TECHNICAL PAPER

Oracle Treasury
Accruals

Prepared by Global Financial Applications Development

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Contents
1. Introduction ..................................................................................................... 4

2. General principles ........................................................................................... 5

2.1 Accrual batches ................................................................................................................ 5

2.2 Accrual Start Date and End Date of a Revenue or Expense ............................................. 6

2.3 Accrual Days Adjustment / Interest Includes ................................................................... 7

2.4 Day Counting ................................................................................................................... 7

2.5 Rounding .......................................................................................................................... 8

2.6 Accrual Types or Methods ............................................................................................... 8

2.6.1 Straight Line Accrual ............................................................................................. 8
2.6.2 Effective Interest Accrual ...................................................................................... 9
2.6.3 Compound Coupon Accrual ................................................................................... 9
2.7 Accrual vs. Amortization ...............................................................................................10

3. Money Market ............................................................................................... 11

3.1 Short Term Money (ONC) .............................................................................................11
3.1.1 Interest – Straight-Line Method ...........................................................................11
3.2 Intercompany Funding (IG)............................................................................................12
3.2.1 Interest – Straight-Line Method ...........................................................................12
3.3 Wholesale Term Money (TMM) ....................................................................................14
3.3.1 Interest Transactions ............................................................................................14
3.4 Retail Term Money (RTMM) ........................................................................................15
3.4.1 Interest Transactions ............................................................................................15
4. Money Market - Negotiable Instruments.................................................... 16
4.1 Fixed Income Securities - Coupon Bonds (BOND) .......................................................16
4.1.1 Discount or Premium ...........................................................................................16
4.1.2 Coupons ...............................................................................................................18
4.2 Fixed Income Securities - Zero Coupon Bonds (BOND)...............................................20
4.2.1 Discount ...............................................................................................................20
4.3 Discounted Securities (NI) .............................................................................................21
4.3.1 Interest – Straight-Line Method ...........................................................................21
4.3.2 Interest– Effective Interest Method ......................................................................21
5. Money Market - Derivatives ........................................................................ 24
5.1 Forward Rate Agreement (FRA) ....................................................................................24
5.1.1 Settlement Amount...............................................................................................24
5.2 Interest Rate Swap (IRS) ................................................................................................24
5.2.1 Coupon.................................................................................................................24
5.3 Interest Rate Options (IRO) ...........................................................................................25
5.3.1 Premium ...............................................................................................................25

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 5.3.2 Settlement Amount...............................................................................................25
5.4 Bond Options (BDO) .....................................................................................................27
5.4.1 Premium ...............................................................................................................27
5.4.2 Settlement Amount...............................................................................................27
5.5 Interest Rate Swaptions (SWPTN) .................................................................................28
5.5.1 Premium ...............................................................................................................28
5.5.2 Settlement Amount...............................................................................................28
6. Bank Accounts............................................................................................... 29
6.1 Current Account Balances (CA).....................................................................................29
6.1.1 Interest .................................................................................................................29
7. Foreign Exchange Transactions .................................................................. 31
7.1 Options (FXO) ...............................................................................................................31
7.1.1 Premium ...............................................................................................................31
8. Definitions ...................................................................................................... 32

9. Appendix I – Examples with different Day Counts and Adjustments ..... 33

Table of Figures

Figure 1 Spreading revenue/expenses ........................................................................................ 5

Figure 2 Accounting -> Accruals form ...................................................................................... 5
Figure 3 Accrual of Premium/Discount ...................................................................................16
Figure 4 Straight Line Method .................................................................................................22
Figure 5 Effective Interest Method ..........................................................................................22
Figure 6 Accrual of Premium and Settlement amount for Interest Rate Option .......................25

Table of Equations
Equation 1 Balance .................................................................................................................... 6
Equation 2 Period Adjustment ................................................................................................... 6
Equation 3 Straight Line Accrual ............................................................................................... 8
Equation 4 Effective Interest Accrual ........................................................................................ 9
Equation 5 Compounding Coupon Accrual ............................................................................... 9
Equation 6 Previous Quasi Coupons ........................................................................................10

Table of Examples

Table 1 Accrual Examples for Short Term Money ..................................................................12

Table 2 Accrual Examples for Intercompany Funding ............................................................13
Table 3 Accrual Examples for Bond Discount.........................................................................18
Table 4 Accrual Examples for Bond Coupons .........................................................................19
Table 5 Accrual Examples for Discounted Securities ..............................................................23
Table 6 Accrual Examples for Interest Rate Options ...............................................................26
Table 7 Accrual Examples for Current Account Balances .......................................................30

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1. Introduction
The purpose of this document is to provide detailed information about how Oracle Treasury supports
Accruals and Amortizations.

The accountig accruals functionality is used to calculate the periodic accruals and amortizations when
performing accrual accounting (see chapter 8 Definitions).

The present document is meant to supplement the Oracle Treasury User Guide by providing
additional information on how accruals and amortizations are calculated. Please consult the User
Guide for a general overview of the Accurals functionality.

This document describes functionality that might differ depending on the release of Oracle Treasury.
The following table gives an overview of the releases covered. In the text, we use the acronym of the
Oracle Treasury Mini-Pack to refer to the release.

Acronym Description Part of Release

11i.XTR.F Oracle Treasury Mini-Pack F Maintenance Pack 11.5.7

11i.XTR.G Oracle Treasury Minipack G 11i.FIN_PF.C (Oracle Financials Family Pack C)

Maintenance Pack 11.5.8
11i.XTR.H Oracle Treasury Minipack H 11i.FIN_PF.D (Oracle Financials Family Pack D)
Maintenance Pack 11.5.9
11i.XTR.J Oracle Treasury Minipack J 11i.FIN_PF.E (Oracle Financials Family Pack E)
Maintenance Pack 11.5.10

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2. General principles

The accruals process is a process whereby revenue and expenses are recorded in the period in which
they are earned or incurred regardless of whether cash is received or disbursed in that period.

The Accounting->Accruals function of Oracle Treasury spreads revenue or expenses resulting from
financial deals – such as for instance interest earned or paid - over different accounting periods by
calculating the period adjustments. These adjustment can then be journalized using the Accounting-
>Daily Journals function, provided the correct Journal Entry Actions have been set up to journalize
these adjustments.

The following figure shows how a coupon covering a period of 6 months and spread across 3
accounting periods is accrued.

Accounting Period: Q1 Accounting Period: Q2 Accounting Period: Q3

Batch Start Batch End Batch Start Batch End Batch Start Batch End
1-Jan-2002 31-Mar-2002 1-Apr-2002 30-Jun-2002 1-Jul-2002 30-Sep-2002

Coupon Start Maturity

1-Feb-2002 1-Aug-2002
Accrual Q1 Accrual Q2 Accrual Q3

Figure 1 Spreading revenue/expenses

2.1 Accrual batches

Accruals are always calculated in batches for a particular company and covering a time period.
‘Batch Start’ and ‘Batch End’ dates define this period: ‘Period From’ and ‘To’ dates in the Accruals
form. The batch period will normally reflect your accounting period, for instance a quarter. Oracle
Treasury does not look at accounting periods defined in General Ledger.

Figure 2 Accounting -> Accruals form

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 If you perform accounting revaluations for the given company in Oracle Treasury (defined by a
company level parameter), the accrual batches cover the same time periods as the revaluation
batches. In fact, you will need to create your revaluation batches before being able to calculate
accruals. You will for instance create a revaluation batch for Q1 (Quarter 1) and once this
revaluation batch has been authorized, you can proceed to calculate the accruals for the same batch.

The system calculates the accrual amount for the batch period (the column labeled ‘Ajustment’ in the
accruals form) by calculating the accrual of the revenue or expense from it’s start date to the batch
end date or to the maturity or end date of the revenue or expense, whichever is earlier, and then
subtracting the accrual balance from previous accrual batches.

Balance = Accrual (from:StartDate, to:Minimum(BatchEndDate, MaturityDate))

Equation 1 Balance

Adjustment = Balance – (Balance of previous Batch)

Equation 2 Period Adjustment

Notice that amortization and accruals adjustments are calculated for each batch period, rather than as
an accumulating amount for multiple periods. Reversal entries for previous balances are not
required, since Oracle Treasury only posts the period adjustments.

First accrual
When an accrual is calculated for the first time for a revenue or expense, the previous accrual batch
balance is zero, and the accrual calculated will cover the period from the revenue or expense start
date to the batch end date.
In the case that the start date of the revenue or expense lays before the current batch start date; this
can result in an accrual amount that is larger than the accrual amount covering the period of the
accrual batch. This happens when no accrual has been calculated for the period prior to the accrual
batch you are calculating. If for instance you would enter the Coupon in “Figure 1 Spreading
revenue/expenses” after having run the accruals process for Q1, the accruals process for Q2 would
attribute the accrued amount covering the period “1-Feb-2002 to 30-Jun-2002” to the batch for
Accounting Period: Q2.

Last accrual
The last accrual of a revenue or expense is always calculated by subtracting the already accrued
amount (balance) from the revenue or expense amount. This insures that the sum of all the accrual
adjustements for a revenue or expense precisely match the revenue or expense amount avoiding any
rounding discrepancies (and unbalanced journals).

2.2 Accrual Start Date and End Date of a Revenue or Expense

Let’s define the Accrual Start Date as the date from which we start accruing a Revenue or Expense
and Accrual End Date as the date to which we accrue a Revenue or Expense.

The Accrual Start Date of a revenue or expense depends on whether it relates to a deal (e.g.
Premium paid when buying a bond) or only to one transaction of a deal (e.g. a bond coupon):

• Revenues or expenses that cover the entire deal period are accrued starting from the deal date
when the company parameter
“Accounting - Trade/Settlement Date Method” = “Trade Date Accounting “.

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 • Revenues or expenses that cover the entire deal period are accrued starting from the settlement
date when the company parameter
“Accounting - Trade/Settlement Date Method” = “Settlement Date Accounting “.
• Revenues or expenses that cover only a transaction of a deal (e.g. Bond, Term Money or
Interest Rate Swap coupons) are accrued from the transaction start date

The Accrual End Date of a revenue or expense corresponds to its maturity date1.

2.3 Accrual Days Adjustment / Interest Includes

When accruing a revenue or expense, this amount is eventually spread over several accrual periods.
In that case, the system needs to make a decision of whether to calculate an accural for the first or last
day of the period of the revenue or expense.

Let’s take an example to explain: you make an investment of one day and earn one day of interest.
The time period of that investment spans two days since it lasts from Start Date to Maturity Date
(which is Start Date + 1). Now the question arises of whether you should attribute that interest to the
Start Date or the Maturity date.

Oracle Treasury has a system parameter “Accrual Days Adjustment Type”, which drives how the
accruals are generated.

• A value of “Accrual Days Adjustment Type” = “Arrears”, means that the accrual is generated
for the last day of the revenue/expense period.
In our example, the interest is attributed to the Maturity Date
• A value of “Accrual Days Adjustment Type” = “Forward”, means that the accrual is generated
for the first day of the revenue/expense period.
In our example, the interest is attributed to the Start Date

In 11i.XTR.H, the following functionality was added to the system (source: Transfer of Information):

Interest Calculation Options and Override Capability

In this minipack, new options for calculating and overriding interest were added.

For interest calculations, you can now choose one of the following rounding options: round up,
round down, or round to nearest value. You can also choose which days you want to include in the
interest calculations: the first day of the period, the last day of the period, or both the beginning and
ending days of the period. This is similar to Forward vs Arrear accruals; however, you now have an
additional option to count both days. Also, you have greater flexibility in applying the rules since
they are defaulted and ultimately stored to the individual deals.

In addition, you can now override the system calculated interest amounts in the deal input screens.
This feature enables you to correct small differences between the Treasury calculated amounts and
the counterparty's calculated amounts. You have control regarding who may access to this override
feature and by how much they can adjust the figures.

Starting from 11i.XTR.H, the system accrues an interest revenue or expense on the first or last day or
both days depending on the value of the deal level parameter “Interest Includes”.
If such a deal level parameter does not exist, the system still looks at the system parameter.

2.4 Day Counting

When calculating the Day Count from the Start Date of a revenue or expense to the Batch End Date,
the system uses the Day Count Basis (30/360, Act/360, etc.) of the deal.

1
Note that the terms “End Date” and “Maturity Date” are used subsequently in the document and refer to the same date when
not otherwise specified.

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 If day count basis is not available on the deal, accrual defaults to Actual number of days.

The example deals in “Appendix I – Examples with different Day Counts and Adjustments“ show
how different day count bases are used to calculate the day count and how adjustments are made for
InterestIncludes=First or Both.

2.5 Rounding

The “Interest Calculation Options and Override Capability” introduced in 11i.XTR.H provides
flexibility for interest calculation and rounding on deal level. The same rounding rules are applied
when calculating accruals for the interest of such a deal.

In all other cases (i.e. releases prior to 11i.XTR.H and deals not having these rounding parameters),
the system rounds to the nearest value.

Notice that amounts are rounded to the number of decimals as specified in the given currency’s
“Rounding Factor” in the Currency Details setup form. E.g. if the EUR is defined with a rounding
factor of 2, this means that the amounts are rounded to cents (2 decimals).

2.6 Accrual Types or Methods

There are different types of accruals supported by Treasury:

• “Straight Line” is the most commonly used method of linearly spreading an amount over several
accounting periods.
• “Effective Interest” method uses a constant accrual rate to calculate period adjustment and is
only used for Discounted Securities deal types.
• “Compound Coupon” accrual is a third method that is only used for compound coupon bonds
(introduced in 11i.XTR.J)

2.6.1 Straight Line Accrual

Relies on a constant accrual amount and is used to calculate accruals for all deals.

The formula is the following:

 Days[Start : BatchEnd ] 
Accrual =   * Amount − Balance
 Days[Start : End ] 
Equation 3 Straight Line Accrual
where:
Days[Start:BatchEnd] = number of days from the Revenue or Expense Start date to the Batch
End date, using deal day count basis to count days and eventually
adjusted for InterestIncludes First/Both.
E.g. the number of days from the Coupon Start Date of a Bond to the
Batch End Date.
See section “Accrual Start Date and End Date of a Revenue or
Expense” for a more detailed explanation of how the Revenue or
Expense Start date is determined.
Days[Start:End] = number of days from the Revenue or Expense Start date to the
Revenue or Expense End date, using deal day count basis to count
days.
E.g. the number of days of a Bond Coupon
Amount = Amount of Revenue or Expense that is subject to accrual.
Balance = Accrual Balance: total accrual in previous accruals

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2.6.2 Effective Interest Accrual

Relies on a constant accrual rate and is used to calculate accruals for discounted security deals only.
Effective interest amortizes the discount on a discounted security deal over the life of the deal so that
a constant rate of interest is used. Effective interest accruals are necessary to properly account for
discounted securities, especially when a deal is resold. If the discounted security deal is not held until
maturity, the proper accounting entries will not be generated unless the effective interest accruals
method is used. See section 4.3.2 Interest– Effective Interest Method for more details.

Notice that both Straigth Line and Effective Interest Accruals are calculated for Discounted
Securities and you select in the Journal Entry Actions setup which amounts should be journalized.

The formula is the following:

 
 FaceValue 
Accrual =   - Balance - Consideration
 Days[BatchEnd : Maturity ] 
 1 + DealYield * 
 YearBasis 
Equation 4 Effective Interest Accrual
where:
DealYield = Yield of the deal, eventually – if deal rate is discount rate – the
equivalent yield rate.
Days[BatchEnd:Maturity] = number of days from the Batch End date to Deal Maturity, using deal
day count basis to count days.
Year Basis = number of days in year of deal Day Count Basis
Balance = Accrual Balance: total accrual in previous accrual
Consideration = Consideration of deal
2.6.3 Compound Coupon Accrual

Compound coupon bonds are introduced in 11i.XTR.J.

Compound coupon bonds differ from other types of bonds in that they do not have regular coupon
payments throughout the life of the instrument, but have one lump-sum coupon payment at maturity.
Such bonds assume that no cashflow takes place on coupon dates and coupon amounts are
compounded with the principal investment, earning the same rate of interest as the principal
investment. Therefore, the total coupon amount to be paid at maturity is not the simple sum of
individual coupon amounts. Price and interest accruals, coupon amount calculations differ
substantially from regular coupon paying bonds.

Compound Coupon Bonds have a special logic for the accrual calculation. Since compounding is not
a linear function, straight-line accrual of the coupon amount, which is the current procedure for all
other bond types, cannot be used for compound coupon bonds.

The formula used to calculate accruals for compound coupon bonds is the following:

 Coupon Rate 

Previous QuasiCpns
 
Accrual =   1 +  - 1 * FaceValue  − Balance
   Coupon Frequency   
  
Equation 5 Compounding Coupon Accrual
where:
Coupon Rate = Rate of the coupon
Coupon Frequency = number of coupons per year
PreviousQuasiCoupons = number of coupons per year
FaceValue = Face Value of the deal
Balance = Accrual Balance: total accrual in previous accrual
PreviousQuasiCpns = number of quasi coupons from start date, see next equation

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 Previous Quasi Cpns = Previous Full Cpns +
(Accrual Date − Previous Cpn Date)
# Days in Current Cpn
Equation 6 Previous Quasi Coupons

2.7 Accrual vs. Amortization

Different terms can be used for ‘accruals’ depending on when the cash flow relating to the revenue or
expense takes place.

• Commonly, accrual is used when the cash flow is taking place at the end of the accrual period;
wich is normally the case for interest payments and bond coupons.
• When the cash flow takes place at the start of the accrual period, the term amortization or
accretion is used. This is for instance the case for a premium paid up front or a discount
received.

The accrual function of Oracle Treasury does in general not make a difference between accrual and
amortization or accretion.

In release 11i.XTR.J, the concept of prepaid interest has been introduced for Short Term Money and
Wholesale Term Money deals. In the case of prepaid interest, the interest payment takes place on the
start date rather than on the maturity date of an interest period. Accruals of deals with prepaid
interest are the same as accruals of the deals with interest at maturity, since the revenue/expense
recognition should be the same in both cases. Only the cash flow takes place at a different time.

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3. Money Market

3.1 Short Term Money (ONC)

3.1.1 Interest – Straight-Line Method

Accrued Interest is calculated for each transaction using a straight-line accrual method.

When renegotiating a transaction, the system changes the transaction status to ‘CLOSED’, sets the
maturity date to the renegotiation date and calculates the interest for the transaction and stores it as
Interest Amount in the Transaction. These Interest Amounts are acrrued from their settlement date to
the maturity date.

The accrual for a transaction that is still CURRENT and does not have a maturity date is calculated
up to the batch end date.

Case Description Amount Calculation2

ONC Transaction of INTerest ADJustment:
status ‘CLOSED’ Accrued interest of renegotiated
transactions is calculated using
straight-line method.
ONC Transaction of INTerest ADJustment:
status ‘CURRENT’ Accrued interest of current
with maturity date transaction is calculated using
straight-line method.
ONC Transaction of INTerest ADJustment:
status ‘CURRENT’ Accrued interest of current
without maturity transaction is calculated using
date interest calculation formula.
Type &
Action
INTADJ, Accrued Amount: Interest Amount of Transaction
POS Method: Straight Line
Accrual Start Date: Transaction Settlement Date3
Accrual End Date: Maturity Date
Day Count Basis: Deal Day Count Basis
INTADJ, Accrued Amount: Interest Amount of Transaction
POS Method: Straight Line
Accrual Start Date: Transaction Settlement Date
Accrual End Date: Maturity Date
Day Count Basis: Deal Day Count Basis
INTADJ, Accrued Amount: Calculate Accrued Interest
POS using interest calculation formula up to the Batch
End Date: Interest = Principal * Interest Rate *
Days / Year.
An extra day of interest is included when the
Interest Includes field is either First or Both.
Method: (Straight Line)
Accrual Start Date: Transaction Settlement Date
Accrual End Date: Batch End Date
Day Count Basis: Deal Day Count Basis

2
Notice that all the rules mentioned in the section “General principles”, like the rules concerning day count basis, rounding
etc. are applied when calculating accruals.
3
Notice that Short Term Money transactions are always accrued from the Settlement Date even if your company parameter
states Trade Date Accounting.

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 Examples
The following table shows the accrual adjustments calculated for transactions with and without
maturity date and for the different values of the Interest Includes parameter.

Day Count Basis Act/365 Act/365 Act/365 Act/365 Act/365 Act/365

Settlement Date 1-Feb-02 1-Feb-02 1-Feb-02 1-Feb-02 1-Feb-02 1-Feb-02
Maturity Date 31-Mar-02 31-Mar-02 31-Mar-02
Days 58 58 59
Principal 1000000 1000000 1000000 1000000 1000000 1000000
Interest Rate 1% 1% 1% 1% 1% 1%
Interest Amount 1589.04 1589.04 1616.44
Interest Includes Last First Both Last First Both
Batch Q1
Batch Start Date 1-Jan-02 1-Jan-02 1-Jan-02 1-Jan-02 1-Jan-02 1-Jan-02
Batch End Date 31-Mar-02 31-Mar-02 31-Mar-02 31-Mar-02 31-Mar-02 31-Mar-02
Accrual Days 58 58 59 58 59 59
Adjustment 1589.04 1589.04 1616.44 1589.04 1616.44 1616.44
Table 1 Accrual Examples for Short Term Money

3.2 Intercompany Funding (IG)

3.2.1 Interest – Straight-Line Method

Intercompany funding interest accrual is done at the deal number level. The accrual process creates
one single INTADJ/POS record for each deal number between batch start date (or first transaction
transfer date, if earlier) and batch end date regardless of the number and dates of transactions under
it. Accrued Interest is calculated for each transaction using a straight-line accrual method.

Case Description Amount Calculation

IG Transaction INTerest ADJustment:
Accrued interest is calculated for
each transaction using straight-
line method.
Last IG Transaction INTerest ADJustment:
in deal with Transfer Accrued interest of current
Date < Batch End transaction is calculated using
Date interest calculation formula.
Type &
Action
INTADJ, Accrued Amount: Interest Amount of Transaction
POS Method: Straight Line
Accrual Start Date: Transfer Date
Accrual End Date: Batch End Date
Day Count Basis: Deal Day Count Basis
INTADJ, Accrued Amount: Calculate Accrued Interest
POS using interest calculation formula up to the Batch
End Date: Interest = Balance * Interest Rate *
Days / Year.
An extra day of interest is included when the
Interest Includes field is either First or Both.
Method: (Straight Line)
Accrual Start Date: Transaction Transfer Date
Accrual End Date: Batch End Date
Day Count Basis: Deal Day Count Basis

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Examples
The following table shows the accrual adjustments calculated for deals with serveral transactions.

Day Count Basis Act/365 Act/365 Act/365

Transaction 1
Transfer Date 1-Jan-02 1-Jan-02 1-Jan-02
Action PAY PAY PAY
Principal Adjust 1,000,000.00 1,000,000.00 1,000,000.00
Balance 1,000,000.00 1,000,000.00 1,000,000.00
Interest Rate 1.00% 1.00% 1.00%
Settle Interest (unchecked) (unchecked) (unchecked)
Accrued Interest
Interest Settlement Date
Interest Settled
Interest Rounding Nearest Nearest Nearest
Interest Includes Last Day Last Day Last Day
Transaction 2
Transfer Date 1-Feb-02 1-Feb-02 1-Feb-02
Action PAY REC REC
Principal Adjust 1,000,000.00 2,000,000.00 2,000,000.00
Balance 2,000,000.00 -1,000,000.00 -1,000,000.00
Interest Rate 1.25% 0.75% 0.75%
Settle Interest (unchecked) checked (unchecked)
Days Trans1 to Trans2 31 31 31
Accrued Interest 849.32 849.32 849.32
Interest Settlement Date 1-Feb-02
Interest Settled 849.32
Interest Rounding Nearest Nearest Nearest
Interest Includes Last Day Last Day Last Day
Transaction 3
Transfer Date 1-Mar-02 1-Mar-02 1-Jun-02
Action REC REC PAY
Principal Adjust 1,000,000.00 1,000,000.00 2,000,000.00
Balance 1,000,000.00 -2,000,000.00 1,000,000.00
Interest Rate 0.75% 1.00% 1.00%
Settle Interest (unchecked) (unchecked) (unchecked)
Days Trans2 to Trans3 28 28 120
Accrued Interest 2,767.13 -575.34 -1,616.43
Interest Settlement Date
Interest Settled
Interest Rounding Nearest Nearest Nearest
Interest Includes Last Day Last Day Last Day
Batch Q1
Batch Start Date 1-Jan-02 1-Jan-02 1-Jan-02
Batch End Date 31-Mar-02 31-Mar-02 31-Mar-02
Days LastTrans to Batch End 30 30 58
Accrued LastTrans to Batch End 616.44 -1643.84 -1191.78
Subtype INVEST FUND FUND
Adjustment 3,383.57 1,369.86 342.46
Table 2 Accrual Examples for Intercompany Funding

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3.3 Wholesale Term Money (TMM)

Wholesale Term Money Deals can be based on a fixed interest rate or a floating interest rate or mixed
starting with a fixed interest and switching to floating interest during the life of the deal. The interest
amount of a coupon period can be settled on the maturity date of that coupon, in which case there is a
cash flow on that date. The interest amount can also be accumulated and settled later: there is no
interest on accumulated interest (no compounding). Since 11i.XTR.J, the interest amount of a coupon
period can also be prepaid, in which case there is a cash flow on the start date of the transaction.

Principal of the Deal can be increased or decreased during the life of the deal on coupon dates.

Each coupon as well as the final redemption is stored in Transactions.

3.3.1 Interest Transactions

TMM interest transactions are accrued using straight-line accrual method.

Whether interest payments are settled on the start date (prepaid), maturity date (normal) or deferred
for later payment (Settle Interest checkbox of the transaction unchecked) does not affect the accruals.
The interest of a transaction is ‘earned’ and accrued over the period from the transaction start date to
the transaction maturity date irrespective of when the cash flow takes place.

Case Description Amount Calculation

Wholesale Term INTerest ADJustement:
Money Coupon Accrue a TMM coupon using
straight line method
Type &
Action
INTADJ, Accrued Amount: Interest Amount of Transaction
POS Method: Straight Line
Accrual Start Date: Transaction Start Date
Accrual End Date: Transaction Maturity Date
Day Count Basis: Deal Day Count Basis

Examples
“Appendix I – Examples with different Day Counts and Adjustments” shows examples of how the
interest transactions of term money deals are accrued.

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3.4 Retail Term Money (RTMM)

Retail Term Money Deals are similar to Wholesale Term Money (TMM) deals, but on each interest
date, also part of the principal is repaid. So, each payment includes Interest and Principal.

3.4.1 Interest Transactions

The Interest of a RTMM transaction is accrued using straight-line accrual method.

Case Description Amount Calculation

Type &
Action
Retail Term Money INTerest ADJustement: INTADJ, Accrued Amount: Interest Amount of Transaction
Interest payment Accrue RTMM interest POS Method: Straight Line
component using straight line Accrual Start Date: Transaction Start Date
method Accrual End Date: Transaction Maturity Date
Day Count Basis: Deal Day Count Basis

Examples
“Appendix I – Examples with different Day Counts and Adjustments” shows examples of how the
interest transactions of term money deals are accrued.

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4. Money Market - Negotiable Instruments

4.1 Fixed Income Securities - Coupon Bonds (BOND)

4.1.1 Discount or Premium

When a bond is bought, sold, or issued at a premium (clean price > 100) or a discount (clean price <
100), the premium or discount is accrued over the assumed holding period using a straight-line
accrual method.

When reselling a bond that has been bought or sold at a premium or discount, the unamortized
balance of the premium or discount is calculated for reversal.

The following figure illustrates the accruals for both scenarios: Hold to Maturity and Resell before
maturity.

Accounting Period: Q1 Accounting Period: Q2 Accounting Period: Q3

Batch Start Batch End Batch Start Batch End Batch Start Batch End
1-Jan-2002 31-Mar-2002 1-Apr-2002 30-Jun-2002 1-Jul-2002 30-Sep-2002

Buy Maturity
1-Feb-2002 1-Aug-2002
Hold to Accrual Q1 Accrual Q2 Accrual Q3
Maturity
Resell
1-May-2002
Resell Accrual Q1 Accrual Q2 Unamortized Balance
Premium/Discount

Figure 3 Accrual of Premium/Discount

Case Description Amount Calculation

BUY, ISSUE or Straight Line DIScount:
SHORT a bond at a Amortize the Discount of a bond
Discount purchase, sale or issue over the
expected holding period
BUY, ISSUE or Straight Line PREMium:
SHORT a bond at a Amortize the Premium of a bond
Premium purchase, sale or issue over the
expected holding period
Type &
Action
SLDISC, Accrued Amount: Discount Amount
POS Method: Straight Line
Accrual Start Date: Deal Date or Settlement Date
(depending on Trade/Settlement Date Accounting
parameter)
Accrual End Date: Maturity Date
Day Count Basis: Deal Day Count Basis
SLPREM, Accrued Amount: Pemium Amount
POS Method: Straight Line
Accrual Start Date: Deal Date or Settlement Date
(depending on Trade/Settlement Date Accounting
parameter)
Accrual End Date: Maturity Date
Day Count Basis: Deal Day Count Basis

Page 16 of 33
 RESELL a bond that Straight Line DIScount:
has been bought at a Amortize the not yet amortized
Discount or protion of the Discount
REPURCHASE4 a
bond that has been
issued at a Discount
Straight Line DIScount:
REVerse original Discount
Straight Line UnAMortized
Discount:
When reselling a bond that has
been bought at a discount,
calculate the Balance of the
discount, that has not been
amortized yet at the resale date
RESELL a bond that Straight Line PREMium:
has been bought at a Amortize the not yet amortized
Premium or protion of the Premium
REPURCHASE a
bond that has been
issued at a Premium
Straight Line PREMium:
REVerse original Premium
Straight Line UnAMortized
Premium:
When reselling a bond that has
been bought at a premium,
calculate the Balance of the
premium, that has not been
amortized yet at the resale date
SLDISC, Discount of buy deal – Previous Accrual Balance
POS (Proportional to the Amount resold)
SLDISC, Discount of buy deal
REV (Proportional to the Amount resold)
SLUAMD, Amount: Discount of buy deal – Adjustment for
REV holding period
(Proportional to the Amount resold)
Method: Straight Line
Holding Period Start Date: Deal Date or
Settlement Date (depending on Trade/Settlement
Date Accounting parameter) of buy deal
Holding Period End Date:
Deal Date or Settlement Date (depending on
Trade/Settlement Date Accounting parameter) of
resell deal
Day Count Basis: Deal Day Count Basis
SLPREM, Premium of buy deal – Previous Accrual Balance
POS (Proportional to the Amount resold)
SLPREM, Premium of buy deal
REV (Proportional to the Amount resold)
SLUAMP, Amount: Premium of buy deal – Adjustment for
REV holding period
(Proportional to the Amount resold)
Method: Straight Line
Holding Period Start Date: Deal Date or
Settlement Date (depending on Trade/Settlement
Date Accounting parameter) of buy deal
Holding Period End Date:
Deal Date or Settlement Date (depending on
Trade/Settlement Date Accounting parameter) of
resell deal
Day Count Basis: Deal Day Count Basis

Examples
The following table shows the accrual adjustments calculated for buy deals that are entirely resold in
the second accruals batch period. The bonds are bought at a discount and resold at par.

The first deal documents the calculations when using Trade Date Accounting and the second the
same transactions when using Settlement Date Accounting.

Deal 1 2
Accounting - Trade/Settlement Date Method Trade Date Settlement Date
Principal 100,000,000.00 100,000,000.00
Buy
Clean Price 99.00 99.00
Deal Date 1-Feb-2002 1-Feb-2002
Settlement Date 5-Feb-2002 5-Feb-2002
Maturity Date 1-Feb-2004 1-Feb-2004
Daycount Basis 30/360 30/360
Days: expected holding period 720 716
Discount / Premium (negative = Premium) 1,000,000.00 1,000,000.00
Resell

4
REPURCHASE functionality for bonds has been introduced in 11i.XTR.J

Page 17 of 33
 Clean Price 100.00 100.00
Deal Date 1-May-2002 1-May-2002
Settlement Date 5-May-2002 5-May-2002
Batch Q1
Batch Start 1-Jan-2002 1-Jan-2002
Batch End 31-Mar-2002 31-Mar-2002
Days 60 56
Balance 83,333.33 78,212.29
Adjustment 83,333.33 78,212.29
Amount Type = SLDISC, Action=POS
Batch Q2
Batch Start 1-Apr-2002 1-Apr-2002
Batch End 30-Jun-2002 30-Jun-2002
Days N/A (last accrual) N/A (last accrual)
Adjustment (Discount - Balance previous Batch) 916,666.67 921,787.71
Amount Type = SLDISC, Action=POS
Days to Resell : holding period 90 90
Adjustment for holding period 125,000.00 125,698.32
Adjustment (Unamortized Discount) 875,000.00 874,301.68
Amount Type = SLUAMD, Action=REV
Adjustment (Discount) 1,000,000.00 1,000,000.00
Amount Type = SLDISC, Action=REV
Table 3 Accrual Examples for Bond Discount

4.1.2 Coupons

Bond coupons are accrued using straight-line accrual method. If however the bond is a compound
coupon bond (feature introduced in 11i.XTR.J), the compound coupon accrual method is used.

Case Description Amount Calculation

Bond Coupon Accrue a bond coupon using
straight line method
Compound Coupon Accrue a bond coupon using
Bond compounding method
Type &
Action
CPMADJ, Accrued Amount: Coupon Amount
POS Method: Straight Line
Accrual Start Date: Coupon Start Date
Accrual End Date: Coupon Maturity Date
Day Count Basis: Deal Day Count Basis
CPMADJ, Accrued Amount: Coupon Amount
POS Method: Compound Coupon
Accrual Start Date: Bond Start Date
Accrual End Date: Bond Maturity Date
Day Count Basis: Deal Day Count Basis

Note: No reversals are generated for coupon accruals upon resale since that amount will be available
from the resale deal (accrued interest, amount type: INT).

Examples
The following table shows the coupon accrual adjustments calculated for one bond with a regular
semi-annual coupon and a second bond with a compound coupon (with a semi-annual quasi
compounding frequency).

Notice that the example contains in Batch Q3 only the accrual for the first coupon of the bond. The
system also generates an accrual for the second coupon in this batch period.

Page 18 of 33
Deal 1 2
Principal 100,000,000.00 100,000,000.00
Bond Details
Start Date 1-Feb-2002 1-Feb-2002
Maturity Date 1-Feb-2004 1-Feb-2004
Daycount Basis 30/360 30/360
Coupon Type Fixed-Regular Compound Coupon
Coupon Frequency Semi-Annual Semi-Annual
Coupon Frequency (in number of coupons / year) 2 2
First Coupon Date 1-Aug-2002
Last Coupon Date 1-Feb-2004 1-Feb-2004
Rate 2% 2%
Interest Includes Last Last
Coupon to Accrue
Start Date 1-Feb-2002 1-Feb-2002
Maturity Date 1-Aug-2002 1-Feb-2004
Days 180 720
Amount 1,000,000.00 4,060,401.00
Quasi Coupon Start Date 1-Feb-2002
Quasi Coupon Maturity Date 1-Aug-2002
Days in Quasi Coupon Period 180
Batch Q1
Batch Start 1-Jan-2002 1-Jan-2002
Batch End 31-Mar-2002 31-Mar-2002
Days from Coupon Start to Batch End 60 60
PreviousQuasiCoupons 0.333333333
Balance 333,333.33 332,228.35
Adjustment 333,333.33 332,228.35
Batch Q2
Batch Start 1-Apr-2002 1-Apr-2002
Batch End 30-Jun-2002 30-Jun-2002
Days from Coupon Start to Batch End 149 149
PreviousQuasiCoupons 0.827777778
Balance 827,777.78 827,067.74
Adjustment 494,444.45 494,839.39
Batch Q3
Batch Start 1-Jul-2002 1-Jul-2002
Batch End 30-Sep-2002 30-Sep-2002
Days from Coupon Start to Batch End N/A (last accrual) N/A (last accrual)
PreviousQuasiCoupons 1.327777778
Balance 1,000,000.00 1,329,949.00
Adjustment 172,222.22 502,881.26
Table 4 Accrual Examples for Bond Coupons

Page 19 of 33
4.2 Fixed Income Securities - Zero Coupon Bonds (BOND)

Notice that there is no coupon accrual (CMPADJ) for zero coupon bonds since there are no coupons.

4.2.1 Discount

Zero coupon bonds are always issued at a discount. The discount is accrued over the assumed holding
period (settlement date to bond maturity date) using a straight-line accrual method.

The accruals generated are the same as for a coupon bond deal with equivalent discount.

Case Description Amount Calculation

BUY, ISSUE or Straight Line DIScount:
SELL a bond at a Amortize the Discount of a bond
Discount purchase, sale or issue over the
expected holding period
RESELL a bond that Straight Line UnAMortized
has been bought at a Discount:
Discount When reselling a bond that has
been bought at a discount,
calculate the Balance of the
discount, that has not been
amortized yet at the resale date
Type &
Action
SLDISC, Accrued Amount: Discount Amount
POS Method: Straight Line
Accrual Start Date: Deal Date or Settlement Date
(depending on Trade/Settlement Date Accounting
parameter)
Accrual End Date: Maturity Date
Day Count Basis: Deal Day Count Basis
SLUAMD, Amount: Discount of buy deal – Adjustment for
REV holding period
(Proportional to the Amount resold)
Method: Straight Line
Holding Period Start Date: Deal Date or
Settlement Date (depending on Trade/Settlement
Date Accounting parameter) of buy deal
Holding Period End Date:
Deal Date or Settlement Date (depending on
Trade/Settlement Date Accounting parameter) of
resell deal
Day Count Basis: Deal Day Count Basis

Examples
Since the accruals generation of discounts follows the same logic for zero coupon bonds as for
coupon bonds, see examples in section 4.1.1 Discount or Premium

Page 20 of 33
4.3 Discounted Securities (NI)

Both Straigth Line and Effective Interest Accruals are calculated for Discounted Securities and you
select in the Journal Entry Actions setup which amounts should be journalized.

4.3.1 Interest – Straight-Line Method

The Interest (which corresponds to the Discount) is accrued over the assumed holding period using a
straight-line accrual method.

Case Description Amount Calculation

Discount of INTerest ADJustement:
discounted security Accrue the Discount, which
represents the interest earned
over the assumed holding period
of the discounted security using
straight-line method.
RESELL of a INTerest ADJustement:
discounted security On resale date, accrue the not yet
amortized balance for the portion
of interest resold
INTerest ADJustement:
REVerse original Discount:
Type &
Action
INTADJ, Accrued Amount: Interest Amount
POS Method: Straight Line
Accrual Start Date: Start Date5
Accrual End Date: Maturity Date
Day Count Basis: Deal Day Count Basis
INTADJ, Adjustment = Interest Buy Deal – Interest Sell
POS Deal – Previous Batches Accrual Balance6
(Proportional to the Amount resold)
INTADJ, Discount of buy deal
REV (Proportional to the Amount resold)

4.3.2 Interest– Effective Interest Method

The Effective Interest Method amortizes the discount on a discounted security instrument over its life
such that it results in a constant rate of interest. The method calculates accounting period discount
accretion by multiplying the Yield to Maturity rate at the time of purchase times the beginning
accounting period cost basis.

In other words, the rate of interest is the recognized revenue divided by the carrying cost and adjusted
for the time period. Since each period’s accrual adjusts the carrying cost – increasing it in the case of
NI discounts – the period accrual amounts must likewise increase in order to maintain a constant rate
of interest.

The Straight Line Method differs fundamentally since it relies on a constant accrual amount instead of
a constant rate (assuming equal accounting periods). The total accrual will be the same over the life
of the deal when using either method. They both must total the entire discount at the end of the deal.
The difference in the two methods is simply a timing issue.

The following figures compare the two methods.

5
Notice that the interest on a discounted security is always accrued from the Start Date irrespective of whether you are
performing Trade Date Accounting or Settlement Date Accounting.
6
E.g. in the example provided: Adjustment = 500,000 – 375,000 – 83,333.33 = 41,666.67

Page 21 of 33
 Figure 4 Straight Line Method

Figure 5 Effective Interest Method

Case Description Amount Calculation

Type &
Action

Discount of EFFective INTerest: EFFINT, Accrued Amount: (Interest Amount)

discounted security Accrue the Discount, which
represents the interest earned
over the assumed holding period
of the discounted security using
the effective interest method.
POS Method: Effective Interest
Accrual Start Date: Start Date
Accrual End Date: Maturity Date
Day Count Basis: Deal Day Count Basis

RESELL of a EFFective INTerest: EFFINT, Use same calculation as for normal accrual
discounted security On resale date, accrue the not yet POS (Equation 4 Effective Interest Accrual) except that
amortized balance for the portion calculate from resale date instead of batch end
of interest resold date.

Page 22 of 33
Examples
The following table shows the accruals using both the Straight Line and the Effective Interest
methods once for a deal held beyond the second accrual batch and once for a deal resold during the
second accrual batch.

Deal Held Resold

Principal 100,000,000.00 100,000,000.00
Buy
Discount Rate 0.500000% 0.500000%
Deal Date 1-Feb-2002 1-Feb-2002
Start Date 1-Feb-2002 1-Feb-2002
Maturity Date 1-Feb-2003 1-Feb-2003
Daycount Basis 30/360 30/360
Days to maturity 360 360
Interest 500,000.00 500,000.00
Equivalent Yield Rate 0.502513% 0.502513%
Resell
Discount Rate 0.500000%
Deal Date 1-May-2002
Start Date 1-May-2002
Days to maturity 270
Interest 375,000.00
Equivalent Yield Rate 0.376412%
Batch Q1
Batch Start 1-Jan-2002 1-Jan-2002
Batch End 31-Mar-2002 31-Mar-2002
Days 60 60
Amount Type = INTADJ, Action=POS
Balance 83,333.33 83,333.33
Adjustment 83,333.33 83,333.33
Amount Type = EFFINT, Action=POS
Days [BatchEnd:Maturity] 301 301
Balance 81,601.59 81,601.59
Adjustment 81,601.59 81,601.59
Batch Q2
Batch Start 1-Apr-2002 1-Apr-2002
Batch End 30-Jun-2002 30-Jun-2002
Days 149 N/A (last accrual)
Amount Type = INTADJ, Action=POS
Balance 206,944.44 125,000.00
Adjustment 123,611.11 41,666.67
Amount Type = INTADJ, Action=REV
Balance 0.00
Adjustment 125,000.00
Amount Type = EFFINT, Action=POS
Days [BatchEnd:Maturity] or Days[Resale:Maturity] 211 270
Balance 206,336.72 124,530.66
Adjustment 124,735.13 42,929.07
Amount Type = EFFINT, Action=REV
Balance 0.00
Adjustment 124,530.66
Table 5 Accrual Examples for Discounted Securities

Page 23 of 33
5. Money Market - Derivatives

5.1 Forward Rate Agreement (FRA)

5.1.1 Settlement Amount

Starting from release 11i.XTR.J, Settlement Payments of FRA deals are accrued using straight-line
accrual method.

Case Description Amount Calculation

FRA Settlement INTerest ADJustement:
Payment Accrue FRA Settlement Payment
over the interest period covered
by the FRA using straight line
method
Type &
Action
INTADJ, Accrued Amount: Settlement Amount
POS Method: Straight Line
Accrual Start Date: Physical Start Date
Accrual End Date: Maturity Date
Day Count Basis: Deal Day Count Basis

5.2 Interest Rate Swap (IRS)

In Oracle Treasury, Interest Rate Swaps are represented as two separate deals that are linked under a
Swap reference. Each Swap Leg is represented by a deal that will be found in the revaluations and
accruals. The calculations performed for the swap legs are the same as performed for TMM deals.

5.2.1 Coupon

Coupons of a Swap Leg are accrued using straight-line accrual method.

Case Description Amount Calculation

Wholesale Term INTerest ADJustement:
Money Coupon Accrue a TMM coupon using
straight line method
Type &
Action
INTADJ, Accrued Amount: Interest Amount of Transaction
POS Method: Straight Line
Accrual Start Date: Transaction Start Date
Accrual End Date: Transaction Maturity Date
Day Count Basis: Deal Day Count Basis

Page 24 of 33
5.3 Interest Rate Options (IRO)

For Interest Rate Options, the Premium paid or received is accrued from the Premium date to the
Expiration date of the Option. Then, if the option is exercised and a settlement takes place, the
settlement amount is accrued over the underlying phyisical period: Physical Start date to Maturity
date.

Accounting Period: Q1 Accounting Period: Q2 Accounting Period: Q3

Batch Start Batch End Batch Start Batch End Batch Start Batch End
1-Jan-2002 31-Mar-2002 1-Apr-2002 30-Jun-2002 1-Jul-2002 30-Sep-2002
Days Days Days
89 90 91

Expiration
Buy Physical Start Maturity
1-Feb-2002 1-May-2002 1-Aug-2002
Premium Accrual Q1 Accrual Q2
Exercise
1-May-2002
Settlement Accrual Q2 Accrual Q3

Figure 6 Accrual of Premium and Settlement amount for Interest Rate Option

5.3.1 Premium

The premium paid when buying an option or the premium received when selling an option is accrued
over the life of the option using a straight-line accrual method.

Case Description Amount Calculation

Type &
Action
Buy (BCAP, PREMium ADJustment: PREMADJ, Accrued Amount: Premium
BFLOOR) or Sell Accrue the premium paid or received over the POS Method: Straight Line
(SCAP, SFLOOR) a life of the option using the straight-line Accrual Start Date: Premium Date
Bond Option method. Accrual End Date: Expiration Date
Day Count Basis: Deal Day Count
Basis

5.3.2 Settlement Amount

Starting from release 11i.XTR.J, Settlement Payments of IRO deals are accrued using straight-line
accrual method.

Case Description Amount Calculation

Type &
Action
Exercised IRO INTerest ADJustement: INTADJ, Accrued Amount: Settlement Amount
Accrue the Settlement Amount using POS Method: Straight Line
straight line method Accrual Start Date: Physical Start Date
Accrual End Date: Maturity Date
Day Count Basis: Deal Day Count Basis

Page 25 of 33
Example
The following table shows the accruals using both the Premium and the Settlement amount of an IRO
that is exercised.

Deal Details
Deal Date 1-Feb-02
Deal Subtype BCAP
Options Amount 10,000,000.00
Start Date
Expiration Date 1-May-02
Physical Start Date 1-May-02
Maturity Date 1-Aug-02
Strike Rate 2%
Day Count Basis 30/360
Premium Details: Action PAY
Premium Details: Amount 2,500.00
Premium Details: Date 1-Feb-02
Exercise Details
Settlement Rate 2.25%
Date 1-Aug-02
Action REC
Settlement Amount 6,250.00
Days for Premium Accrual 90
Days for Settlement Accrual 90
Batch Q1
Batch Start Date 1-Jan-02
Batch End Date 31-Mar-02
Accrual Days 60
Adjustment 1,666.67
Amount Type = PREMADJ, Action=POS
Batch Q2
Batch Start Date 1-Apr-02
Batch End Date 30-Jun-02
Accrual Days (Premium) N/A (last accrual)
Adjustment (Premium) 833.33
Amount Type = PREMADJ, Action=POS
Accrual Days (Settlement) 59
Adjustment (Settlement) 4,097.22
Amount Type = INTADJ, Action=POS
Batch Q3
Batch Start Date 1-Jul-02
Batch End Date 30-Sep-02
Accrual Days N/A (last accrual)
Adjustment (Settlement) 2,152.78
Amount Type = INTADJ, Action=POS
Table 6 Accrual Examples for Interest Rate Options

Page 26 of 33
5.4 Bond Options (BDO)

5.4.1 Premium

The premium paid when buying an option or the premium received when selling an option is accrued
over the life of the option7 using a straight-line accrual method.

Case Description Amount Calculation

Type &
Action
Buy (BCAP, PREMium ADJustment: PREMADJ, Accrued Amount: Premium
BFLOOR) or Sell Accrue the premium paid or POS Method: Straight Line
(SCAP, SFLOOR) a received over the life of the Accrual Start Date: Premium Date
Bond Option option using the straight-line Accrual End Date: Expiration Date
method. Day Count Basis: Act/365

5.4.2 Settlement Amount

Starting from release 11i.XTR.J, Settlement Payments of BDO deals are accrued using straight-line
accrual method.

Notice that if the Maturity Date of the underlying Bond is not known, the Settlement Amount is not
accrued.

Case Description Amount Calculation

Type &
Action
BDO Settlement Straight Line DISCount: SLDISC, Accrued Amount: Settlement Amount
Payment for BCAP After exercising a Bond Option using Cash POS Method: Straight Line
deal Settlement, the Settlement Amount received is Accrual Start Date: Physical Start
accrued as a Discount received (on buying the Date
bond) Accrual End Date: Maturity Date
BCAP = Buy a Call, right to buy the Bond at a Day Count Basis: Act/365
Discount
BDO Settlement Straight Line PREMium: SLPREM, Accrued Amount: Settlement Amount
Payment for After exercising a Bond Option using Cash POS Method: Straight Line
BFLOOR deal Settlement, the Settlement Amount received is Accrual Start Date: Physical Start
accrued as a Premium received (on selling the Date
bond) Accrual End Date: Maturity Date
BLOOR = Buy a Put, right to sell the Bond at Day Count Basis: Act/365
a Premium
BDO Settlement Straight Line DISCount: SLDISC, Accrued Amount: Settlement Amount
Payment for SCAP After exercising a Bond Option using Cash POS Method: Straight Line
deal Settlement, the Settlement Amount paid is Accrual Start Date: Physical Start
accrued as a Discount given (on selling the Date
bond) Accrual End Date: Maturity Date
SCAP = Sell a Call, obligation to sell the Bond Day Count Basis: Act/365
at a Discount
BDO Settlement Straight Line PREMium: SLPREM, Accrued Amount: Settlement Amount
Payment for After exercising a Bond Option using Cash POS Method: Straight Line
SFLOOR deal Settlement, the Settlement Amount paid is Accrual Start Date: Physical Start
accrued as a Premium paid (on buying the Date
bond) Accrual End Date: Maturity Date
SFLOOR = Sell a Put, obligation to buy the Day Count Basis: Act/365
Bond at a Premium

7
Notice that all option premiums are always accrued from the Premium Date to the Expiration Date.

Page 27 of 33
 Example
An example for accruals of an option Premium and the Settlement amount can be found in the section
5.3 Interest Rate Options (IRO). The accruals of premium and settlement amount for Bond Options
are similar and no specific example is provided here.

5.5 Interest Rate Swaptions (SWPTN)

5.5.1 Premium

The premium paid when buying an option or the premium received when selling an option is accrued
over the life of the option using a straight-line accrual method.

Case Description Amount Calculation

Type &
Action
Buy or Sell a PREMium ADJustment: PREMADJ, Accrued Amount: Premium
Swaption Accrue the premium paid or received POS Method: Straight Line
over the life of the option using the Accrual Start Date: Premium Date
straight-line method. Accrual End Date: Expiration Date
Day Count Basis: Deal Day Count Basis

5.5.2 Settlement Amount

Starting from release 11i.XTR.J, Settlement Payments of IRO deals are accrued using straight-line
accrual method.

Case Description Amount Calculation

Type &
Action
Swaption exercised INTerest ADJustement: INTADJ, Accrued Amount: Settlement Amount
as cash settlement Accrue the Settlement Amount using POS Method: Straight Line
straight line method Accrual Start Date: Physical Start Date
Accrual End Date: Maturity Date
Day Count Basis: Deal Day Count Basis

Example
An example for accruals of an option Premium and the Settlement amount can be found in the section
5.3 Interest Rate Options (IRO). The accruals of premium and settlement amount for Swaptions are
similar and no specific example is provided here.

Page 28 of 33
6. Bank Accounts

6.1 Current Account Balances (CA)

6.1.1 Interest

The accruals for current account balances (CA) are generated in a very similar way to how accruals
for intercompany funding (IG) are generated.

Current account balance interest accrual is done at the deal number level. The accrual process
creates one single INTADJ/POS record for each deal number between batch start date (or first
balance date, if earlier) and batch end date regardless of the number and dates of transactions
(balance changes) under it. Accrued Interest is calculated for each transaction using a straight-line
accrual method.

Case Description Amount Calculation

CA Transaction INTerest ADJustment:
Accrued interest is calculated for
each transaction using straight-
line method.
CA Last Transaction INTerest ADJustment:
Accrued interest of current
transaction is calculated using
interest calculation formula.
Type &
Action
INTADJ, Accrued Amount: Accrued Interest or Settlement
POS Interest
Method: Straight Line
Accrual Start Date: Previous Transaction
(Balance) Date
Accrual End Date: (Balance) Date
Day Count Basis: Account Day Count Basis
INTADJ, Accrued Amount: Calculate Accrued Interest
POS using interest calculation formula up to the Batch
End Date: Interest = Balance * Interest Rate *
Days / Year.
An extra day of interest is included when the
Interest Includes field is either First or Both.
Method: (Straight Line)
Accrual Start Date: (Balance) Date
Accrual End Date: Batch End Date
Day Count Basis: Account Day Count Basis

Examples
The following table shows the accrual adjustments calculated for deals with serveral transactions.

Page 29 of 33
Account Level Details
Day Count Basis Act/360 Act/360
Interest Rounding Nearest Nearest
Interest Includes Last Day Last Day
Transaction 1
Date 1-Jan-02 1-Jan-02
Interest Calc Balance 1,000,000.00 1,000,000.00
Interest Trans Rate 1.00% 1.00%
Accrued Interest
Settle Interest (unchecked) (unchecked)
Settlement Interest
Transaction 2
Date 1-Feb-02 1-Feb-02
Balance 2,000,000.00 -1,000,000.00
Interest Rate 1.25% 0.75%
Days Trans1 to Trans2 31 31
Accrued Interest 861.11
Settle Interest (unchecked) checked
Interest Settled 861.11
Transaction 3
Date 1-Mar-02 1-Mar-02
Balance 1,000,000.00 -2,000,000.00
Interest Rate 0.75% 1.00%
Days Trans2 to Trans3 28 28
Accrued Interest 2,805.55 -583.33
Settle Interest (unchecked) (unchecked)
Interest Settled
Batch Q1
Batch Start Date 1-Jan-02 1-Jan-02
Batch End Date 31-Mar-02 31-Mar-02
Days LastTrans to Batch End 30 30
Accrued LastTrans to Batch End 625 -1666.67
Subtype INVEST FUND
Adjustment 3,430.55 1,388.89
Table 7 Accrual Examples for Current Account Balances

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7. Foreign Exchange Transactions

7.1 Options (FXO)

7.1.1 Premium

The premium paid when buying an option or the premium received when selling an option is accrued
over the life of the option using a straight-line accrual method.

Notice that in any case, the premium is accrued from the Premium Date to the Expiration Date.

Case Description Amount Calculation

Type &
Action
Buy or Sell a PREMium ADJustment: PREMADJ, Accrued Amount: Premium
Foreign Exchange Accrue the premium paid or received POS Method: Straight Line
Option over the life of the option using the Accrual Start Date: Premium Date
straight-line method. Accrual End Date: Expiration Date
Day Count Basis: Actual

Example
An example for accruals of an option Premium and the Settlement amount can be found in the section
5.3 Interest Rate Options (IRO). The accruals of premium for Foreign Exchange Options are similar
and no specific example is provided here.

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8. Definitions
Accrual Accounting
The process whereby revenue and expenses are recorded in the period in which they are earned or
incurred regardless of whether cash is received or disbursed in that period. This is the accounting
basis that generally is required to be used in order to conform to generally accepted accounting
principles (GAAP) in preparing financial statements for external users.

Accrual: Accrual of Interest

Accrual process for an interest payment to be made or received: an interest payment or receipt is
recorded in the accounting periods in which the interest is earned or incurred.

Accrual: Accretion of Discount

Accrual process for a discount received. This recognizes that as you get closer to the maturity date of
the deal, you have “earned” a portion of the discount between original cost and face value even if you
have not “received” the actual payment in the form of cash settlement.

Accrual: Amortization of Premium

Accrual process for a premium paid. This recognizes that as you get closer to the maturity date of the
deal, you have “expensed” a portion of the premium between face value and original cost even if you
“paid” the entire premium in the form of cash settlement at the time you entered the deal.

Note: The terms Amortization and Accretion are somewhat interchangeable in practice.
Amortization tends to be the more generic that is used frequently to describe accruals of both
premiums and discounts.

Discount
The difference between the Face Value and Consideration paid when the Consideration is less than
the Face Value. This is always the case with a Discounted Securities or Zero Coupon Bond deal
since this discount is essentially the interest that you earn by holding the investment.

Effective Interest Method (a.k.a. Constant Yield Method)

Accrual method where the premium or discount is recognized such that the implied interest rate
during each accounting period stays constant. In simplistic terms, the implied interest rate is the
recognized revenue or expense divided by the carrying cost and adjusted for the time period. Each
period’s accrual adjusts the carrying cost – increasing or decreasing in the case of discounts or
premiums, respectively. The period accrual amounts must likewise increase or decrease in order to
maintain a constant implied interest rate.

Premium
The difference between the Face Value and Consideration paid when the Consideration is greater
than the Face Value. Premiums apply to Bond deals.

In the case of a bond, you would be willing to pay a premium when the stated coupon rate was greater
than the prevailing interest rates in the market for instruments of similar characteristics.

Straight Line Method

Accrual method where the premium or discount is recognized evenly over the term of the total
premium. Take the following example: You purchase a 3 month discounted security and you
received a discount of $300. If you have monthly accounting, then you would accrue $100 each
month. If you perform accounting twice a month, then you would accrue $50 each accounting period.

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9. Appendix I – Examples with different Day Counts and Adjustments

Deal 1 2 3 4 5 6
Principal 100,000,000.00 100,000,000.00 100,000,000.00 100,000,000.00 100,000,000.00 100,000,000.00
Coupon
Rate 2% 2% 2% 2% 2% 2%
Frequency Semi-Annual Semi-Annual Semi-Annual Semi-Annual Semi-Annual Semi-Annual
Start Date 1-Feb-2002 1-Feb-2002 1-Feb-2002 1-Feb-2002 1-Feb-2002 1-Feb-2002
Maturity Date 1-Aug-2002 1-Aug-2002 1-Aug-2002 1-Aug-2002 1-Aug-2002 1-Aug-2002
Daycount Basis 30/360 30/360 Act/360 Act/360 Act/360 Act/365
Interest Includes Last First Last First Both Last
Days 180 180 181 181 182 181
Amount 1,000,000.00 1,000,000.00 1,005,555.56 1,005,555.56 1,011,111.11 991,780.82
Batch Q1
Batch Start 1-Jan-2002 1-Jan-2002 1-Jan-2002 1-Jan-2002 1-Jan-2002 1-Jan-2002
Batch End 31-Mar-2002 31-Mar-2002 31-Mar-2002 31-Mar-2002 31-Mar-2002 31-Mar-2002
Days from Coupon Start to Batch End, using Deal 60 61 58 59 59 58
Daycount Basis and adding 1 in the case of
InterestIncludes=First or Both
Balance (Accrued from Coupon Start to Batch End) 333,333.33 338,888.89 322,222.22 327,777.78 327,777.78 317,808.22
Adjustment (Balance - Balance from Previous Batch) 333,333.33 338,888.89 322,222.22 327,777.78 327,777.78 317,808.22
Batch Q2
Batch Start 1-Apr-2002 1-Apr-2002 1-Apr-2002 1-Apr-2002 1-Apr-2002 1-Apr-2002
Batch End 30-Jun-2002 30-Jun-2002 30-Jun-2002 30-Jun-2002 30-Jun-2002 30-Jun-2002
Days from Coupon Start to Batch End, using Deal 149 150 149 150 150 149
Daycount Basis and adding 1 in the case of
InterestIncludes=First or Both
Balance (Accrued from Coupon Start to Batch End) 827,777.78 833,333.33 827,777.78 833,333.33 833,333.33 816,438.36
Adjustment (Balance - Balance from Previous Batch) 494,444.45 494,444.44 505,555.56 505,555.55 505,555.55 498,630.14
Batch Q3
Batch Start 1-Jul-2002 1-Jul-2002 1-Jul-2002 1-Jul-2002 1-Jul-2002 1-Jul-2002
Batch End 30-Sep-2002 30-Sep-2002 30-Sep-2002 30-Sep-2002 30-Sep-2002 30-Sep-2002
Days from Coupon Start to Batch End N/A (last accrual) N/A (last accrual) N/A (last accrual) N/A (last accrual) N/A (last accrual) N/A (last accrual)
Balance (Accrued from Coupon Start to Batch End = 1,000,000.00 1,000,000.00 1,005,555.56 1,005,555.56 1,011,111.11 991,780.82
Amount)
Adjustment (Balance - Balance from Previous Batch) 172,222.22 166,666.67 177,777.78 172,222.23 177,777.78 175,342.46

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