Charge Amortization
In Aura, Charge Amortization is done on the principles as set out in IAS 39 guideline. Though this has largely been replaced by IFRS 9- both the 2010 version and the 2025 version have no change when it comes to charge amortization related to valuation of HTM assets (loans and receivables).
The extant guidelines are as follows:
Definitions relating to recognition and measurement
The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at initial recognition minus principal repayments, plus or minus the cumulate amortisation using the effective interest method of any difference between that initial amount and the maturity amount, and minus any reduction (directly or through the use of an allowance account) for impairment or uncollectibility.
The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability (or group of financial assets or financial liabilities) and of allocating the interest income or interest expense over the relevant period.
The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, an entity shall estimate cash flows considering all contractual terms of the financial instrument (for example, prepayment, call and similar options) but shall not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate (see IAS 18 Revenue), transaction costs, and all other premiums or discounts. There is a presumption that the cash flows and the expected life of a group of similar financial instruments can be estimated reliably.
However, in those rare cases when it is not possible to estimate reliably the cash flows or the expected life of a financial instrument (or group of financial instruments), the entity shall use the contractual cash flows over the full contractual term of the financial instrument (or group of financial instruments).
Based on the above, the system calculates future cash flows to arrive at an amortisation schedule for such charges to be amortized. The schedule is drawn after calculating the IRR based on such future cash flow schedule.
Once calculated, the income is amortized on a daily basis as per the schedule drawn. For example, if the schedule is drawn for a month in case of monthly principal repayments, the same is amortized on a daily basis during the month.
The daily amortization will debit the Amortization GL and credit the Income GL as defined in the mapped Charge Scheme. On receipt of disbursement related charges that are to be amortized, the amount will be credited to the Amortization GL. If the charges are not netted off during disbursement, the Amortization GL may have a debit balance till the charge is received and allocated.
Whenever there is a Change of Terms that results in regeneration of the Principal Payment schedule, the charge amortization per day will change.
Note:
- If there is a back value dated disbursement, the charges will be amortized from that back value date and on the first day of disbursement, the accounting entries for all the days from the back value date till the current booking date will be posted, with the corresponding value date.
- If Principal Repayment Frequency is At Maturity, the amount of amortization per day will be the same as the daily amortization amount will be derived as the Total amount to be amortized divided by the Tenor of the Loan.
- If the Principal Repayment Frequency is Flexible, it is treated as if the frequency is At Maturity; and the amount of amortization per day will be the same.
- Any balance in the Charge Amortization GL will be moved to the Income GL on closure of the loan.
Formula for Charge amortization:
Charge Amortization in Aura is calculated using the Effective Interest Method, where the charge amount is amortized over the life of the loan based on the Effective Interest Rate (EIR).
Example:
Charge to be amortized: 500 SEK
Principal Payment Frequency: Monthly
Interest Payment Frequency: Monthly
Value Date of Loan: 15-02-2035
Tenor of Loan: 12 months
Maturity Date of Loan: 15-02-2036
A monthly Charge Amortization Schedule is derived as shown below, as the Principal Payment Frequency is monthly:
| Loan Payment Schedule | Charge Amortization Schedule | ||||||
|---|---|---|---|---|---|---|---|
| Date | Principal Outstanding | Principal Payment | Interest Payments | Cash-flow | Monthly Amortization | Balance to be Amortized | Amortization Per Day |
| 12/31/2024 | Disbursement | -100,000.00 | |||||
| 12/31/2024 | Charge to be amortized | 500.00 | |||||
| 12/31/2024 | 100,000.00 | 500.00 | |||||
| 1/31/2025 | 91,666.67 | 8,333.33 | 1,000.00 | 9,333.33 | 75.44 | 424.56 | 2.51 |
| 2/28/2025 | 83,333.34 | 8,333.33 | 916.67 | 9,250.00 | 69.52 | 355.04 | 2.32 |
| 3/31/2025 | 75,000.01 | 8,333.33 | 833.33 | 9,166.67 | 63.53 | 291.51 | 2.12 |
| 4/30/2025 | 66,666.68 | 8,333.33 | 750.00 | 9,083.33 | 57.48 | 234.03 | 1.92 |
| 5/31/2025 | 58,333.35 | 8,333.33 | 666.67 | 9,000.00 | 51.36 | 182.67 | 1.71 |
| 6/30/2025 | 50,000.02 | 8,333.33 | 583.33 | 8,916.67 | 45.18 | 137.49 | 1.51 |
| 7/31/2025 | 41,666.69 | 8,333.33 | 500.00 | 8,833.33 | 38.93 | 98.56 | 1.30 |
| 8/31/2025 | 33,333.36 | 8,333.33 | 416.67 | 8,750.00 | 32.62 | 65.94 | 1.09 |
| 9/30/2025 | 25,000.03 | 8,333.33 | 333.33 | 8,666.67 | 26.23 | 39.71 | 0.87 |
| 10/31/2025 | 16,666.70 | 8,333.33 | 250.00 | 8,583.33 | 19.78 | 19.93 | 0.66 |
| 11/30/2025 | 8,333.37 | 8,333.33 | 166.67 | 8,500.00 | 13.26 | 6.67 | 0.44 |
| 12/31/2025 | 0.00 | 8,333.37 | 83.33 | 8,416.67 | 6.67 | 0.00 | 0.22 |
| Total | 100,000.00 | 6,500.00 | 106,500.00 | ||||
Daily Amortization Amount
Daily Amortization Amount = Period Amortization Amount / Number of days in the period.
Month is always considered 30 days.
Example:
For a period amortization amount of 75.44 over 30 days:
Daily Amortization Amount = 75.44/30 = 2.5148945500
Daily Posted Amortization Amount:
Aura maintains a cumulative amortization amount and applies rounding on the cumulative value. The amount posted for each day is derived as follows:
Daily Posted Amortization Amount = Rounded Cumulative Amortization (Current Day) - Rounded Cumulative Amortization (Previous Day)
Daily Amortization:
For Month 1, amortization per day will be as follows:
The monthly amortization amount = 75.44
| Date | Daily Accrual Amount | Cumulative Accrual Amount | Rounded Cumulative Accrual Amount | Posted Amount (Rounded Cumulative minus Previous Rounded Cumulative) |
|---|---|---|---|---|
| 15-02-2035 | 2.5148945500 | 2.5148945500 | 2.51 | 2.51 |
| 16-02-2035 | 2.5148945500 | 5.0297891000 | 5.03 | 2.52 |
| 17-02-2035 | 2.5148945500 | 7.5446836500 | 7.54 | 2.51 |
| 18-02-2035 | 2.5148945500 | 10.0595782000 | 10.06 | 2.52 |
| 19-02-2035 | 2.5148945500 | 12.5744727500 | 12.57 | 2.51 |
| 20-02-2035 | 2.5148945500 | 15.0893673000 | 15.09 | 2.52 |
| 21-02-2035 | 2.5148945500 | 17.6042618500 | 17.6 | 2.51 |
| 22-02-2035 | 2.5148945500 | 20.1191564000 | 20.12 | 2.52 |
| 23-02-2035 | 2.5148945500 | 22.6340509500 | 22.63 | 2.51 |
| 24-02-2035 | 2.5148945500 | 25.1489455000 | 25.15 | 2.52 |
| 25-02-2035 | 2.5148945500 | 27.6638400500 | 27.66 | 2.51 |
| 26-02-2035 | 2.5148945500 | 30.1787346000 | 30.18 | 2.52 |
| 27-02-2035 | 2.5148945500 | 32.6936291500 | 32.69 | 2.51 |
| 28-02-2035 | 7.5446848500 | 40.2383140000 | 40.24 | 7.55 |
| 01-03-2035 | 2.5148945500 | 42.7532085500 | 42.75 | 2.51 |
| 02-03-2035 | 2.5148945500 | 45.2681031000 | 45.27 | 2.52 |
| 03-03-2035 | 2.5148945500 | 47.7829976500 | 47.78 | 2.51 |
| 04-03-2035 | 2.5148945500 | 50.2978922000 | 50.3 | 2.52 |
| 05-03-2035 | 2.5148945500 | 52.8127867500 | 52.81 | 2.51 |
| 06-03-2035 | 2.5148945500 | 55.3276813000 | 55.33 | 2.52 |
| 07-03-2035 | 2.5148945500 | 57.8425758500 | 57.84 | 2.51 |
| 08-03-2035 | 2.5148945500 | 60.3574704000 | 60.36 | 2.52 |
| 09-03-2035 | 2.5148945500 | 62.8723649500 | 62.87 | 2.51 |
| 10-03-2035 | 2.5148945500 | 65.3872595000 | 65.39 | 2.52 |
| 11-03-2035 | 2.5148945500 | 67.9021540500 | 67.9 | 2.51 |
| 12-03-2035 | 2.5148945500 | 70.4170486000 | 70.42 | 2.52 |
| 13-03-2035 | 2.5148945500 | 72.9319431500 | 72.93 | 2.51 |
| 14-03-2035 | 2.5148945500 | 75.4468377000 | 75.45 | 2.52 |
Note: Due to the 30/360 interest calculation used in Aura, each month is considered as 30 days.
Accordingly, for the month of February, Aura computes amortization up to 30 days. On 28-Feb, the amortization amount is calculated for the remaining days of the 30-day period and posted on that date.
In a leap year, Aura considers up to 29 days, and the remaining days of the 30-day period are adjusted accordingly.
For months that have 31 days, no amortization is posted on the 31st, as Aura restricts the calculation to 30 days for each month.
Example:
On 28-02-2035,
Cumulative = 40.2383140000, Rounded = 40.24
Previous rounded = 32.69
Posted = 40.24 – 32.69 = 7.55
The following entries are posted with Event code CHGAMR:
| Account/ GL | Transaction Code | Book Date | Value Date | Amount | Debit/ Credit |
|---|---|---|---|---|---|
| GL mapped for the Charge Scheme as Charge Amortization GL | Transaction Code mapped as Charge Amortization (DB / GL) | Current Booking date | Amortization date | Amortized amount | Debit |
| GL mapped for the Charge Scheme as the Charge Income GL | Transaction Code mapped as Charge Income (CR / GL) | Current Booking date | Amortization date | Amortized amount | Credit |