Funding Adjustment (to Forecast Value)
Main Menu - Lease - Funding Adjustment
This screen is used to create an adjustment to the forecast value calculation.
This screen will also allow you to automatically define miscellaneous journal entries that will feed through the accounting interface exports.
This screen is used in conjunction with leveraged financing. If there is no leveraged financing for the deal, you must manually input an interest rate (which you would get if you invested the funds instead).
What is a Funding Adjustment?
With leveraged financing, often times you may not get a fully funded deal, or you may get a shorter term, or you may get a different end value (balloon). Whatever the case, you may end up internally financing a portion (or all) of the deal. You may not have thought about it in the past, but when you are shorted on the financing, you take a hit on the profit.
The funding adjustment in ALMSys will give you a closer-to-reality look at the forecast value for the deal. Here is how the adjustment is calculated.
First, recalculate the deal using the rate attained from the leveraged financing. Sum up the interest. We'll call this sum, "A." If you are using internal funds, then specify a rate which you would get if you invested the funds instead.
Second, sum up the interest scheduled to be paid on the leveraged financing. We'll call this sum, "B." (With no leveraged financing, this will be zero.)
Subtract B from A. This is the funding adjustment and represents the hit your profit takes by not getting fully-funded financing.
Layout / How-To
Before using this screen, make sure the deal calculation is accurate and that you have properly entered leveraged financing for this deal.
To begin, press the Retrieve Values button behind 1. This will fill in the Calculation A fields. Enter an interest rate if no leveraged financing is present. (Again, this rate is the rate you would get if you invested the funds instead.) Next, press the Calculate button by 2. This will calculate the total interest for Calculation A.
Then, press the Calculate button by 3. This will calculate the total interest for Calculation B (leveraged financing).
Finally, press the Calculate button by 4. This will calculate the final Funding Adjustment.
ALMSys can create journal entries for the monthly amounts that add up to the Funding Adjustment. These entries are usually tied to the billings account interface export. In the event that the leveraged financing term is greater than that of the deal, the entries will be tied to the leveraged financing interface instead of the billings interface. For month #1, the adjustment will ALWAYS be tied to the leveraged financing interface or the depreciation interface, depending on the presence of leveraged financing on this deal. (This is done because Quorum does not process billing entries for month #1 and your adjustment would be thrown out.)
Use Location Maintenance to establish the ledger charge and offset accounts before creating the journal entries. Once established, press the Create Funding Adjustment Journal Entries button. One entry will be created for each month of the term. These entries will be placed in the Other Journal Entries file.
(Note: If you are recreating the entries, all existing "FUNDING ADJUSTMENT" records will be deleted, first.)