Shreekumar Sethi (Accountant) (48 Points)
20 February 2014Hello Sir,
I want to know that suppose somebody has taken Rs.25,00,000/- as loan from a financial institution or bank with 11% P.a for 5 Years/60 months. Then how to calculate EMI with interest amount and principal amount.Already I have seen a amortization table but I can't understand that how they calculate the EMI.
So please explain in details.
CA Devanand Jethanandani
(CA)
(8003 Points)
Replied 20 February 2014
Hi Shreekumar,
1. Interest on 1st installment
Interest amount of first EMI will be Rs.22917, calculated as under
25,00,000 * 11%*1 month / 12 months
By deducting this amount (Rs. 22917) of interest from EMI you will get Principal of first installment.
2. Interest on 2nd installment
While calculating interest portion in 2nd month's installment, first you will have to deduct Principal amount of 1st installment (as per calculation above) from total loan amount (Rs.25 lacs), on balance amount apply 11% for 1 month.
Example,
suppose you EMI is Rs.50000, interest and pricipal will be as under
1 First installment
Interest Rs.22917
Principal Rs.27083 (50000 - 22917)
2. Second installment
Interest Rs. 22668 (2500000-27083) * 11% *1 month / 12 months
Principal Rs.27332 (50000 - 22668)
you will have to calculate like wise for rest of the installments
Hope this will be clear to you,
Thanks,
Devanand
Shreekumar Sethi
(Accountant)
(48 Points)
Replied 20 February 2014
Hello Devanand Sir, I have understood your above example very clearly but I don't understand that how they fix a Monthly installment EMI amount.Like you have said it in your example "suppose EMI of Rs.50,000" .
CA Devanand Jethanandani
(CA)
(8003 Points)
Replied 20 February 2014
Hi Shreekumar,
This is the formula to caluculate EMI as under
E = P×r×(1 + r)n/((1 + r)n - 1)
Where,
E is EMI
P is Priniple Loan Amount
r is rate of interest calualted in monthly basis it should be = Rate of Annual interest/12/100
if its 10% annual ,then its 11/12/100=0.009167
n is tenture in number of months
Now calculating EMI in your case,
Eg: For 25,00,000 at 11% annual interest for a period of 60 months
it comes to 25,00,000*0.009167*(1 + 0.009167)60/((1 + 0.009167)60 - 1)
= 22917.5 X 1.72895 / 0.72895
= 54357
Your EMI will be Rs.54357/-
Is it so ??
Thanks,
Devanand
sridhar
(Accountant Executive)
(30 Points)
Replied 20 February 2014
Hi Devanand Sir
Can I kow the Accouting Entries For this Issue
CA Devanand Jethanandani
(CA)
(8003 Points)
Replied 20 February 2014
Hi Sridhar,
Accounting entries,
At the time of disbursement of loan,
Property A/c. Dr. 25,00,000 (as loan amount is directly paid to the saler
hence property A/c. debited and not bank a/c.)
To Loan A/c. (liability) Cr. 25,00,000
When installment paid
Loan A/c. Dr. 31,440 (principal amount portion of EMI)
Interest A/c. (Expense) Dr. 22,917
To Bank A/c. Cr. Rs.54357
likewise entries for the rest of installments.
Thanks,
Devanand
sridhar
(Accountant Executive)
(30 Points)
Replied 20 February 2014
jitendra
(cc)
(42 Points)
Replied 05 January 2017
The best way to calculate loan and EMI is on the basis of mathematical formula:
[P x R x (1+R)^N]/[(1+R)^N-1
where P stands for the loan amount or principal,
R is the interest rate per month [if the interest rate per annum is 11%, then the rate of interest will be 11/(12 x 100)],
and N is the number of monthly instalments.
Source : https://emicalculators.in/
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