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Sfm capital budgeting doubt

CA. Abhilash Krishnan P (Chartered Accountant) (533 Points)

01 April 2013

What is the Difference between equated annual installments and equal annual installments??? am confused because the one which i was taught in class is different from the one in ICAI practice manual...which one should i follow??? plz help......

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Harshal Fifadra (Chartered Accountant) (1489 Points)
Replied 03 April 2013

The difference can be as follows : equal annual installments are the amounts of money payable or paid every year ...... It is arrived by dividing the amount of the loan along with the interest with the period of loan ....... E.g.loan amount = 10,000 and interest as rs.2000....the total amount of rs. 12000 is divided by the period say 4 years ....so equal annual installment would be 3,000........... Equated annual installments are also amounts of money payable or paid every year ..however equated annual installments are arrived after dividing the loan amount along with the interest with the interest rate present value annuity factor .... E.g loan Amount =10,000 and interest amount =2,000..... Total amount = 12,000... And interest rate is 10 % n period as 4 years The amount of rs.12000 shall be divided by present value annuity factor to arrive at equated annual installment.... .i.e 12,000/ 3.169= rs 3787 Ok..........

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