Understand Original Issue Discount (OID)

An original issue discount (OID) is the discount in price from a bond's face value at the time a bond or other debt instrument is first issued.

Set Up a Security

When you set up a security, you can identify whether a bond is eligible for OID by setting the OID Indicator option (tag 218) to Yes or No. The security's prospectus determines OID eligibility.

Set Up Amortization & Accretion Rules

If the security is OID eligible and the entity’s amortization method elects to recognize OID, then the system calculates OID amortization and posts it for discount lots. In the Amortization & Accretion Rules panel, you can set the Recognize OID option (tag 9197) to a value of Yes, No, or Constant Yield Differential. For a detailed description of these options, see Amortization & Accretion Rules Panel Options.

How Eagle Accounting Calculates Original Issue Discount

First Eagle Accounting calculates the security's OID yield curve by discounting the expected cash flows back to the issue price.

Then Eagle Accounting calculates the Adjusted Issue Price (AIP). The AIP represents the original issue price plus any OID income accreted up to that point in time. The system uses the AIP as a starting point for OID amortization recognition. The system recognizes OID income from the AIP to the redemption/maturity value, while it recognizes market amortization for an OID security from the purchase price to the AIP.

The OID curve uses a straight-line calculation from period to period (no scalloping).