Treasury&RiskMgmt-

[Former Member]

In sap system we can define Amortization procedure, and assign this to position management procedure also

What does it means , what is meant by Amortization??

Regards

Blessy

[former_member581688 · Accepted solution]

I believe Blessy was asking about Amortization as it relates to securities transactions within Treasury and Risk - Transaction Manager. There are transactions within TRM-TM to handle amortization - a Z-program should not be required.

Securities, such as bonds, can be purchased at a discount or premium. Amortization within TRM-TM is the process of making periodic adjustments to convert a discount or premium from book value to interest. The amortization is calculated such that at the time the bond matures, the book value is equal to the face value - all premium or discount has been converted to interest.

Take for example a bond with face value of $100. The bond has a better interest rate than others available, so an investor might pay more than face value - for example $110 - for the bond in order to get the higher interest payments. The difference between the amount paid ($110) and the face value ($100) is the premium ($10). Initially the value of the bond is recorded on the books at the amount paid ($110). Then on a periodic basis, the discount is amortized - that is an adjustment is made each period to decrease the book value of the bond and post the offset to interest. The total of all adjustments between the time the bond is purchased and the maturity date of the bond should equal the premium.

A discount occurs when a bond is purchased for less than face value - for example, a $100 face value bond is purchased for $90. In this case, each adjustment increases the book value - the offset is still posted to interest. Technically, the process of converting a discount to interest is called accretion - however, SAP uses the term amortization for this process as well.

In ECC 6.0, amortization is handled through transaction TPM1 (Execute Valuation). In earlier versions (those prior to the TRM Migration), use transaction FWAA (Execute Amortization).

Regards,

Shannon

[Former Member · Accepted solution]

Thanks for the replies

Regards

Blessy

[jaybanda2]

Hi

Amortization is the process of reducing the value of intangible assets by assigning the costs to the useful life of the asset. This can also be achieved by making a value adjustment on the balance sheet key date.

From a consolidation point of view, the amortization of goodwill during the first consolidation is relevant.

The procedures for amortization are generally governed by external regulatory bodies.

The Ammortization Value must be calculated externally & should be recorded as 'Z' condition type in Pricing Schema (within SAP).

jay