Ad-Free CAclubindia and Daily Updates on your mobile. Subscribe Now!

Interest on fdr

Nishant (student) (73 Points)

17 July 2015

Can anyone please tell me the accounting treatment of interest accrued on FDR and the interest recd entry and how to calculate it?

Reply
Follow
Share

1 Replies

Deepak Gupta (CA Student) (15922 Points)
Replied 17 July 2015

(A). Journal Entries:
.
1. At the time of booking a fixed deposit:
.
Investment in fixed deposit with XYZ Bank….. Dr.
.
To, Cash/Bank (as the case may be)
.
2(a). Entry for accrued interest (in case of no TDS):
.
Accrued interest on fixed deposit…… Dr
.
To, Interest on fixed deposit
.
2(b). Entry for accrued interest (in case of TDS):
.
Accrued interest on fixed deposit…… Dr
.
TDS u/s 194A (AY xx-xx)…….Dr
.
To, Interest on fixed deposit
.
3(a). At the time of maturity (if not renewed further)
.
XYZ Bank……..Dr.
.
To, Investment in fixed deposit with XYZ Bank
.
To, Accrued interest on fixed deposit
.
3(b). At the time of maturity (if renewed further/roll-over)
.
Investment in fixed deposit with XYZ Bank ………..Dr.
.
To, Investment in fixed deposit with XYZ Bank
.
To, Accrued interest on fixed deposit
.
(B). Calculation of fixed deposit interest:
.
Generally, banks use quarterly compounding to calculate the interest. Some banks also offer the facility of quarterly/monthly interest payout. So, see which option you have opted for. More often than not, it’s the former.
.
Example: FD amount = Rs. 35,000, Date of booking = 27.09.2013, Maturity = 27.09.2014, Rate of interest = 9%, Maturity amount = Rs 38,258
.

FY	QTR	Days	Interest	Compounded Value
2013-14	1	0	-	35,000.00
	2	3	25.89	35,025.89
	3	92	794.56	35,820.45
	4	90	794.92	36,615.37
			1,615.37
FY	QTR	Days	Interest	Compounded Value
2014-15	1	91	821.59	37,436.96
	2	89	821.04	38,258.00
			1,642.63

.
Accrued interest r/off: FY 13-14 = Rs. 1,615 and FY 14-15 = Rs. 1,643. Sometimes, there might be few rupees of difference with bank’s calculation due to rounding off. Need not worry about that, adjust in the last quarter accordingly.