Understand Original Issue Discount (OID)

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.

WRITERS NOTE: insert this page below Amortization & Accretion Panel Options, above premium proportional and above de minimus

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).

The AIP calculation uses the coupon rate at issuance in order to project cash flows for the all security types except Step Bonds. For Step Bonds, it uses all known coupon rates to project cash flows.

The AIP represents the starting point for OID income recognition. However, depending on the amortization method specified by the amortization rule, the actual recognition of income varies.

OID Example

Consider the following example:

Issue Date: 2/1/2018

Issue Price: 75

Maturity Date: 1/1/2020

Coupon Type: Monthly

Coupon: 5%

Units: 1,000,000.00

Settle Date: 2/18/2019

Adjusted Issue Price: 87.46946976

OID to amortize: $125,305.30

Notice in the following table that even though each method starts at the same AIP and ends with the same “OID to amortize”, that the amortization calculated differs based on the method used.