Видео

Yes, interest rate is usually a factor in accounting for subscription-based IT assets. For this example I wanted to focus on the other components. But lets assume all the facts of the example are the same and the borrowing rate is 5%. Then below would be the application for the interest expense: At the beginning of the first year, the outstanding liability balance is $300,000 (the total amount of the subscription payments). The monthly interest expense is calculated as follows: Monthly interest expense = (Outstanding liability balance × Borrowing rate) ÷ 12 Monthly interest expense = ($300,000 × 5%) ÷ 12 Monthly interest expense = $12,500 If the government makes no payment in the first month, the interest expense of $12,500 is recorded in the accrued interest liability account. The outstanding liability balance remains at $300,000. In the second month, the outstanding liability balance is still $300,000. The monthly interest expense is again calculated as $12,500. If the government makes a payment of $100,000 in the second month, the payment is first applied to the accrued interest liability, reducing it to zero. The remaining $87,500 is then applied to the outstanding liability balance, reducing it to $212,500. This process continues for each month until the SBITA is fully paid off.