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PURPOSE
This document shows accrual methods and their definition.
FREQUENTLY ASKED QUESTIONS
FAQ01. What are accrual methods?
The following examples show different types of accrual methods and how system computes the interest.
A. Act/365 (Fixed)
B. Act/360
C. Act/365 (Actual) – CASE 1 (Start and end in the same year)
D. Act/365 (Actual) – CASE 1 (Start and end in different years)
E. Act/365 (Actual) – CASE 1 (Start and end in different years – span more than one year)
If the contract spans more than one year (i.e., 2004 to 2006) then for each complete calendar year, the amount of interest will be simply Principal * Interest Rate. The sub period at the start and end will be added as above.
F. 30/360
The formulae used by CS Lucas for 30/360 day count are as followsThe formulae used by CS Lucas for 30/360 day count are as follows
Source: hp 12c financial calculator
Example given:
FAQ02. How are monthly interest accruals calculated?
The total interest is calculated based on the elected accrual approach, then apportioned over the loan term based on the actual number of days in each month. It is not apportioned on a straight-line basis.
This means your monthly interest accruals will vary depending on the calendar days in each period. For example, February with 28 days will generate lower interest expense than March with 31 days, reflecting how interest actually accumulates daily on your loan.
FAQ03. Why actual days instead of equal monthly amounts?
The system is designed to use actual days because it provides more accurate financial reporting and aligns with how interest accumulates on your loan. Rather than artificially smoothing the expense, it gives you a precise picture of when interest is actually being incurred.
CHANGE HISTORY
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