The formula for calculating simple interest on an overdue amount is:
Overdue Interest = Principal Amount x Interest Rate x Time
Where:
- Principal Amount is the outstanding balance or overdue payment.
- Interest Rate is the annual interest rate, expressed as a decimal.
- Time is the duration of the overdue period in years.
For example, let's say you have an overdue payment of $1,000 with an annual interest rate of 10% and it is overdue by 30 days (approximately 1/12th of a year). Using the formula, the calculation would be:
Overdue Interest = $1,000 x 0.10 x (1/12) = $8.33
This means that for a 30-day overdue period, the overdue interest would amount to approximately $8.33.
Keep in mind that this calculation assumes simple interest. If the interest is compounded, the calculation becomes more complex, taking into account compounding periods. In such cases, the formula for calculating overdue interest is:
Overdue Interest = Principal Amount x [(1 + (Interest Rate / n))^(n x Time) - 1]
Where:
- Principal Amount is the outstanding balance or overdue payment.
- Interest Rate is the annual interest rate, expressed as a decimal.
- Time is the duration of the overdue period in years.
- n is the number of compounding periods per year.
It's essential to consult the specific terms and conditions of your loan or agreement to determine the precise method of calculating overdue interest, as it can vary depending on the institution or contract.
Practical Example: 01(Only for learning Purposes)
Say for example ,Raw cotton LC-120222010150,LC Value was$7,95,033.87 & LC-QTY=2,50,000 kgs where LC -Margin deducted from CD# A/C-10890(STDBL) $39,756.52@86.25 TK.34,29,000 at dated 12.04.2022.
Journal Entry for LC Margin Deposit(MD):
LC-120222010150MD debit Tk.34,29,000.00
CD# A/C-10890(STDBL)credited Tk.34,29,000.00
Journal Entry for EDF Loan creation:
Transit R/C -LC-120222010150 debited Tk .6,85,58,405.00
EDF Loan A/C no.2347-35052(STDBL) credited Tk .6,85,58,405.00
Partial Adjustment from FC -A/C- 10890(STDBL)
|
Payment date |
Amount of Dollar($) |
|
09.04.2023 |
54,900 |
|
24.04.2023 |
58,850 |
|
08.05.2023 |
10,790 |
|
11.05.2023 |
33,770 |
|
17.05.2023 |
1,08,700 |
|
25.05.2023 |
62,120 |
|
08.06.2023 |
47,000 |
|
26.06.2023 |
18,929 |
|
02.07.2023 |
87,266 |
|
05.07.2023 |
12,345 |
Total amount of partial adjustment=$4,94,670.00
Calculation of overdue days only for up to June-2023****
Since,26.06.2023 is the last payment date for the Month of June-2023 & 25.05.2022 is the EDF Loan creation date.so,
Total days already have been passed(25.05.2022 to 26.06.2023) = 396 days
(Less): Maturity days (25.05.2022 to 21.01.2023)=(241)days
That,s result Overdue days (Total days-Maturity days)(396-241)=155 days
Calculation of overdue interest for 155 days
Here, we should consider Margin deposit dollar $32,346.01 deducted from EDF Loan creation Dollar Amount$(34,29,000/106.01)=32,346.01 , because of dollar crisis bank already have taken partial adjustment against margin deposit.so Base value for over due interest is-
Base value calculation
EDF loan disbursement $=7,79,072.78
Less:Margin deposit (adjust)=(32,346.01)
Base value for overdue interest=7,46,726.77
Summary for overdues days calculation(Date wise)
|
From |
To |
Overdue days |
|
22.01.2023 |
09.04.2023 |
77 |
|
09.04.2023 |
24.04.2023 |
15 |
|
24.04.2023 |
08.05.2023 |
14 |
|
08.05.2023 |
11.05.2023 |
3 |
|
11.05.2023 |
17.05.2023 |
6 |
|
17.05.2023 |
25.05.2023 |
8 |
|
25.05.2023 |
08.06.2023 |
14 |
|
08.06.2023 |
26.06.2023 |
18(155) days |
|
26.06.2023 |
02.07.2023 |
6 |
|
02.07.2023 |
05.07.2023 |
03 |
Now we finally calculate overdue interest@11% only for up to June***
|
Base value |
Payment/adjustment |
payment date |
outstanding |
Interest |
|
779072.78 |
32,346.01 |
21.01.2023 |
7,46,726.77 |
(7,46,726.77*11%)/360*77=17568.82 |
|
746726.77 |
54,900 |
09.04.2023 |
6,91,826.77 |
(6,91,826.77*11%)/360*15=3170.87 |
|
691826.77 |
58,850 |
24.04.2023 |
6,32,976.77 |
(6,32,976.77*11%)/360*14=2707.73 |
|
632976.77 |
10,790 |
08.05.2023 |
6,22,186.77 |
(6,22,186.77*11%)/360*3=570.34 |
|
622186.77 |
33,770 |
11.05.2023 |
5,88,416.77 |
(5,88,416.77*11%)/360*6=1078.76 |
|
588416.77 |
1,08,700 |
17.05.2023 |
4,79,716.77 |
(4,79,716.77*11%)/360*8=1172.64 |
|
479716.77 |
62,120 |
25.05.2023 |
4,17,596.77 |
(4,17,596.77*11%)/360*14=1786.32 |
|
417596.776 |
47,000 |
08.06.2023 |
3,70,596.77 |
3,70,596.77*11%)/360*18=2038.28 |
|
|
|
|
|
Total overdue Interest=30093.84 |
Now we should adjust Margin deposit Ledger Account =Tk.34,29,000.00
Less: Adjusted against overdue interest($32,346.01@106.01)=(Tk.34,29,000.00)
Now LC Margin Deposit balance = Nil
Journal Entry for LC Margin Deposit(MD)(Adgusted):
Overdue interest on EDF Loan debit Tk.34,29,000.00
LC-120222010150MD credit Tk.34,29,000.00