Could any one please explain, Fixed Deposit Preclosure Penalty accounting treatment for a Customer?
FD PreClosure Penalty is charged by most of the Banks @ 1 %. Interest Rate also will be applicable for the relevent tenure (that itself at a lesser rate than the rate at which FD was opened). This penelty 1% will be reduced on the reduced rate. The difference between Original Rate and the revised / reduced rate will be adjusted from the Principal and balance will be paid to the customer.
Example: Principal - Rs.1,00,000, Original Rate - 7%, Tenure - 3 Years; Cumulative on Maturity Amount - Rs.7,21,000/-
Interest Slab - 1 Year - 5%; 2 Years - 6% & >3 Years - 7%
Customer is preclosing the FD after 2 Years. Now the applicable rate is 6% Less 1% (5%) with retrospective effect.
1. Do I need to reverse the accrued income, due to decrease in Interest rate?
2. If so, Can I adjust this penalty from my assessable Interest Income?
3. What will be the scheme of entries from FD Opening till Preclosre?
CAclubindia
