Calculating ASPIRE IDC Expense (Effective Interest Method)

Calculating ASPIRE IDC Expense (Effective Interest Method)

When ASPIRE v5 IDC contract items are configured to use the effective interest method the system creates an amortization schedule of each IDC item and subtracts the interest in that amort from the customer facing interest amount per period to calculate the IDC accumulation per item. The following example illustrates this calculation for a contract that has 3 additional IDC items and has had earnings accrued through the 4/30 month end. In summary this is what it breaks down to:

Customer Amortization:

In the first earning period the customer’s interest portion of the payment is $6955.70.

 

Internal Amortization:

This is the amortization schedule with all items added to show what the internal rate is on the transaction with all items factored in. As each item is amortized, subtracting these two amounts doesn't equate to the overall IDC accrual for the first period as each item's interest must be subtracted from the customer-facing interest then summed as outlined in the calculations below.



Custom Amortization for Overhead Cost:

This is the amortization schedule with only the Overhead Cost IDC factored in. The interest portion in the first period is $6636.39. This amount subtracted from the first period interest in the customer amort above: $6955.70 - $6636.39 = $319.31.

 


Custom Amortization for Sales Commission:

This is the amortization schedule with only the Sales Commission IDC factored in. The interest portion in the first period is $6329.91. This amount subtracted from the first period interest in the customer amort above: $6955.70 - $6329.91 = $625.79.

 


Custom Amortization for Broker Fee:

This is the amortization schedule with only the Broker Fee IDC factored in. The interest portion in the first period is $6100.25. This amount subtracted from the first period interest in the customer amort above: $6955.70 - $6100.25 = $855.45.

 


The sum of the three differences noted above ties out to the sum of the expense accrued at the 4/30 month end.

Customer Amort = $6955.70 interest portion of the payment during the first billing period

Overhead Cost Amort = $6,636.39 interest portion of the payment during first billing period

Difference = $ 319.31


Customer Amort = $6955.70 interest portion of the payment during the first billing period

Sales Commission Amort = $6,329.91 interest portion of the payment during first billing period

Difference = $625.79


Customer Amort = $6955.70 interest portion of the payment during the first billing period

Broker Fee Amort = $6100.25 interest portion of the payment during first billing period

Difference = $855.45


Sum of differences = $1800.55

ASPIRE Accounting Screen


 

 



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