates whether to recognize coupon income and amortization on the contractual date or the actual settlement date when you use stated interest processing.
About Stated Interest Processing
Stated interest processing allows you to only recognize premium amortization when either:
- Coupon payments are received, either on a contractual or actual settlement date basis.
- Disposal transactions that have accrued interest.
You can create an amortization & accretion rule that uses stated interest processing to allow the entity/accounting basis to recognize interest and premium amortization when cash is received.
Retail US taxpayers who recognize bond premium amortization record such amortization on a cash basis rather than an accrual basis. As interest payments are recorded and paid, bond premium allocable to the payment is recorded at the same time. As bond sales with accrued interest results in recognition of interest income to the seller, the accrued interest of the sell is treated as stated interest and the period to date amortization proportionate to the quantity sold on a lot is recorded at that time.
Transfer Life to Date Deferred Amortization at Disposition for a Conversion or Receipt
When you set up amortization rules with Amortization at Disposition set to Yes and enter a Conversion or a Receipt transaction, the following fields are available in the Conversion and Receipt trade panels. The panels display the amortization at disposition life to date local and base fields (tags 5548 and 5549) when you convert or receive a debt security and the original purchase price (tag 45) is not equal to the maturity price (tag 42).
- Life to Date Deferred Amortization at Disposition Local (tag 5548). Specifies the projected local life-to-date amortization for an amortization at disposition lot. This option applies to a lot where the amortization/accretion rule has Amortization at Disposition set to Yes. If an amortization rule using stated interest processing applies to the lot, this value represents Life to Date Deferred Stated Amortization Local.
- Life to Date Deferred Amortization at Disposition Base (tag 5549). Displays the projected base life-to-date amortization.for an amortization at disposition lot. This option applies to a lot where the amortization/accretion rule has Amortization at Disposition set to Yes. If an amortization rule using stated interest processing applies to the lot, this value represents Life to Date Deferred Stated Amortization Base.
Transfer Life to Date Deferred Stated Amortization for a Conversion or Receipt
However, when you set up amortization rules with Stated Interest Processing set to Yes and enter a Conversion or a Receipt transaction, the following fields are available in the Conversion and Receipt trade panels. The system applies a different field name to tags 5548 and 5549 when you use stated interest processing. The panels display the deferred stated amortization life to date local and base fields (tags 5548 and 5549) when you convert or receive a debt security and the original purchase price (tag 45) is not equal to the maturity price (tag 42).
- Life to Date Deferred Stated Amortization Local (tag 5548). Specifies the projected local life-to-date amortization for a stated interest processing lot. This option applies to a lot where the amortization/accretion rule has Stated Interest Processing set to Yes.
- Life to Date Deferred Stated Amortization Base (tag 5549). Displays the projected base life-to-date amortization.for a stated interest processing lot. This option applies to a lot where the amortization/accretion rule has Stated Interest Processing set to Yes.
Calculate Current Period to Date Amortization After a Conversion or Receipt
If you use stated interest processing, you can transfer amortization for the current coupon period, starting the beginning of the current period. The system can calculate this value on the first day of earnings after a Conversion or a Receipt. This applies if you use stated interest processing, and the transaction applies to premium purchases. Stated Interest processing posts amortization corresponding to the period in which a coupon was accrued. You can provide this value, amortization for the current coupon period, starting the beginning of the current period. Without it, amortization can be understated.
When you use stated interest processing, you can use the Receive and Conversion trade panels to specify the amount of deferred received PTD amortization for debt securities for the current coupon period. The panels display the amortization at disposition period to date local and base fields (tags 11932 and 11933) when you convert ore receive a debt security and the original purchase price (tag 45) is not equal to the maturity price (tag 42).
- Period to Date Amort at Disp Local (tag 11932). Specifies the projected local period-to-date amortization for an amortization at disposition lot. This option applies to a lot where the amortization/accretion rule has Stated Interest Processing set to Yes.
- Period to Date Amort at Disp Base (tag 11933). Displays the projected base period-to-date amortization.for an amortization at disposition lot. This option applies to a lot where the amortization/accretion rule has Stated Interest Prociessing set to Yes.
If you use stated interest processing, you can now transfer amortization for the current coupon period, starting the beginning of the current period. The system can calculate this value on the first day of earnings after a Conversion or a Receipt. It applies if you use stated interest processing, and it is only used for premium purchases. Stated Interest processing, which is available in this release, posts amortization corresponding to the period in which a coupon was accrued. You can provide this value, amortization for the current coupon period, starting the beginning of the current period. Without it, amortization would be understated.
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