Set Up Entities for Sinking Funds

Owned by Nancy Cohn (Deactivated)
Last updated: Jul 25, 2023
3 min read

When you set up entities for use with sinking fund bonds, you can set up the Sinking Fund Payment Redemption Gain/Loss Flag (tag 9923) field at the entity and accounting basis level. This value determines how the system processes gains and losses for sinking funds. The following options are available:

  • Treat Gain/Loss from Sinking Fund Payment as Gain/Loss. Eagle Accounting does not include principal repayment from the sinking fund schedule as part of the cash flow calculation for Trade and Amortization Yield and when processing a sinking fund payment, Eagle Accounting reduces cost in a proportional manner that could create gain or loss should the security not be purchased at par. The gain or loss caused by the sinking fund transaction is treated as Gain/Loss.

  • Treat Gain/loss from Sinking Fund Payment as Accelerated Amortization. Eagle Accounting does not include principal repayment from the sinking fund schedule as part of the cash flow calculation for Trade and Amortization Yield and when processing a sinking fund payment, Eagle Accounting does reduce cost in a proportional manner that could create gain or loss should the security not be purchased at par. The Gain or Loss caused by the sinking fund transaction is treated as accelerated amortization on both the subledger and general ledger.

  • Capitalize Sinking Fund Payment. Eagle Accounting uses the capitalize process for all sinking fund securities, regardless whether the security is a Pro Rata sinking fund. The capitalize process includes calculating a capitalized sinking fund Amortization and Trade Yield when earnings are run and processing sinking fund payments that reduce cost of investment for that security in a non-proportional manner, which causes no gain/loss to occur when processing a sinking fund redemption. A capitalized sinking fund amortization yield is a yield where all the future sinking funds principal repayments are taken into account as part of the cash flow calculation.

  • If Pro Rata Sinking Fund Capitalize Else Calculate Gain/Loss. Eagle Accounting looks at the SMF record (when earnings are calculated) to see if the security is a Pro Rata sinking fund. Eagle Accounting identifies a Pro Rata sinking fund security when the security's Pro Rata Sink (tag 11304) field is set to a value of Yes. Then:

    • If the security is a Pro Rata sinking fund, Eagle Accounting goes through the Capitalize Sinking Fund process which includes calculating a Capitalized Sinking Fund Amortization and Trade Yield when earnings are run, and processing sinking fund payments that reduce the cost of investment for that security in a non-proportional manner which causes no gain/loss to occur when processing a sinking fund redemption.

    • If the security is a sinking fund security but is not a Pro Rata sinking fund, Eagle Accounting calculates a Trade and Amortization Yield where the principal repayment from the sinking fund schedule is not included as part of the cash flow calculation. Also, when processing a sinking fund payment, Eagle Accounting reduces cost in a proportional manner that can create gain or loss should the security not be purchased at par.

  • If Pro Rata Sinking Fund Capitalize Else Calculate Amortization. Eagle Accounting looks at the SMF record when earnings are calculated to see if the security is a Pro Rata sinking fund. Eagle Accounting identifies a Pro Rata sinking fund security when the Pro Rata Sink field (tag 11304) is set to Yes. Then:

    • If the security is a Pro Rata sinking fund, Eagle Accounting goes down the Capitalize Sinking Fund process which includes calculating a Capitalized Sinking Fund Amortization and Trade Yield when earnings are run, and processing sinking fund payments that reduce the cost of investment for that security in a non-proportional manner that causes no gain/loss to occur when processing a Sinking Fund Redemption.

    • If the security is a sinking fund security but is not a Pro Rata sinking fund, Eagle Accounting calculates a Trade and Amortization Yield where the principal repayment from the sinking fund schedule is not included as part of the cash flow calculation. Also, when processing a sinking fund payment, Eagle Accounting reduces cost in a proportional manner that can create a gain or loss should the security not be purchased at par. The Gain or Loss created from the sinking fund payment is then treated as accelerated amortization on both the subledger and general ledger.

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