IFRS Variable Loans

IFRS Variable Loans

Purpose

The Variable Loan System will allow the spreading of fees for each loan.  This can only be done on a straight line basis. 

The Variable Loan Unearned Fees Report will detail how fees will be spread. 

The Variable Loan System month end reset routine will post a separate journal entry for each financed fee between the GL Balance Sheet Unearned Fee accounts and the Profit and Loss Fee Income Earned account(s).

Access

  1. Accounts | Edit/View Account Types

Dialog Details

If any variable loan system account type has no accounts that have fees allocated to them, then the set up procedures described below do not need to be applied to those account types. 

These procedures need to be applied to every Variable Loan Account Type that has any associated accounts that may have financed fees posted to them.

There is a button on each Variable Loan Account Type that needs to be set up for the fee income spread to take place.




This will be completed as follows:


Details Specific Fields

Field
Explanation
Unexpired Dealer Commission – Balance Sheet
[F2] to  the GL Code that will have initial Dealer Commission posted to it
Dealer Commission Expense – Profit And Loss
[F2] to  the GL Code that the monthly apportioned commission  will post to
Commission and Fees Realised Method
There is only one option available being straight line

Fee Income Spread Set Up

On any loan account it is possible that there will be more than one fee item that needs to be spread.  The second half of this set up dialogue allows the association to as many lease fee items as required.



FieldExplanation
Code

Enter a code for the fee item that is to be spread 

For consistency it would be a good idea to use the same code as is used on the Transaction Type set up for this fee
Description

Enter a description for the fee item that is to be spread 

For consistency it would be a good idea to use the same description as is used on the Transaction Type set up for this fee
Financed Income Transaction Type

Select here the Transaction Type that is used to process this fee on the Variable Loan Account

The Transaction Type can be ascertained from the Variable Loan Control Details
Financed Income Profit and Loss GL Code

This may be the existing General Ledger account used for this purpose, or a new account can be established

[F2] in this field to display the General Ledger Browse  the GL Code that will be used for the posting of the profit and loss fee income earned
Financed Income Balance Sheet Code

A new account will need to be established

[F2] in this field to display the General Ledger Browse  the new GL Code and  into this field

Note:  A separate fee income details screen will need to be completed for each financial fee associated with the fixed loan account.

Each setup must post to a unique balance sheet GL Code.  If there are multiple account types in use, each account type that has financed fee accounts associated with it must have a fee income details screen set up for each fee and that must post to a unique balance sheet GL Code.

The same profit and loss GL Code may be used unless there is a requirement to see the fee income split.

Variable Loan Processing Changes

It is common practice with variable loans to refinance these when they are due to mature.  Previously this has just been a matter of changing the maturity date to the new maturity date, adding the extra fees and charges, and letting the loan continue on.

On any account type with the  dialog setup, this is not recommended.  If you just change the maturity date, the effect will be to spread existing fees out to the new maturity date and to spread new fees from the original account open date.

The correct procedure is to close the original account, add a new account with the refinanced amount and the new fees and the new maturity date.  That will ensure the original fees are spread over the term of the original loan and new fees are spread over the term of the new loan.

The loading of the new loan will create a balance in the associated dealer account for the refinance amount.  A cashbook journal will be required to withdraw the amount from the dealer account and deposit that same amount into the original loan account.  That will correct the balance of the dealer account and pay out the original loan account.

Depending on the state of the loan, it may be possible to overcome the above limitation by aligning the loan start date with the old maturity date.

General Ledger Implications

First Month End

When the first variable loan system month end reset is run following the set up changes detailed earlier, the system will automatically create General Ledger Journals that will:

Credit the Balance Sheet GL Code for Unearned Fee Income and debit the Profit and Loss Fee Income account.  There will be a separate General Ledger Journal for each fee item that is being spread.

All of these codes will have already been set up on the Variable Loan Account Type.  If these codes have not been set up the journal will not post.  This will be correct for those clients who are not subject to IFRS fee income spread, or where there are account types with associated accounts where all of those accounts do not have fees.

If there are multiple Variable Loan Accounts Types with an  set up, then there will be multiple General Ledger balance accounts for unearned fee income.

After the first month end you should post a General Ledger Journal to transfer the debit in the Profit and Loss Fee Income account.  Your accountant will advise the correct action for this balance.

Subsequent Month Ends

During each month end the system will process journal entries that will:

Force the balance sheet unearned fee income balance to be the same as the unearned fee income month end total from the Variable Loan Unearned Fees Report.  The other side of the entry will post to the profit and loss GL Code for fee income.  There will be a separate General Ledger Journal for each fee income Transaction Type nominated on the Variable Loan account type.

If you have multiple account types set up for Variable Loans subject to IFRS fee income spread, separate General Ledger Journals will be posted for each account type.


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