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General Accounting Discussions: Accounting for Interest Rate Caps

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    • CommentAuthorbchrist
    • CommentTimeApr 19th 2007
     
    My company just purchased an Interest Rate Cap. We paid a fee of $29,000 and the notional amount is $40,000,000. How do I book the $29,000 fee? All examples on the internet are for zero cost caps (no fee). Welcome comments
    • CommentAuthorkanker
    • CommentTimeNov 16th 2009
     
    I need the answer to this question...
    • CommentAuthorarnold
    • CommentTimeNov 18th 2009
     
    The entries will be as follows
    1. Derivative Asset (BS) Debit $29,000
    Cash (BS) Credit $ 29,000

    2. Qtr MTM
    Derivative Asset (BS) Cebit $XXX
    Unrealized P&L (P&L) Credit $XXX
    in case of MTM gain abaove .. for loss it will be inverse..

    3. On maturity
    Unrealizxed (P&L) Debit $XXX
    Realized PnL (P&L) Debit $XXX
    Derivative Asset (BS) Credit$XXX

    last (3) entry really depeneds on what reporting requirements are for your company. If you dont have to report EBITDA then you don't have to trransfer unrealized PnL to realized.
    Thankful People: jamesparker
    • CommentAuthorjamesparker
    • CommentTimeDec 2nd 2009 edited
     
    @ Arnold!
    You are right and i appreciate your skill of knowledge sharing!
    Have a good day guys! cheers!

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