Example 11: Transactions with File Rate of interest calculated daily, Static rate of interest on Credits

Example 11 Scenario

This example is based on the facts in Example 10. See entire scenario below for full version.

In the previous example:

•	The store wasn't obliged to pay the customer interest if the customer's account had a credit balance.

In this example:

•	Τhe credit supply agreement says that the store must pay the customer interest on any credit balance, at a static rate of 2.5%.

Demonstrated Features

►	Setting a credit rate of interest for this calculation file only.

►	Making the setting reusable by incorporating it in the interest rate file.

►	Examine relevant parts of the calculation result.

Points of Interest

◆	You can have different interest rates and other rules for credit balances and debit balances.

Multimedia Presentation

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Entire Scenario

There are a series of transactions on Mr Smith's account - the first one is on 16 July 2004 and the last one is on 23 November 2006, the balance is currently $6704.35.

DATE	DESCRIPTION	AMOUNT	BALANCE
16/07/2004	Invoice No. 504	$950.05	$950.05
24/01/2005	Invoice No. 505	$1,482.18	$2,432.23
12/10/2005	Cheque No. 439758	$2,772.83CR	$340.60CR
05/11/2005	Invoice No. 506	$1,313.14	$972.54
11/11/2005	Dishonoured Cheque Fee	$50.00	$1,022.54
14/01/2006	Invoice No. 507	$3,071.38	$4,093.92
10/04/2006	Cheque No. 439759	$2,950.00CR	$1,143.92
26/05/2006	Invoice No. 508	$7,076.15	$8,220.07
15/07/2006	Cheque No. 439760	$1,447.98CR	$6,772.09
23/11/2006	Cheque No. 439761	$67.74CR	$6,704.35

He's given a lot of business over the years and has always paid up eventually, but the account has lost too much control now.

The credit supply agreement says that interest may be charged daily at the prevailing interest rate that the store pays on its own bank overdraft account. The rates are:

From Rate

4/4/2004 4%

5/5/2005 5%

6/6/2006 6%

7/7/2007 7%

8/8/2008 8%

The credit supply agreement also says that if the customer's account goes into credit (i.e. the store owes the customer) the store must pay the customer interest at a static rate of 2.5%.

Interest is to be calculated daily.

Interest is not compounded.

Payments are allocated to the best benefit of the store (i.e. the creditor).

We wish to calculate interest as at 21 September 2007.

Calculation Results

The results generated by the program are shown below.

Calculation Result

Example 11

SUMMARY

•	Calculated interest on transactions, starting with principal of nine hundred and fifty dollars and five cents ($950.05), for the period 16/07/2004 to 21/09/2007 inclusive, a period of 1163 days.

•	Total interest for the period was seven hundred and forty-nine dollars and twelve cents ($749.12), however the amount now owing is four hundred and forty-six dollars and ninety-one cents ($446.91) because of the allocation of debits/credits during the period.

•

As at 21/09/2007 the total amount owing is seven thousand four hundred and fifty-three dollars and forty-seven cents ($7,453.47) comprised of principal of seven thousand and six dollars and fifty-six cents ($7,006.56) and accumulated interest of four hundred and forty-six dollars and ninety-one cents ($446.91).

•	Interest on $7,006.56 continues to accumulate at one dollar and thirty-four cents ($1.34) per day on and from 22/09/2007.

TRANSACTION HISTORY BEFORE INTEREST IS TAKEN INTO ACCOUNT

DATE	DESCRIPTION	AMOUNT	BALANCE
16/07/2004	Invoice No. 504	$950.05	$950.05
24/01/2005	Invoice No. 505	$1,482.18	$2,432.23
12/10/2005	Cheque No. 439758	$2,772.83CR	$340.60CR
05/11/2005	Invoice No. 506	$1,313.14	$972.54
11/11/2005	Dishonoured Cheque Fee	$50.00	$1,022.54
14/01/2006	Invoice No. 507	$3,071.38	$4,093.92
10/04/2006	Cheque No. 439759	$2,950.00CR	$1,143.92
26/05/2006	Invoice No. 508	$7,076.15	$8,220.07
15/07/2006	Cheque No. 439760	$1,447.98CR	$6,772.09
23/11/2006	Cheque No. 439761	$67.74CR	$6,704.35

PARTICULARS OF INTEREST

►	The first paragraph shows the initial calculation parameters.

►	It has set out the DR as well as CR rate of interest.

(a) On 16/07/2004 the opening principal was $950.05, the interest rate on debit balances was 4% per annum, the interest rate on credit balances was 2.5% per annum, and the days per year base used to convert the annual interest rates into daily interest rates was 366.

(b) Debits and Credits are each applied to non-principal then to interest then to principal.

►	Interest calculation sets out the formula and parameters for easy checking and comprehension.

►	Calin Professional doesn't conceal anything.

(c) Calculated interest on 31/12/2004 because it was the last day before the days per year base changed (from 366 to 365) on 01/01/2005. Interest on $950.05 (principal) at 4% per annum × 169 days (16/07/2004 to 31/12/2004 inclusive) ÷ 366 (days per year) is $17.55, resulting in a new unpaid interest balance of $17.55 ($0.00 plus $17.55).

(d) On 01/01/2005 the days per year base used to convert the annual interest rate into the daily interest rate changed to 365. The daily interest rate is now 0.0109589% on debit balances & 0.00684932% on credit balances.

(e) Calculated interest on 23/01/2005 because it was the last day before the balance of principal changed on 24/01/2005. Interest on $950.05 (principal) at 4% per annum × 23 days (01/01/2005 to 23/01/2005 inclusive) ÷ 365 (days per year) is $2.39, resulting in a new unpaid interest balance of $19.94 ($17.55 plus $2.39).

(f) Debit on 24/01/2005: "Invoice No. 505" $1,482.18. The entire amount was added to principal, leaving a new principal balance of $2,432.23 ($950.05 plus $1,482.18).

(g) Calculated interest on 04/05/2005 because it was the last day before the interest rate changed on 05/05/2005. Interest on $2,432.23 (principal) at 4% per annum × 101 days (24/01/2005 to 04/05/2005 inclusive) ÷ 365 (days per year) is $26.92, resulting in a new unpaid interest balance of $46.86 ($19.94 plus $26.92).

(h) On 05/05/2005 the interest rate on debit balances changed to 5% per annum.

(i) Calculated interest on 11/10/2005 because it was the last day before the balance of principal changed on 12/10/2005. Interest on $2,432.23 (principal) at 5% per annum × 160 days (05/05/2005 to 11/10/2005 inclusive) ÷ 365 (days per year) is $53.31, resulting in a new unpaid interest balance of $100.17 ($46.86 plus $53.31).

►	This paragraph sets out details of a payment.

►	It has applied the payment in accordance with the payment application order referred to in paragraph (b).

►	"Non-principal" refers to amounts on which no interest is said to be payable.

►	As there was no "non-principal", the payment was then allocated to interest. This wrote-off the entire balance of interest.

►	It then applied the balance of the credit to principal. The payment was big enough to completely write-off the balance of principal.

►	This left a credit balance of principal and no interest.

►	The CR suffix has been used to denote a credit balance.

(j) Credit on 12/10/2005: "Cheque No. 439758" $2,772.83CR. The payment was applied partly to interest ($100.17) and partly to principal ($2,672.66) leaving a new unpaid interest balance of $0.00 ($100.17 minus $100.17) and a new principal balance of $240.43CR ($2,432.23 minus $2,672.66).

►	Interest has been calculated on the credit balance. The amount is small because the credit balance and interest rate were small, and there weren't many days in the period.

►	This has resulted in a credit interest balance as well as a credit principal balance

(k) Calculated interest on 04/11/2005 because it was the last day before the balance of principal changed on 05/11/2005. Interest on $240.43CR (principal) at 2.5% per annum × 24 days (12/10/2005 to 04/11/2005 inclusive) ÷ 365 (days per year) is $0.40CR, resulting in a new unpaid interest balance of $0.40CR ($0.00 plus $0.40CR).

►	The debit transaction has been applied in accordance with the stated payment application order.

►	The debit was big enough to write-off both the credit interest balance and the credit principal balance.

►	Everything is explained clearly.

(l) Debit on 05/11/2005: "Invoice No. 506" $1,313.14. The amount was applied partly to interest ($0.40) and partly to principal ($1,312.74) leaving a new unpaid interest balance of $0.00 ($0.40CR plus $0.40) and a new principal balance of $1,072.31 ($240.43CR plus $1,312.74).

(m) Calculated interest on 10/11/2005 because it was the last day before the balance of principal changed on 11/11/2005. Interest on $1,072.31 (principal) at 5% per annum × 6 days (05/11/2005 to 10/11/2005 inclusive) ÷ 365 (days per year) is $0.88, resulting in a new unpaid interest balance of $0.88 ($0.00 plus $0.88).

(n) Debit on 11/11/2005: "Dishonoured Cheque Fee" $50.00. The entire amount was added to principal, leaving a new principal balance of $1,122.31 ($1,072.31 plus $50.00).

(o) Calculated interest on 13/01/2006 because it was the last day before the balance of principal changed on 14/01/2006. Interest on $1,122.31 (principal) at 5% per annum × 64 days (11/11/2005 to 13/01/2006 inclusive) ÷ 365 (days per year) is $9.84, resulting in a new unpaid interest balance of $10.72 ($0.88 plus $9.84).

(p) Debit on 14/01/2006: "Invoice No. 507" $3,071.38. The entire amount was added to principal, leaving a new principal balance of $4,193.69 ($1,122.31 plus $3,071.38).

(q) Calculated interest on 09/04/2006 because it was the last day before the balance of principal changed on 10/04/2006. Interest on $4,193.69 (principal) at 5% per annum × 86 days (14/01/2006 to 09/04/2006 inclusive) ÷ 365 (days per year) is $49.41, resulting in a new unpaid interest balance of $60.13 ($10.72 plus $49.41).

►	There has been a credit payment. It has been applied partly to interest, and principal, leaving a debit principal balance.

(r) Credit on 10/04/2006: "Cheque No. 439759" $2,950.00CR. The payment was applied partly to interest ($60.13) and partly to principal ($2,889.87) leaving a new unpaid interest balance of $0.00 ($60.13 minus $60.13) and a new principal balance of $1,303.82 ($4,193.69 minus $2,889.87).

(s) Calculated interest on 25/05/2006 because it was the last day before the balance of principal changed on 26/05/2006. Interest on $1,303.82 (principal) at 5% per annum × 46 days (10/04/2006 to 25/05/2006 inclusive) ÷ 365 (days per year) is $8.22, resulting in a new unpaid interest balance of $8.22 ($0.00 plus $8.22).

(t) Debit on 26/05/2006: "Invoice No. 508" $7,076.15. The entire amount was added to principal, leaving a new principal balance of $8,379.97 ($1,303.82 plus $7,076.15).

(u) Calculated interest on 05/06/2006 because it was the last day before the interest rate changed on 06/06/2006. Interest on $8,379.97 (principal) at 5% per annum × 11 days (26/05/2006 to 05/06/2006 inclusive) ÷ 365 (days per year) is $12.63, resulting in a new unpaid interest balance of $20.85 ($8.22 plus $12.63).

(v) On 06/06/2006 the interest rate on debit balances changed to 6% per annum.

(w) Calculated interest on 14/07/2006 because it was the last day before the balance of principal changed on 15/07/2006. Interest on $8,379.97 (principal) at 6% per annum × 39 days (06/06/2006 to 14/07/2006 inclusive) ÷ 365 (days per year) is $53.72, resulting in a new unpaid interest balance of $74.57 ($20.85 plus $53.72).

(x) Credit on 15/07/2006: "Cheque No. 439760" $1,447.98CR. The payment was applied partly to interest ($74.57) and partly to principal ($1,373.41) leaving a new unpaid interest balance of $0.00 ($74.57 minus $74.57) and a new principal balance of $7,006.56 ($8,379.97 minus $1,373.41).

(y) Calculated interest on 22/11/2006 because it was the last day before the balance of principal changed on 23/11/2006. Interest on $7,006.56 (principal) at 6% per annum × 131 days (15/07/2006 to 22/11/2006 inclusive) ÷ 365 (days per year) is $150.88, resulting in a new unpaid interest balance of $150.88 ($0.00 plus $150.88).

(z) Credit on 23/11/2006: "Cheque No. 439761" $67.74CR. The payment was applied entirely to interest, leaving a new unpaid interest balance of $83.14 ($150.88 minus $67.74).

(aa) Calculated interest on 06/07/2007 because it was the last day before the interest rate changed on 07/07/2007. Interest on $7,006.56 (principal) at 6% per annum × 226 days (23/11/2006 to 06/07/2007 inclusive) ÷ 365 (days per year) is $260.30, resulting in a new unpaid interest balance of $343.44 ($83.14 plus $260.30).

(ab) On 07/07/2007 the interest rate on debit balances changed to 7% per annum.

(ac) Calculated interest on 21/09/2007. Interest on $7,006.56 (principal) at 7% per annum × 77 days (07/07/2007 to 21/09/2007 inclusive) ÷ 365 (days per year) is $103.47, resulting in a new unpaid interest balance of $446.91 ($343.44 plus $103.47).

(ad) As at 21/09/2007 the total amount owing is seven thousand four hundred and fifty-three dollars and forty-seven cents ($7,453.47) comprised of principal of seven thousand and six dollars and fifty-six cents ($7,006.56) and accumulated interest of four hundred and forty-six dollars and ninety-one cents ($446.91).

(ae) Total interest for the period 16/07/2004 to 21/09/2007 (1163 days) was seven hundred and forty-nine dollars and twelve cents ($749.12).

(af) Interest on $7,006.56 continues to accumulate at one dollar and thirty-four cents ($1.34) per day on and from 22/09/2007.

Calculation Result

Example 11

TRANSACTION HISTORY BEFORE INTEREST IS TAKEN INTO ACCOUNT

DATE	DESCRIPTION	AMOUNT	BALANCE
16/07/2004	Invoice No. 504	$950.05	$950.05
24/01/2005	Invoice No. 505	$1,482.18	$2,432.23
12/10/2005	Cheque No. 439758	$2,772.83CR	$340.60CR
05/11/2005	Invoice No. 506	$1,313.14	$972.54
11/11/2005	Dishonoured Cheque Fee	$50.00	$1,022.54
14/01/2006	Invoice No. 507	$3,071.38	$4,093.92
10/04/2006	Cheque No. 439759	$2,950.00CR	$1,143.92
26/05/2006	Invoice No. 508	$7,076.15	$8,220.07
15/07/2006	Cheque No. 439760	$1,447.98CR	$6,772.09
23/11/2006	Cheque No. 439761	$67.74CR	$6,704.35

INTEREST CALCULATION TABLE

DATE	DESCRIPTION	DAYS	AMOUNT	BALANCE	PRINCIPAL	INTEREST
16/07/2004	Interest rate started at 4% on debit balances & 2.5% on credit balances (0.01092896% & 0.0068306% per day).			$950.05DR	$950.05DR	$0.00DR
31/12/2004	Interest (16/07/2004 to 31/12/2004 inclusive) $950.05 × 0.01092896% × 169 days = $17.55.	169	$17.55DR	$967.60DR	$950.05DR	$17.55DR
01/01/2005	Days per year changed to 365. Daily interest rate now 0.0109589% on debit balances & 0.00684932% on credit balances.			$967.60DR	$950.05DR	$17.55DR
23/01/2005	Interest (01/01/2005 to 23/01/2005 inclusive) $950.05 × 0.0109589% × 23 days = $2.39.	23	$2.39DR	$969.99DR	$950.05DR	$19.94DR
24/01/2005	Invoice No. 505. Entire amount added to principal.		$1,482.18DR	$2,452.17DR	$2,432.23DR	$19.94DR
04/05/2005	Interest (24/01/2005 to 04/05/2005 inclusive) $2,432.23 × 0.0109589% × 101 days = $26.92.	101	$26.92DR	$2,479.09DR	$2,432.23DR	$46.86DR
05/05/2005	Interest rate on debit balances changed to 5% per annum (currently 0.01369863% per day).			$2,479.09DR	$2,432.23DR	$46.86DR
11/10/2005	Interest (05/05/2005 to 11/10/2005 inclusive) $2,432.23 × 0.01369863% × 160 days = $53.31.	160	$53.31DR	$2,532.40DR	$2,432.23DR	$100.17DR
12/10/2005	Cheque No. 439758. Payment was applied partly to interest ($100.17) and partly to principal ($2,672.66).		$2,772.83CR	$240.43CR	$240.43CR	$0.00DR
04/11/2005	Interest (12/10/2005 to 04/11/2005 inclusive) $240.43CR × 0.00684932% × 24 days = $0.40CR.	24	$0.40CR	$240.83CR	$240.43CR	$0.40CR
05/11/2005	Invoice No. 506. Payment was applied partly to interest ($0.40) and partly to principal ($1,312.74).		$1,313.14DR	$1,072.31DR	$1,072.31DR	$0.00DR
10/11/2005	Interest (05/11/2005 to 10/11/2005 inclusive) $1,072.31 × 0.01369863% × 6 days = $0.88.	6	$0.88DR	$1,073.19DR	$1,072.31DR	$0.88DR
11/11/2005	Dishonoured Cheque Fee. Entire amount added to principal.		$50.00DR	$1,123.19DR	$1,122.31DR	$0.88DR
13/01/2006	Interest (11/11/2005 to 13/01/2006 inclusive) $1,122.31 × 0.01369863% × 64 days = $9.84.	64	$9.84DR	$1,133.03DR	$1,122.31DR	$10.72DR
14/01/2006	Invoice No. 507. Entire amount added to principal.		$3,071.38DR	$4,204.41DR	$4,193.69DR	$10.72DR
09/04/2006	Interest (14/01/2006 to 09/04/2006 inclusive) $4,193.69 × 0.01369863% × 86 days = $49.41.	86	$49.41DR	$4,253.82DR	$4,193.69DR	$60.13DR
10/04/2006	Cheque No. 439759. Payment was applied partly to interest ($60.13) and partly to principal ($2,889.87).		$2,950.00CR	$1,303.82DR	$1,303.82DR	$0.00DR
25/05/2006	Interest (10/04/2006 to 25/05/2006 inclusive) $1,303.82 × 0.01369863% × 46 days = $8.22.	46	$8.22DR	$1,312.04DR	$1,303.82DR	$8.22DR
26/05/2006	Invoice No. 508. Entire amount added to principal.		$7,076.15DR	$8,388.19DR	$8,379.97DR	$8.22DR
05/06/2006	Interest (26/05/2006 to 05/06/2006 inclusive) $8,379.97 × 0.01369863% × 11 days = $12.63.	11	$12.63DR	$8,400.82DR	$8,379.97DR	$20.85DR
06/06/2006	Interest rate on debit balances changed to 6% per annum (currently 0.01643836% per day).			$8,400.82DR	$8,379.97DR	$20.85DR
14/07/2006	Interest (06/06/2006 to 14/07/2006 inclusive) $8,379.97 × 0.01643836% × 39 days = $53.72.	39	$53.72DR	$8,454.54DR	$8,379.97DR	$74.57DR
15/07/2006	Cheque No. 439760. Payment was applied partly to interest ($74.57) and partly to principal ($1,373.41).		$1,447.98CR	$7,006.56DR	$7,006.56DR	$0.00DR
22/11/2006	Interest (15/07/2006 to 22/11/2006 inclusive) $7,006.56 × 0.01643836% × 131 days = $150.88.	131	$150.88DR	$7,157.44DR	$7,006.56DR	$150.88DR
23/11/2006	Cheque No. 439761. Payment applied entirely to interest.		$67.74CR	$7,089.70DR	$7,006.56DR	$83.14DR
06/07/2007	Interest (23/11/2006 to 06/07/2007 inclusive) $7,006.56 × 0.01643836% × 226 days = $260.30.	226	$260.30DR	$7,350.00DR	$7,006.56DR	$343.44DR
07/07/2007	Interest rate on debit balances changed to 7% per annum (currently 0.01917808% per day).			$7,350.00DR	$7,006.56DR	$343.44DR
21/09/2007	Interest (07/07/2007 to 21/09/2007 inclusive) $7,006.56 × 0.01917808% × 77 days = $103.47.	77	$103.47DR	$7,453.47DR	$7,006.56DR	$446.91DR
	Final Balance	1163		$7,453.47DR	$7,006.56DR	$446.91DR